Game Over Abenomics: “This Week Japan Will Acknowledge It Is In Recession”, Goldman Reveals

We have been waiting for this particular bolded sentence ever since we predicted it would take place back in December 2012 when a bunch of Keynesians, a disgraced former/current prime minister with a diarrhea problem and, of course, the Goldman Sachs’ corner suite, first unleashed Abenomics.

From Goldman’s Naohiko Baba, previewing this week’s key Japanese economic events

The Cabinet Office makes an assessment of the state of the economy based on the trend in the coincident CI, using a set of objective criteria. The August coincident CI is set to print negative mom. In this case, the Cabinet Office’s economic assessment will likely shift downward to “signaling a possible turning point” from the current level of “weakening”. According to the Cabinet Office, such a change in assessment provisionally indicates a likelihood that the economy has already fallen into recession. This is effectively akin to the government acknowledging that the economy is in recession.

And because every Keynesian lunacy has to end some time, RIP Abenomics: December 2012 – October 2014.




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War! What Is It Good For? (Hint: These 4 Companies)

As GreenLeft.org’s Peter Boyle explains,

It is a sadly familiar story: More death, pain and terror for the many translates into large profits for giant weapons making corporations.

h/t @NineInchBlade

 

Led by Lockheed Martin, the biggest US defence companies are trading at record prices as shareholders reap rewards from escalating military conflicts around the world.

Jack Ablin, chief investment officer at Chicago-based BMO Private Bank, told Bloomberg: “As we ramp up our military muscle in the Mideast, there’s a sense that demand for military equipment and weaponry will likely rise… To the extent we can shift away from relying on troops and rely more heavily on equipment – that could present an opportunity.”

More money for the war profiteers – never mind the terrible human toll.

Remote “precision” airstrikes – such as the US and its allies – including Australia, are carrying out in Iraq and Syria today, have a record of inflicting huge civilian casualties as so-called “collateral damage”.

Marc Herold, a professor of economic development at the University of New Hampshire, did a comparative study of civilian victims of the West’s war on Afghanistan. He said: “From 2006 to mid-2008, US/NATO aerial attacks killed 1,488 Afghan civilians with 1,458 tonnes of bombs, whereas between October 7 and December 10, 2001 US war planes dropped 14,000 tonnes of bombs resulting in 2,569-2,949 dead Afghan civilians (or 18-21 civilians killed per 100 tonnes of US bombs),” the Guardian reported in 2008.

The relative lethality for Afghan civilians (measured by the ratio of civilians killed per 100 tonnes of bombs) of NATO’s close air support strikes far exceeds the lethality of the US strategic bombing of Laos and Cambodia, Herold calculated. And the lethality of US airstrikes in Afghanistan between 2006-2008 exceeded by far that recorded in Vietnam, Laos, Cambodia, Yugoslavia, Iraq in 2003 and Afghanistan in 2001.

For all its deathly toll, has US/NATO bombing in Afghanistan put an end to “terrorism” in that war-devastated country? No.

But that does not concern those who protect the wealth of the super-rich. War is good for profits.

The Bloomberg’s share index for the four largest Pentagon contractors rose 19% this year, outstripping the 2.2% gain for the Standard & Poor’s 500 Industrials Index.

Bloomberg’s  Richard Clough reported that shares for Lockheed, the world’s biggest weapons maker, “reached an all-time high of $180.74 on September 19, when Northrop, Raytheon and General Dynamics also set records”.

Those four companies and the Chicago-based Boeing accounted for about US$105 billion in US military contract orders last year, according to data compiled by Bloomberg.

War generates big corporate profits and 21st century capitalism now wages a permanent war in the Third World. There is no peace in sight while this toxic system remains in place.

*  *  *

It appears the transition from Fed-sponsored economic-support back to Military-Industrial Complex-support is almost complete…




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Analysts Are Slashing Guidance Ahead Of Q3 Earnings Results

While CNBC’s Bob Pisani prevaricates on low “high” volume rally days and “the important things,” ahead of Q3 earnings and a horde of hungry commission-takers explain to a gullible public how fundamentals are strong (ignoring entirely the massive manipulation buybacks and financial engineering) and earnings will confirm the equity market’s wisdom any day now; we thought it worth a glance at the dismal evolution of earnings expectations for Q3.

 

 

Since the start of July, S&P 500 Q3 earnings expectations have collapsed from 11.0% to just 6.4% with 9 of the 10 sectors lower and Consumer Discretionary now expected to see negative growth. But… that’s probably not the important thing, right?

h/t @Not_Jim_Cramer




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Brussels Ready To Sanction France For EU Treaty-Busting Budget Plan

"What people underestimate is that what's at stake is the entire credibility of the rules," warns one EU official as The WSJ reports, is preparing to reject France’s 2015 budget, that would be the biggest test yet of new powers for Brussels that were designed to prevent a repeat of the eurozone’s sovereign-debt crisis. With the looming handover to former French FinMin Pierre Moscovici (fox, henhouse?) it appears the current European Commission will not stand for Current French FinMin Sapin's plan that would run a budget deficit of 4.3% of GDP next year (far greater than the 3% deficit it had previously promised) put France’s budget in "serious noncompliance" with the new EU rules and risking sanctions of as much as 0.2% of GDP. The credibility of Brussels' new powers threatens to be seriously undermined if big countries such as France and Italy are able to flout the new rules as "it’s not like they will try – and fail; they're actually planning not do it," another EU official said.

Germany already expressed its open hostility to both France's budget recklessness and putting a French minister in charge of EU financial planning… Germany's finance ministry exclaimed:

German Finance Minister Wolfgang Schaeuble on Tuesday rebuffed calls for Berlin to spend more to boost the euro zone economy, insisting on the need for painful structural reforms.

  • *GERMAN MINISTRY 'CERTAIN' FRANCE 'AWARE OF ITS RESPONSIBILITY'
  • *GERMAN MINISTRY SAYS EUROPE NEEDS FRANCE TO HAVE STRONG ECONOMY

Upholding the EU deficit-busting rules will now fall to Sapin's Socialist predecessor, Pierre Moscovici, an advocate of Keynesian demand-led economics, who was appointed European Commissioner for economic and monetary affairs in the new EU executive team unveiled on Wednesday.

Germany was not happy:

  • *GERMAN CDU LAWMAKER BARTHLE SAYS MOSCOVICI NOMINATION NOT A WISE DECISION

German lawmaker Norbert Barthle from Chancellor Angela Merkel’s Christian Democratic Union says appointment of Pierre Moscovici as European Union Economic and Monetary Affairs Commissioner not “a wise personnel decision.”

 

In e-mailed statement, Barthle also says:

 

“It will be interesting to see how Mr. Moscovici will deal with France’s excessive deficit”

 

“It’s now up to the commission to assess a delayed adherence to the 3% deficit limit and, where appropriate, take further steps against the country”

 

“This is where Mr. Moscovici can show that he really represents the interests of Europe”

And now, as The Wall Street Journal reports, the European Union is preparing to reject France’s 2015 budget, according to European officials, setting up a clash that would be the biggest test yet of new powers for Brussels that were designed to prevent a repeat of the eurozone’s sovereign-debt crisis.

French Finance Minister Michel Sapin said last month that his country would run a budget deficit of 4.3% of gross domestic product next year—far from the 3% deficit it had previously promised.

 

 

That could put France’s budget in “serious noncompliance” with the new EU rules, likely leading the commission to send it back to Paris for revisions, European officials said. So far, the French government has said it won’t take any extra measures beyond what it proposed in the spring, indicating it is ready to risk a public clash with Brussels.

 

 

The conflict with France could be joined by a budget fight with Italy, which has also said that it will miss agreed budget targets. Italy has more leeway because its past budgets have run lower deficits than France’s, but a senior EU official called a decision about whether to confront Italy “borderline.”

 

The credibility of Brussels’ new powers threatens to be seriously undermined if big countries such as France and Italy are able to flout the new rules – which give the European Commission the right to demand changes to proposed budgets before they are presented to national parliaments. It would signal the tough budget regime can only be imposed on the eurozone’s smaller economies, such as Greece and Portugal.

 

 

Paris and Rome argue that it makes no sense to cut budgets further in the face of their deteriorating economic outlooks. European policy makers are conscious that anti-EU sentiment in France is running high, and rejecting the budget could play into the hands of the far-right anti-EU National Front party of Marine Le Pen.

 

 

What makes France’s 2015 budget different, though, is that the budget overruns are apparent already now… “It’s not like they will try and fail; they’re actually planning not do it,” another EU official said.

*  *  *

European Dis-Union at its best…




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The “Disappointing” Impact Of Euro Devaluation On European GDP

The divergent prospects for growth, interest rates and monetary policies between the euro zone and the United States has led to a completely normal depreciation of the euro against the dollar, despite this depreciation being limited by the euro zone’s external surplus. Most observers are exuberant about this depreciation of the euro, but Natixis asks, faced with imports that the euro zone cannot do without (commodities, components manufactured outside the euro zone due to the segmentation of production processes), is it certain that it has a positive effect on euro-zone growth? Given the sensitivity of the euro zone's foreign trade (in volume terms and in terms of prices) to the euro's exchange rate, and at the historical link between the relative growth of the euro zone and the euro’s exchange rate, Natixis (devastatingly for the recovery-enthusiasts) find that the effect of a depreciation of the euro on euro-zone growth is very minor at best and, at worst, zero.

 

Via Natixis,

Normal depreciation of the euro

The outlook for growth in the euro zone is much less bright than in the United States (Chart 1, Table 1). This has led to prospects for much higher interest rates – both short- and long-term – in the United States than in the euro zone (Charts 2A and B and 3A, B and C).

Despite the euro zone’s external surplus (Chart 4A), linked to the weakness of its domestic demand (Chart 4B), this outlook for a more restrictive monetary policy in the United States points to a gradual depreciation of the euro (Charts 5A and B), curbed by the surplus in the euro zone’s current-account balance and by the role of the euro as an international reserve currency sought by central banks (Chart 6), which results in purchases of euro-denominated bonds by non-residents.

Most analysts and politicians are pleased about this prospect of a depreciation of the euro. But is it certain that a depreciation of the euro leads to more growth in the euro zone?

Euro exchange rate and euro-zone growth

So we are trying to determine whether a weaker euro leads to stronger growth in the euro zone. The doubt stems from imports that the euro zone cannot do without:

  • Commodities (Chart 7A), which represent 6 percentage points of GDP;
  • Components imported from the rest of the world due to the international segmentation of value chains (Chart 7B).

We will use two approaches:

  • Estimated elasticities of foreign trade to the exchange rate;
  • The observed historical relationship between the relative growth of the euro zone and the euro’s exchange rate.

1. Elasticity of foreign trade to the exchange rate
We estimate econometrically:

  • The elasticity of the euro zone’s exports in volume terms to the euro’s real trade-weighted exchange rate (Chart 8A);
  • The elasticity of the price of euro-zone exports to the euro’s nominal trade-weighted exchange rate (Chart 8B);
  • The elasticity of the euro zone’s imports in volume terms to the euro’s real trade-weighted exchange rate (Chart 8C);
  • The elasticity of the price of euro-zone imports to the euro’s nominal trade-weighted exchange rate (Chart 8D);

We obtain:

  • Elasticity of exports in volume terms to the real exchange rate (an appreciation is a rise in the exchange rate): -0.15;
  • Elasticity of the price of exports to the nominal exchange rate: -0.27;
  • Elasticity of imports in volume terms to the real exchange rate: +0.05;
  • Elasticity of the price of imports to the nominal exchange rate: -0.36.

*  *  *
A 10% depreciation of the euro:

  • Increases euro-zone exports by 4.2% (given the increase in their relative price);
  • Increases euro-zone imports by 3.1% (given their relative price);
  • Therefore increases the euro zone’s level of GDP by only 0.2 percentage point.

*  *  *

2. Historical relationship between the relative growth of the euro zone and the euro’s exchange rate

We look at the link between growth in the euro zone relative to the United States and to the world (Chart 9A) and the euro’s exchange rate. Chart 9B shows that growth in the euro zone relative to the United States was high in 2001 (with a weak euro) but also in 2006-2007 (with a strong euro), and then declined while the euro depreciated. Chart 9C shows that growth in the euro zone relative to the world fell from 2001 to 2003 (with a weak euro) and has since been stable. We see no link between the relative growth of the euro zone and the euro’s exchange rate.

Conclusion: Should we be thrilled about the euro’s depreciation?

The divergent prospects for growth and interest rates between the United States and the euro zone explain the euro’s depreciation despite the euro zone’s external surplus. Is the euro’s depreciation good news if we take into account the weight of the euro zone’s necessary imports? First we looked at the elasticities of euro-zone export and import volumes and prices to the exchange rate. We saw a slightly positive effect of the euro’s depreciation on real GDP in the euro zone. Next we looked at the link between euro-zone growth relative to the United States and the world and the euro’s exchange rate. It appears no such link exists.




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Why America’s Not Ready For An Ebola Outbreak (In 1 Photo)

Because nothing says “safety precautions” like rolled-up sleeves on a HazMat suit…

 

 

h/t Kirk B

*  *  *

And here is a gentleman jet-washing the puke from the pavement outside the Texas Ebola victim’s apartment building…

 




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Why Civilians Must Acknowledge the Individual Cost of War: War Letter Collector Andrew Carroll

This video was released on September 29, 2014. Here’s
the original write-up:

“We as civilians—who elect certain leaders and rally behind a
war—have an obligation to understand what we’re asking [the troops
to give up] and I hope that these letters do that,” says Andrew
Carroll, a Washington, D.C., based historian. Carroll has devoted
the past 16 years to collecting and preserving war correspondences
throughout American history.

These letters provide an intimate look into the
experiences of the men and women who have fought America’s
wars. “It’s not the president or general who’s far-removed
from the battlefield, it’s the individual who’s right there in the
trenches or in the foxholes, that’s what brings war to life,” says
Carroll.He hopes that these letters will humanize the men and
women in uniform so that “[Americans] no longer see them as just
soldiers, airman, marines, or sailors, but as somebody’s spouse or
child or parent or best friend.” 

His collection, which now contains over 100,000 letters ranging
from the Revolutionary War to the War on Terror, was recently
donated to Chapman University where it will be digitized and made
available to the public. Chapman has incorporated the letters into
their educational studies and aims to be the nation’s largest
and most preeminent archive of personal wartime correspondences.
Carroll says being a privately funded project has helped make the
experience more personal for him and for the people sending in the
letters.

“They aren’t sending in letters to some government bureaucracy.
They’re sending it to people who respond to them personally and who
read every letter. It’s very meaningful to us,” says the
historian.

The vast collection includes a letter from a young GI in Munich
who, using Hitler’s golden embossed stationary, wrote to his
parents about the horrors of Dachau he had witnessed the day
before. Another one is from a Revolutionary War soldier to his
friend, explaining the reasons why General Washington’s army must
fight for freedom. And another one was written from a young marine
in Iraq to his mom right before he was killed, thanking her for
raising him to be the man he was. The collection contains thousands
of these personal stories which serve as a somber reminder of the
horrors that war can bring to individuals and their
families. 

“I think the more we have a sense that these are actual
individuals that we’re sending off to fight, I think it’s better
for the entire country, I think it’s better for the military, it’s
better for all of us,” says Carroll. 

About 3 minutes.

Produced by Amanda Winkler. Camera by Winkler, Joshua Swain, and
Ford Fischer. 

Scroll down for downloadable versions and subscribe to Reason
TV’s YouTube
Channel
for notifications when new material goes live.

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What Will Trigger The Next Round of the Financial Crisis?

Last week we touched upon the “white elephant” in the room: that the biggest, most important bubble investors should worry about is in bonds, NOT stocks.

 

Consider the following…

 

The financial system is based on debt. US Treasuries, the benchmark for an allegedly “risk free” rate of return, is the asset against which all other assets are priced based on their relative riskiness.

 

This “risk free” rate has been falling steadily for over 25 years.

 

 

As a result of this, an entire generation of investors and money managers (anyone under the age of 55) has been investing in an era in which risk has generally gotten cheaper and cheaper.

 

This, in turn, has driven the rise in leverage in the financial system. As the risk-free rate fell, so did all other rates of return. Thus investors turned to leverage or using borrowed money to try to gain greater rates of return on their capital.

 

The ultimate example of this is the derivatives market, which is now over $700 trillion in size. This entire mess is backstopped by about $100 trillion (at most) in bonds posted as collateral.

 

This formula of ever increasing leverage works relatively well when the underlying asset backstopping a trade is rising in value (think of the housing bubble, which worked fine as long as housing prices rose). However, if the asset ever loses value, you very quickly run into trouble because you need to post more as collateral to backstop your trade. If you can’t do this easily, the margin calls start coming and you can find yourself having to unwind a massive position in a hurry.

This is how crashes occur. This is what caused 2008. And it’s what will cause the next crisis as well.

 

Despite all of the rhetoric, the world has not deleveraged in any meaningful way. The only industrialized country to deleverage since 2008 is Germany.

 

 

This is not unique to sovereign nations either. As McKinsey recently noted, there has been no meaningful deleveraging in any sector of the global economy (the best we’ve got is households and financial firms which have basically flat-lined since 2008).

 

 

In the simplest of terms, the 2008 collapse occurred because of too much leverage fueled by cheap debt. This worked fine until the assets backstopping the leveraged trades fell in value, which brought about margin calls and a selling panic.

 

The big problem however is that NO ONE got the message that leverage was a problem. Instead, everyone has become even MORE leveraged than they were in 2008. And they did this against an ever-smaller pool of quality assets (the Fed and other Central Banks’ QE programs have actually removed high grade collateral from the financial markets).

 

Thus, we now have a financial system that is even more leveraged than in 2007… backstopped by even less high quality collateral. And this time around, most industrialized sovereign nations themselves are bankrupt, meaning that when the bond bubble pops, the selling panic and liquidations will be even more extreme.

 

The next round of the crisis is coming, and it’s going to make 2008 look like a picnic.

 

If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

 

You can pick up a FREE copy at:

 

http://ift.tt/1rPiWR3

 

 

Best Regards

 

Graham Summers

 

Phoenix Capital Research

 

 




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Citi Warns “The Land Of The Rising Sun Is Setting”

In the "land of the rising sun," Citi FX Technicals group warns, the sun also goes down sometimes. The present set up on the monthly and daily charts on USDJPY suggests it is time to be cautious, with real danger that we could be 'on the cusp' of a material correction lower for the first time in this 3-month rally. A move as low as 105.50 is not out of the question and that is terrible news for Japanese stocks and Abe's approval ratings.

 

Via Citi FX Technicals,

Given the magnitude and speed of the USDJPY move last month it is worth looking at the long term “log” chart for guidance. When we do, we are a little bit cautious in the near term.

Why?

Our target for the end of 2014 has been around 110.50-111.00 and the speed of the move in the last 3 months has brought us close to that range quicker than we would have expected.

There is major resistance above here on this chart from 110.34-110.66 (76.4% pullback of the 2007-2011 fall, horizontal resistance from the March-August 2008 bounce and trend line off the 2002 and 2007 peaks.)

In addition, as we have surged higher last month there is a real danger that we now see triple momentum divergence on the monthly USDJPY chart which could suggest a material correction.

Add to this the rise in “EM” jitters, “Equity market” jitters , “Newport Beach” jitters and it seems only a matter of time before we hear a crescendo of “risk off” comments- (not traditionally good for USDJPY)

(In August-October 1998… a period we are very focused on historically the 2 prongs of concern were Russian default and LTCM leverage…..history does not repeat but it often rhymes)

It seems to us that it may be a good time to exit JPY short positions and let the “dust settle” for a while”

October 2013- Jan 2014: (Q4,2013)

  • Up move in USDJPY begins in the 2nd week of the 2nd month of the quarter
  • Rally peaks on the first full trading day of the next quarter (02 January)
  • Rally is 889.5 pips over 86 days
  • Correction begins on the first full trading day of the new quarter as USDJPY posts a bearish outside day at the peak of the up move.
  • This sees the Q3 rally being corrected by 50% before USDJPY bottoms out

July 2014- Oct 2014: (Q3, 2014)

  • Up move in USDJPY begins in the 2nd week of the 2nd month of the quarter
  • Rally peaks on the first full trading day of the next quarter (01 October)
  • Rally is 902.5 pips over 83 days
  • Correction begins on the first full trading day of the new quarter as USDJPY posts a bearish outside day at the peak of the up move.
  • If we were to see the Q4 rally being corrected by 50% before USDJPY bottoms out that would suggest a move to 105.48, possibly over the next month.

This last leg up has not had yield support

Weekly chart is showing an evening star like pattern very similar to that seen as the Nikkei peak at the end of Dec 2013 (Same point that the USDJPY rally was close to an end)

The rise in implied volatility seems to have paused (3 month) 3 weeks ago.

As in 2012-2013 that rise in volatility gave a good signal of a potential break higher in USDJPY

In Feb 2013 as the move up in volatility paused USDJPY initially continued higher before we saw a quick high to low correction of 4.12%. A similar correction this time off the present trend high of 110.09 would take us to 105.55 in USDJPY (The suggested corrective target in the daily chart above comparing this move to Q4, 2013.)

We also saw the rise in implied volatility stall ahead of the 2 Jan 2014 peak in USDJPY

All this suggests that at this point the short JPY trade does not look to have a great “risk versus reward” dynamic




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