Why One Trader Believes The BOJ Made A “Massive Misstep”

US stocks may have already forgotten about the dramatic collapse in Japanese equities and the surge in the Yen which wiped out months of profits from macro funds (and certainly the latest GDP miss) with the S&P wiping out some 15 points in losses in 36 minutes, but for Japan the hangover from Kuroda’s lack of action last night remains, because according to Mark Cudmore, former FX trader who currently writes for Bloomberg, the BOJ made a massive misstep. Here’s why.

The BOJ’s Massive Misstep

 

It’s hard to avoid the conclusion, confirmed by the price action, that the Bank of Japan messed up today. The magnitude of the surprise means there’ll be follow-through in asset reaction, including yen strength, but ultimately this makes the long-term prognosis for the currency even more negative.

 

Even if keeping policy unchanged might once have been the correct decision, it’s not now. The failure to deliver, especially after Governor Kuroda’s comments about currency appreciation had driven hopes for further easing so high, is terrible news for the Japanese economy. Not to mention a further blow to the BOJ’s credibility.

 

The immediate surge in the yen and the panicked sell-off in equities were the most obvious examples of trader disappointment. And the currency’s rally will put further downward pressure on both growth and inflation.

 

It’s important to distinguish between the short-term surprise, which is bullish yen, and the longer-term consequences of the “mistake.”

 

Short-term, the lack of easing is currency supportive. However, the bigger picture is that the BOJ is extending the Japanese economic slump. And, eventually, that will either directly feed through to currency weakness or compel the central bank to deliver a much bigger policy surprise.

 

Japan’s government debt pile is roughly 250% of GDP. About 41% of tax revenue goes to debt servicing. The country needs inflation desperately. The BOJ today said it’s going to take longer to arrive. That means consensus 2016 growth and inflation forecasts, of 0.5% and 0.3% respectively, are likely to be revised down further.

 

Don’t fight the yen rally today. The 18-month low in USD/JPY, of 107.63, may now be vulnerable, especially in the context of last night’s dovish Fed statement. But don’t confuse momentum with fundamental strength.

Then again, all the algos need to hear to fight the yen rally is to be told not to fight it and sure enough that’s precisely what they have been doing since the open today, and as of moments ago we are already nearly 100 pips off the lows because of “hope.”

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Key Gold Index Doubles In 2016 (But Nobody Noticed)

Submitted by Pater Diekmeyer via SprottMoney.com,

Gold investors learn early that one of the best ways to leverage their exposure is to buy gold stocks. That strategy has performed well recently. As of Friday, the NYSE ARCA Gold Bugs Index , which trades under the symbol HUI, had nearly doubled since its January low. The index far out-performed the yellow metal itself, which increased in the low double digits.

However, as one expert points out, while the hard money community followed the rise every step of the way, the public is totally unaware. “ Mainstream media and leading economists throughout 2015 ridiculed gold “bugs,” said Marc Faber , editor of the Gloom, Boom and Doom Report . “They now find it embarrassing to talk and write about gold stocks, which are up by approximately 100% in 2016.”

A quick search of Google News suggests that Faber is right. Entry of a range of key “gold” and “stock” related words into the search engine revealed not a single prominently ranked story dealing with the breadth of the index’s* broad-based rise, which was led by issues ranging from Barrick to Kinross, Agnico and many more.

Nobody cares

Grant Williams, producer of RealVisionVideos and publisher of a financial newsletter titled Things that make you go hmmm, agrees. “The public are generally the last people to catch on when a bull market begins,” said Williams, a phrenic global traveler, in a telephone call from the Cayman Islands, where he was making his office that day.

“People don’t care about gold,” said Williams. “They care about a rising gold price. And they generally only find out that is happening once the media catches on. By that time much of the major gains have already been made.”

Revenues up, costs down

The biggest drivers of the rising price of gold stocks appear to be strengthening fundamentals. Key among these is the rising value of the commodity itself. The fact that gold is priced in strengthening US dollars, means that when producers convert their revenues to local currencies, they generally also profit from a foreign exchange advantage.

On the other hand, many producing countries, such as Canada have seen a relative decline in many production costs. These include employee salaries, which while high in global terms, are priced in local currency. In addition, although oil prices, which are a significant expense in many mines, have been strengthening lately, their secular weakness has been particularly good for mining companies’ bottom lines.

Gold mining share prices are also being driven up by many of the same forces which are pushing up the prices of hard assets in general. These include increasingly desperate actions by global central banks, particularly the European Central Bank and the Bank of Japan, which – through moves to write off their debts by means of negative interest rates – are de facto defaulting on their obligations.

Can mining stocks go higher?

That said, as Grant Williams points out, despite their promising start to the year, it is far from certain that mining stocks will continue to rise, and that the sector has turned the corner. For one, many investors were burned badly during the bear market of the past six years and it will take time for memories to fade. “Even if mining stock momentum has shifted, these transitions usually come with considerable volatility,” says Williams. “They are thus unlikely to go up in a straight line.”

Coming months will give us a far better clue as to how far the trend is entrenched. All we know right now is that the general investing public, and mainstream media, remain out of the picture.

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John Boehner Calls Ted Cruz “A Miserable Son Of A Bitch, Lucifer In The Flesh”

Is the establishment’s fervent hatred of Donald Trump starting a U-turn? It may be early to know just yet, however at least one core Republican, former house speaker John Boehner, had made it very clear he is not a fan of Ted Cruz. At all. So much so that according to NBC the former Republican House Speaker told an audience at Stanford University Wednesday that the Texas senator is “Lucifer in the flesh” and a “miserable son of a bitch.

When asked about the 2016 presidential candidate at a forum hosted by Stanford in Government and the Stanford Speakers Bureau, Boehner drew laughter for making a face of disgust, according to the Stanford Daily.

“Lucifer in the flesh,” Boehner said cited by the paper. “I have Democrat friends and Republican friends. I get along with almost everyone, but I have never worked with a more miserable son of a bitch in my life.

Boehner’s shocking statement came because he was urged by the event’s moderator, Professor David M. Kennedy, to be frank because the event was not being broadcasted. Perhaps Boehner did not realize people were still taking notes.

Curiously, and an indication that the GOP faithful may be turning in their support for Trump, the former Ohio lawmaker had kinder words for his “texting buddy” Donald Trump, with whom Boehner has played golf with for “years.” He said John Kasich was a “friend” too, although he suggested that the relationship takes “more effort” than others. “[Kasich] requires more effort on my behalf than all my other friends … but he’s still my friend, and I love him,” Boehner said.

As the Hill reminds us, Cruz was a thorn in Boehner’s side during several standoffs with the Obama administration, and some of his actions likely cost Boehner support from his own conference. Cruz met with House members of the conservative Freedom Caucus — an unusual move for a freshman senator — in 2013 and pushed them to fight to defund ObamaCare. The effort eventually led to a government shutdown that hurt the GOP. Boehner reportedly called Cruz a “jackass” over the issue.

At Stanford, a Boehner unburdened by the shackles of the office reportedly garnered laughter and smiles from the attendees as he struck a more informal tone than in most of his past previous appearances.

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Why Real Reform Is Now Impossible

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The endless bleating of well-paid pundits in the corporate media about "reform" is just more circus.

It's difficult for well-meaning pundits to abandon the fantasy that meaningful reform is possible. Indeed, a critical function of the punditry and corporate media is to foster the fantasy that the status quo could be reformed if only we all got together and blah blah blah.

As I explain in my new book Why Our Status Quo Failed and Is Beyond Reform, real structural reform would trigger the collapse of the status quo. (As a reminder, the status quo benefits the few at the expense of the many.)

But there's another dynamic that makes reform impossible. I've prepared a chart to explain this dynamic:

Central banks have transformed the market–in stocks, bonds, commodities and risk–into the signaling mechanism that tells us all is well. Even though the real-world finances of the bottom 95% continue deteriorating, a rising stock market and suppressed measures of risk signal that the economy is doing well. If you're not doing well, it's your personal problem; the status quo is fine and needs only minor tweaks.

Elevating the market into the oracle of economic health creates a systemic risk: If the market tanks, the status quo is called into question. People start asking, is it truly a wonderful arrangement that benefits us all, or is it really just a skimming machine that funnels money and wealth from the many into the voracious maws of the few?

Central banks thwart this existential danger to the status quo by rescuing the market every time it approaches the market clearing event level. (see chart) In a market clearing event, risky loans and bets are liquidated, credit dries up, risk soars and the price of assets falls to levels that once again make fundamental sense.

Market clearing events are a necessary part of a healthy credit and asset-allocation system. If the market is never allowed to clear away the dead wood of mal-investments, high leverage, nose-bleed valuations, bad bets and risky loans that should never have been issued, all this dead wood eventually chokes off healthy expansion.

The problem for central banks is a market clearing event pushes markets to levels that call the entire travesty of a mockery of a sham status quo into question. That is too dangerous to risk, so central banks quickly defend the fantasy that markets only drift higher, stopping any market clearing event in its tracks.

This leaves the economy increasingly vulnerable to the financial equivalent of an uncontrollable forest fire that burns away all the collected dead wood that has been protected by the central banks.

At some difficult to predict point, a random financial flame ignites the accumulated dead wood and the markets are torched in a conflagration so intense not even massive central bank intervention can extinguish the flames.

Structural reform is only possible when markets and sentiment crash far below the market clearing event level. Meaningful reform only becomes politically, economically and socially possible when the status quo has failed so obviously and so painfully that even its most entrenched defenders concedes that the choice has boiled down to either full-blown revolution or meaningful reforms that limit the power of the few at the top of the wealth/power pyramid.

The pyramid by the number of people in each wealth bracket:

The pyramid by the assets and income held by each wealth/income bracket:

But the process of real reform is quickly hijacked by vested interests once the markets recover back to the market clearing event level. Once the crisis has passed, the well-oiled machine of lobbying, grift, graft and campaign contributions kicks into gear and waters down or co-opts the reforms into PR facades designed to fool the masses into believing the reforms will work as advertised (for example, all the "reforms" passed in the aftermath of the 2009 meltdown: thousands of obfuscating pages of Obamacare, bank regulations etc.)

The only time meaningful reform is possible is in a crisis that reveals the true nature of the status quo, and central banks will create as many trillions of dollars, yen, yuan, euros etc. as are needed to erase that moment of clarity and truth.

The endless bleating of well-paid pundits in the corporate media about "reform" is just more circus designed to distract us from the much colder truth: the status quo is beyond reform. The choice is either collapse or well, collapse: letting the status quo strip-mine the bottom 95% will eventually lead to collapse and so will structural reforms that deprive the few of their power to create near-infinite sums of money and credit for their cronies.

*  *  *

My new book is #2 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, a 20% discount thru May 1, $8.95 print edition) For more, please visit the book's website.

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What Americans Spent The Most Money On In Q1

As reported moments ago, Q1 GDP which came at just 0.5% growth, was a lousy number in which virtually every component besides personal spending (and government) subtracted from growth. In fact, in nominal terms, Q1 GDP grew only $22.2 billion annualized, of which personal consumption was more than double, or $52.5 billion.

But what did Americans spend money on in Q1? To our surprise, Healthcare, Obamacare was no longer what soaked up most Americans’ cash in the first quarter (nonetheless, it was a runner up with $10.8 billion in spending).

So what did they spend the most amount of money on? The answer, drumroll…. Recreational goods and vehicles. Not cars, which actually were a huge negative to Q1 GDP growth, reducing the headline consumption number by $13.4 billion nominal, but recreational vehicles, and other sundry related goods, which amounted to to $11.3 billion in Q1 spending.

It appears that after spending record amounts of money on their health insurance premiums, US consumers just can’t get enough of various “recreational” distractions such as RVs, ATVs and jet skis, and have made “recreation” the biggest source of growth in the US economy. Incidentally, net of other items, the entire Q1 GDP growth was covered solely by spending on Healthcare and Recreational goods and vehicles.

Summarizing the Obama economy: health insurance and jet skis, for waiters and bartenders.

Here is the full breakdown.

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US Economy Grew At Just 0.5% In Q1, Missing Expectations, Lowest Growth Rate In Two Years

“Did the Fed have an advance glimpse at Q1 GDP?”

That was a question everyone was asking yesterday when the Fed came out with another not too hawkish statement. The answer may have been yes because moments ago the BEA reported that the US economy grew at just a 0.5% annualized rate in the first quarter, missing expectations of a 0.7% growth rate, growing at half the rate recorded in the 4th quarter, and the lowest quarterly growth rate since Q1 2014 (when the winter was blamed for a negative print). It was also the third consecutive quarter of GDP declines.

 

The breakdown of components was mixed: while personal consumption rose 1.9% q/q, it contributed only 1.27% to the bottom GDP line, the weakest spending contribution since Q1 of 2015. What was more troubling was the impact from all the other components:

  • Fixed Investment subtracted 0.27% from the annualized GDP print, the first negative CapEx print since Q1 2011
  • Inventories, as expected, subtracted another 0.33% from the annualized number, following last quarter’s -0.22% decline
  • Trade (net exports and imports) was another negative contribution, cutting the final number by another 0.33%
  • Government was perhaps the only bright side, adding 0.2% to the GDP print up from 0.2% in the prior quarter.

Visually:

 

Needless to say, this is hardly the backdrop for the Fed to unleash even more tightening, and we expect the market to trade appropriately, because after all bad news is bad news.

Incidentally, this is how today’s latest economic disappointment will be spun by the career economists and sundry permacheerful pundits:

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Stockman: Anything Trumps Hillary

Submitted by David Stockman via Contra Corner blog,

It’s all over except the shouting. That is, the primary election season effectively ended last night and now the actual shouting match between Hillary and The Donald begins.

This will surely be the most entertaining election in US history, and probably the most pointless, too. After all, Hillary wants to use government to make Government Great Again. And Trump promises to use government to make America Great Again.

But government doesn’t make anything great, including itself. It is a necessary evil that always and everywhere is driven toward self-aggrandizement and mission creep by the politicians and special interest lobbies which control its operations.

What government actually does is thwart the capacity of the people to pursue their own vision of greatness by encumbering their economic lives with burdensome taxation, regulation, roadblocks to opportunity and monetary fraud while saddling their public lives with endless Nanny State impositions and encroachments upon their personal liberty.

And, most especially, what the central state does in its current incarnation as Imperial Washington is to sabotage national greatness, not foster it, and saddle the economically listing American nation with a debilitating $800 billion national security apparatus that is wholly unnecessary.

The latter has long since morphed into a Warfare State leviathan. It pursues senseless and destructive foreign interventions that erode, not enhance, the safety and security of American communities. It impairs constitional liberties at home under cover of exaggerated and often contrived threats of terrorism. And it breeds blowback and terrorism aboad wherever its drones, bombs, occupations and covert machinations intrude in matters that are none of our business.

But of course that is exactly what Hillary’s candidacy is all about. Namely, insinuating the American state even more deeply and destructively into matters which are none of its business, and doing so at home and abroad with equal similitude.

Hillary Clinton allegedly protested the Vietnam War before becoming a Republican summer intern in 1967, but to my knowledge that was the last war she didn’t embrace. She was an enthusiastic backer of Bill Clinton’s feckless military interventions in the Balkans during the 1990s and a signed-up hawk for George Bush’s catastrophic wars in Afghanistan and Iraq.

As Donald Trump rightly says, her time as Secretary of State was an unmitigated disaster. The “peace candidate” actually won the 2008 election, but Secretary Clinton along with lifetime CIA operative and unabashed war-monger, Robert Gates, saw to it that peace never got a chance.

From the pointless, bloody “surge” in Afghanistan to the destructive intervention in Libya to the arming and aiding of jihadist radicals in Syria, Hillary has proved herself to be a shrill harpy of military mayhem. Indeed, she brought a fillip to the neocon playbook that has made Imperial Washington even more trigger happy.

To wit, Clinton has been a tireless proponent of the insidious doctrine of R2P or “responsibility to protect”. No one in their right mind could have concluded that the aging, pacified, tent-bound Moammar Khadafy was a threat to the safety and security of the American people. Even the community organizer from South Chicago wanted to keep the American bombers parked on their runways.

But Hillary’s infamous emails leave no doubt that it was she who induced Obama to embrace the folly that quickly created yet another failed state, hotbed of jihadism and barbaric hellhole in the middle east. Indeed, her hands are doubly bloody.

When Hillary bragged that “We came, we saw, he died”, it turns out that not just Khadafy but thousands of innocents have died, and not just from the chaos unleashed in Libya itself. The former dictator’s arsenals and mercenaries have now been dispersed all over North Africa and the middle east, spreading desolation in their wake.

Indeed, the CIA annex in Benghazi was actually in the business of recycling Libyan weapons to the jihadists in Syria through the ratline to Turkey. Is there any possibility at all that this would have happened, and that Ambassador Stevens would have been murdered, had Hillary not put the shive to Khadafy’s backside?

And then there is the ultimate proof that Hillary is an unreconstructed warfare statist who would bury America deeper in foreign quagmires and fiscal chains. To wit, she has become so blinded by the parochial delusions of Imperial Washington that she actually likened Vladimir Putin to Adolf Hitler.

C’mon. The man’s a monumental crook and no model citizen of the world, but he is no threat to American security whatsoever.

He presides over a third rate economy no larger than the GDP of the New York SMSA that essentially consists of a complex of petroleum fields, grain farms and metal mines and a lethargic work force with a fondness for Vodka.

Until the constitutionally elected government of Ukraine was overthrown by a Washington funded mob of  economically deprived citizens, disgruntled nationalists and crypto-Nazi agitators in February 2014, Putin was basking in the glory of the Sochi Olympics and having petty quarrels with the crook who took-over the tiny state of Georgia after the Soviet Union disappeared. The world disdained his oafish character, but no one claimed that he was fixing to invade Europe.

At the same time, any one who knew the slightest thing about Ukraine’s history and its long co-existence in the shadow of Mother Russia understood that bringing it into NATO was a decidedly stupid idea, and that threatening Russia’s rented naval homeport in Sevastopol, Crimea was sheer folly.

Not Hillary. She was soon at the barricades justifying the folly of the NATO confrontation with Russia and the self-defeating economic sanctions against Putin.

Even though she was out of office and in a position to recognize that the very same “partition” solution that had led to the severance of Kosovo from Serbia during the 1990s could have solved the Donbas and Crimea issues, she was having none of it.

Instead, by her lights NATO, which should have been disbanded after 1991, needs to go to the brink with Putin over essentially a Ukrainian civil war. And that’s just for starters.

Hillary keeps advocating a “no-fly” zone in Syria, but the Islamic State butchers don’t even have an air force.  So her so-called “humanitarian” no fly zone is just another way to confront Putin.

Indeed, it’s designed to stop him from aiding the constitutionally sanctioned and secular government of Syria that has invited Russian help. Yet Hillary is so besotted by the beltway fatwa against Bashar al-Assad that she is oblivious to the fact that the Russian/Iranian/Syrian alliance has done more in a few months to weaken ISIS and its jihadist confederates than has Washington’s feckless bombing campaigns and futile attempts to arm “moderates” and organize a coalition of the region’s unwillings during the last two years.

Meanwhile, on the other side of the Potomac, Hillary wants to make Big Government even greater. Indeed, her victory speech last night was more or less an ode to free stuff.

Students who borrow hand-over-fist are going to be let off the hook, while social security beneficiaries who already receive far more than they paid in are going to get a raise.

So are workers who are desperately hanging on to entry level part-time jobs. Hillary is going to raise their wages to $15/hour, and presumably then supply them with unemployment benefits, food stamps and Medicaid when their jobs are off-shored or robotized.

And when it comes to the most destructive “free stuff” of all, Hillary will surely be all-in. That is, she will not lift a finger to stop the Fed’s 88 month running gift of free money to the Wall Street casino.

Yes, she apparently did “Feel The Bern” and has a deck full of empty talking points about how a Clinton Administration will be there for main street, not Wall Street.

No it won’t. Hillary Clinton has spent a lifetime milking and promoting the state.

She has no clue that it is the state itself in the form of the rogue central bankers now ensconced in the Eccles Building that is creating the wealth and income mal-distribution and rampant unfairness which she denounces; and which is strangling American capitalism and the opportunities to advance for the traditionally left behind and the recently fallen behind that she so stridently voices from the podium.

If Hillary really wanted to stop Wall Street’s unspeakable windfalls and bring a modicum of economic hope back to main street, of course, she would demand Janet Yellen’s resignation and promise to clean house among the enablers of casino capitalism at the Fed.

But as the Donald might say, “it’s not going to happen”.

So is there any chance at all that Trump will make America Great Again by erecting trade barriers, a Trump Wall on the Rio Grande and an end to America’s imperial beneficence and meddling abroad?

Stayed tuned. There may be more to The Donald than meets the eye.

And whatever it is, it certainly trumps Hillary’s deplorable purpose to make Imperial Washington an even greater menace both abroad and at home.

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Priceline CEO Resigns After Revelation Of Inappropriate “Personal Relationship With An Employee”

Every several years, a CEO is forced to “resign” after an “inappropriate personal relationship” with a coworker is uncovered (usually at the behest of the coworker). Three years ago it cost the job of Lockheed Martin’s income CEO. Moments ago it took down Darren Huston, the CEO of Priceline who has resigned from the Company, effective immediately.

This was the reason for the resignation, according to the press release:

Mr. Huston resigned following an investigation overseen by independent members of the Board of Directors of the facts and circumstances surrounding a personal relationship that Mr. Huston had with an employee of the Company who was not under his direct supervision.  The investigation determined that Mr. Huston had acted contrary to the Company’s Code of Conduct and had engaged in activities inconsistent with the Board’s expectations for executive conduct, which Mr. Huston acknowledged and for which he expressed regret.

This traditionally is the press release equivalent of being accused of and caught cheating.

The Company also announced that current Booking.com President and Chief Operating Officer Gillian Tans has been named Chief Executive Officer of Booking.com, a Priceline Group subsidiary, replacing Mr. Huston who also served as CEO of this business unit.  Ms. Tans has been a leader at the company since 2002, most recently serving as Booking.com’s President since January 2015 and Chief Operating Officer since September 2011, responsible for leading the development and execution of Booking.com’s business strategy and directly overseeing all aspects of the brand’s operations.

What else:

the Company has appointed former CEO and current Chairman Jeffery H. Boyd as Interim Chief Executive Officer and President of The Priceline Group while the Board conducts a search to name a successor. Mr. Boyd is a 16-year veteran of The Priceline Group, previously serving as President and Chief Executive Officer from 2002 to 2013, during which time he led the Company through a period of significant global expansion and growth in stockholder value.

 

James M. Guyette, Lead Independent Director, said, “I am satisfied with the Board’s thorough review of this issue.  The performance of the business under Darren has been strong, and the Company is very well-positioned to continue executing on its strategy for growth.  Jeff is deeply familiar with the Company’s strategy and leadership team, which consists of highly accomplished entrepreneurs and seasoned professional executives with long-tenure in the business.  We are confident the Company is in strong hands while we conduct a search for a new CEO.”

Which is sad: a far more appropriate replacement CEO would have been the following.

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