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Abenomics 'hope' and 'reality' explained by Diapason Commodities' Sean Corrigan – do you believe in miracles? After last night's Japanese GDP print, hope is all that is left.

So, if the BOJ can just move prices up for long enough, people will start to demand higher wages while companies will gladly accede, since they will be able to count on the Bank printing enough new money for them to meet the extra expense. As such higher wages are spent, this will mean that both the employers’ sales and, miraculously, their profits will increase to the extent that they will soon be jostling to hire more of these nominally costlier workers.

 

Somehow or other, wages will outstrip prices (so avoiding a disastrous fall in real incomes) yet payrolls will rise alongside wages since profits will outpace the gain in the outlay on labour.

 

Moreover – and here we get to the crux of the issue – though all this new cash is being generated by monetizing vast, ongoing government deficits, the debt stock will rise more slowly than prices, so postponing, if not indeed averting, the nation’s long feared budgetary implosion as it is painlessly inflated away.

 

Oh – and there will be no first-user Cantillon inequities, no unintended consequences, no spill over to other countries, no undue enrichment or undeserved immiseration of any member of the domestic populace along the way.

Truly Kuroda-san is a mage of the highest order!

Sadly, however, the government’s own figures show that real wages have been falling ever since the start of 2012 and now lie more than 7% below the pre-Crash level and 12% beneath the mid-90s peak.

 

Hours worked, too, are struggling to stabilize at levels less than 1% above the Crisis lows, 4% below the previous high and fully one sixth below their Bubble best.

As for profits, well the Tokyo Shoko Research institute revealed that the rise in costs principally associated with the weaker yen had led to a 140% jump in recorded bankruptcies of SMEs, 40% of those being (unsurprisingly) in the transportation industry, and around 20% in each of manufacturing and wholesale.

Meanwhile, the Nikkei news reported that, among their bigger brethren, life was not entirely a bed of roses, either.

While overall group profits were up 10% yoy (if only in depreciated yen terms) for the 1,106 listed companies that had filed reports for the fiscal first half. However, closer inspection shows that just one of these – Softbank, luxuriating in its participation in the gangbuster Alibaba IPO – was alone responsible for more than a quarter of the Y1.34 trillion increment, while the next nine most profitable – mostly the giant export concerns, of course, accounted for another 55% of the improvement. That left a paltry Y240 billion uptick to be shared out among 1,096 others for an average gain of Y219 million or $1.9 million at current exchange rates.

 

Is it any wonder there is no real improvement in well being or that Kuroda came within a whisker of being the only governor in BOJ history to lose such a vote last month when he bounced his colleagues with his intention to double down?

One could be cynical here. It may well be that the regime has a bare plurality of arrows – and Abe may even stop one of those (the one which carries the sales tax hike) in mid-flight – but it is also clear that it has decidedly only one string to its bow. Thus, the suspiciously-timed complement to this exhibition of monetary monomania came in the form of the long-awaited shake up of the giant GPIF pension allocation.

Conveniently, this redistribution will both ensure a ready supply of JGBs for the Bank to rake in and temporarily enrich local shareholders and ESOP executives as the equity market receives the proceeds, all the while keeping downward pressure on the Yen .

…

As our good friend Jim Walker asked, just when did Central Bankers become world media superstars and when – here we paraphrase – when do we get to put them back in their box? We could not agree more. Strutting the world stage, flitting from press conference to rubber chicken dinner, dispensing what passes for wisdom and prognosis as if the court astrologers have toppled the mighty Nebuchadnezzar and now rule in his place. Whatever happened to discreetly overseeing the balance of payments and facelessly staunching the worst panics only when absolutely necessary? The Committee that Saved the World, indeed!

Partly one could argue that their emergence into the limelight is a reflection of Generation Twitter's carefully cultivated hunger for comic-book plots and spandex-clad superheroes to protect us poor sheep from terrors beyond our limited ken – though I am doing the writers of much of the genre a disservice by comparing their often multilayered work to the crude, Statist narratives peddled mindlessly by the mainstream Western press.

Partly, too, it's symptomatic of the general drift to reliance on one-eyed, one-size-fits-all policy making, replete with gross unconstitutionality and Full Spectrum Führerprinzip of which our friend in the Kremlin so rightly accuses his American adversaries. Think QE instead of the cluster bomb as the weapon of choice.

*  *  *
But we leave it to Michael Pento (author of the book "The Coming Bond Market Collapse") via Pento Portfolio Securities to explain why Japan's Last Stand is the portent for Keynesian Collapse…

There is a popular American military term called a “last stand”, which is meant to describe a situation where a combat force attempts to hold a defensive position in the face of overwhelming odds. The defensive force usually sustains very heavy casualties or is completely destroyed, as happened at Custer’s Last Stand. General Custer, misreading his enemy’s size and ability, fought his final and fatal battle of Little Bighorn; leading to complete annihilation of both himself and his troops.

 

The Japanese government is now partaking in a truly incredulous measure to expand its QE program in a desperate attempt to de-value its currency and re-inflate asset bubbles around the world.  In other words, Japan is constructing its own version of a “last stand”.

 

In a final attempt to grow the economy and increase inflation, Japan announced a plan to escalate its QE pace to $700 billion per year. In addition to this, Japan’s state pension fund (the GPIF), intends to dump massive amounts of Japanese government bonds (JCB’s) and to double its investment in domestic and international stocks. All this in a foolish attempt to increase inflation, which Japan mistakenly believes will spur on economic growth. But these failed policies have now caused Japan to enter into an official recession once again, as GDP fell 1.6% in Q3 after falling 7.1% in the previous quarter.

 

Japan is now guaranteed to be successful in the total destruction of its currency, the complete destruction of its economy and the collapse of the markets it is attempting to manipulate around the world. To fully understand its misguided reasoning, we have to explore how Japan got here in the first place.

 

Coming out of WW II, Japan enjoyed a three-decade period referred to as its “Economic Miracle”.  This “miracle” was instigated by a booming post-war export economy helped by prudent fiscal policies, which was meant to encourage household savings. Japan’s standard of living soared among the highest in the world.  Japan sailed into the 1980’s on the wave of robust economic growth.

 

However, if we have learned one thing after all these years, it’s Government’s insatiable need to meddle with the free market, even when they don’t need to.  Accordingly, the 1985 Plaza Accord was sought to weaken the U.S. dollar and German Deutsche Mark against the yen.

 

The Bank of Japan, in an attempt to offset the rising yen, drastically reduced interest rates. The BOJ’s loose monetary policy in the mid-to-late 1980s led to aggressive speculation in domestic stocks and real estate, pushing the prices of these assets to astonishing levels. From 1985 to 1989, Japan’s Nikkei stock index tripled to 39,000 and accounted for more than one third of the world’s stock market capitalization.

 

By the late 1980s, Japan had transitioned from a “miracle” economy to its infamous bubble economy, in which stock and real estate prices soared to stratospheric heights driven by a speculative mania. Japan’s Nikkei stock market hit an all-time high in 1989, then crashed, leading to a severe financial crisis and long period of economic stagnation that Japan is still entrenched in. It has now become known as Japan’s “Lost Decades.”

 

Shortly after the bubble burst, Japan embarked on a series of stimulus packages totaling more than $100 trillion yen–leaving an economy that was once built on savings to eventually be saddled with a debt to GDP ratio that now exceeds 240%–the highest in the industrialized world.

 

Making matters worse, the BOJ has more recently engaged in an enormous campaign to completely vanquish deflation, despite the fact that the money supply has been in a steady uptrend for decades. At the end of 2012, we were introduced to Abenomics, which is Premier Shinzo Abe’s plan to put government spending and central-bank money printing on steroids. His strategy is crushing real household incomes (down 6%) and caused GDP to contract 7.1% in Q2.

 

With the rumored delay of its sales tax, Japan is clearly making no legitimate attempt to pay down its onerous debt levels. Therefore, one has to assume this huge addition to their QE is an attempt to reduce debt through devaluation and achieve growth by creating asset bubbles larger than the ones previously responsible for Japan’s multiple lost decades. This will not return Japan back to the days of its “economic miracle”, where the economy grew on a foundation of savings, investment and production.

*  *  *

As Pento concludes,

The sad reality is that Japan is quickly surpassing the bubble economy achieved during the late 1980’s. Its equity and bond markets have become more disconnected from reality than at any other time in its history. The nation now faces a complete collapse of the yen and all assets denominated in that currency.

 

This is clearly Japan’s last stand and there is no real exit strategy except to explicitly default on its debt. But an economic collapse and a sovereign debt default on the world’s third largest economy will contain massive economic ramifications on a global scale. Japan should be the first nation to face such a collapse. Unfortunately; China, Europe and the U.S. will also soon face the consequences that arise when a nation’s insolvent condition is coupled with the complete abrogation of free markets by government intervention.

via Zero Hedge http://ift.tt/1F02fa4 Tyler Durden

Back in March, at a time when the IMF reported that Ukraine’s official gold holdings as of the end of February, so just as the State Department-facilitated coup against former president Victor Yanukovich was concluding, amounted to 42.3 tonnes or 8% of reserves…

… and notably under the previous “hated” president, Ukraine gold’s reserves had constantly increased hitting a record high just before the presidential coup…

 

… we reported of a strange incident that took place just after the Ukraine presidential coup, namely that according to at least one source, “in a mysterious operation under the cover of night, Ukraine’s gold reserves were promptly loaded onboard an unmarked plane, which subsequently took the gold to the US.” To wit:

Tonight, around at 2:00 am, an unregistered transport plane took off took off from Boryspil airport. According to Boryspil staff, prior to the plane’s appearance, four trucks and two cargo minibuses arrived at the airport all with their license plates missing. Fifteen people in black uniforms, masks and body armor stepped out, some armed with machine guns. These people loaded the plane with more than forty heavy boxes.

 

After this, several mysterious men arrived and also entered the plane. The loading was carried out in a hurry. After unloading, the plateless cars immediately left the runway, and the plane took off on an emergency basis.

 

Airport officials who saw this mysterious “special operation” immediately notified the administration of the airport, which however strongly advised them “not to meddle in other people’s business.”

 

Later, the editors were called by one of the senior officials of the former Ministry of Income and Fees, who reported that, according to him, tonight on the orders of one of the “new leaders” of Ukraine, all the gold reserves of the Ukraine were taken to the United States.

Needless to say there was no official confirmation of any of this taking place, and in fact our report, in which we mused if the “price of Ukraine’s liberation” was the handover of its gold to the Fed at a time when Germany was actively seeking to repatriate its own physical gold located at the bedrock of the NY Fed, led to the usual mainstream media mockery.

Until now.

In an interview on Ukraine TV, none other than the head of the Ukraine Central Bank made the stunning admission that “in the vaults of the central bank there is almost no gold left. There is a small amount of gold bullion left, but it’s just 1% of reserves.”

As Ukraina further reports, this stunning revelation means that not only has Ukraine been quietly depleting its gold throughout the year, but that the latest official number, according to which Ukraine gold was 8 times greater than the reported 1%, was fabricated, and that the real number is about 90% lower.

According to official statistics the NBU, the amount of gold in the vaults should be eight times more than is actually in stock. At the beginning of this month, the volume of gold was about $ 1 billion, or 8% of the total gold reserves. Now this is just one percent.

Of course, considering the official reserve data at the Central Bank has been clearly fabricated, one wonders just how long ago the actual gold “dmsplacement” took place.

We get some additional information from Rusila:

According to recent data, the value of Ukraine gold should be $988.7 million. That is the value of gold proportion of gold in gold reserves is 8%. If you believe Gontareva, it turns out there is a mere $123.6 million in gold remaining.

 

The figure is fantastic, considering that the amount of gold at the end of February (when the new authorities have already taken key positions) was $1.8 billion or 12% of the reserves.

 

In other words, since the beginning of the year gold reserves dropped almost 16 times. Gold stock in February were approximately 21 tons of gold, the presence of which was once proudly reported by Sergei Arbuzov, who led the NBU in 2010-2012. So what happened to 20.8 tons of gold?

 

Explaining the dramatic reduction in the context of the hryvnia devaluation through gold sales is impossible. After all, 92% of the reserves of the National Bank is in the form of a foreign currency that is much easier to use to maintain hryvnia levels and cover current liabilities. Besides since March the international price of gold has plummeted. Selling ??gold under such circumstances is a crime. In fact it would be more expedient to increase gold reserves through currency conversion in precious metals.

 

But apparently the result is not due to someone’s negligence or carelessness. The gold reserve has been actively carted out of the country, as a result of the very vague economic and political prospects of Ukraine. Something similar happened to the gold reserves of the USSR – when the Gorbachev elite realized that perestroika is leading the country to the abyss, gold simply disappeared in an unknown direction.

The article’s conclusion:

As history shows, the reduction of the gold reserves in the context of an acute political crisis is usually preceded by the collapse of the state.

Oddly enough there was no official gold reduction just prior to the time when Victoria “Fuck the EU” Nuland was planning Yanukovich’s ouster, and as shown above, quite the contrary. It is a little more odd that it was during the period when Ukraine was “supported” by its western allies that several billion dollars worth of physical gold – the people’s gold – just “vaporized.”

In any event, now that the disappearance of Ukraine’s gold has been confirmed, perhaps it is time to refresh the “unconfirmed” story that a little after the current Ukraine regime took power the bulk of Ukraine’s gold was taken to the United States.

As of this writing, The NY Fed has still not answered our March request for a comment whether Ukraine’s gold has been redomiciled at the gold vault located some 80 feet below Liberty 33.

via Zero Hedge http://ift.tt/1vmfpgE Tyler Durden

It’s been quite a year for David Kostin and his flip-flopping Goldman equity strategy team. From a modest 1,900 year-end target in January (reached in May) to warning stocks are 30-45% overvalued in January to projecting the S&P 500 will reach 2,050 by year-end in July…Mission Accomplished today, 6 weeks early. Now what?

 

Mission Accomplished…

 

Just ignore his warning in January…

The current
valuation of the S&P 500 is lofty by almost any measure, both for
the aggregate market as well as the median stock: (1)
The P/E ratio; (2) the current P/E expansion cycle; (3) EV/Sales; (4)
EV/EBITDA; (5) Free Cash Flow yield; (6) Price/Book as well as the ROE
and P/B relationship; and compared with the levels of (6) inflation; (7)
nominal 10-year Treasury yields; and (8) real interest rates. Furthermore,
the cyclically-adjusted P/E ratio suggests the S&P 500 is currently
30% overvalued in terms of (9) Operating EPS and (10) about 45% overvalued using As Reported earnings.

 

Reflecting on our recent client visits and conversations, the biggest surprise is how many investors expect the forward P/E multiple to expand to 17x or 18x.
For some reason, many market participants believe the P/E multiple has a
long-term average of 15x and therefore expansion to 17-18x seems
reasonable. But the common perception is wrong.
The forward P/E ratio for the S&P 500 during the past 5-year,
10-year, and 35- year periods has averaged 13.2x, 14.1x, and 13.0x,
respectively. At 15.9x, the current aggregate forward P/E multiple is
high by historical standards.

 

Most investors are surprised to learn that since 1976 the S&P 500
P/E multiple has only exceeded 17x during the 1997-2000 Tech Bubble and
a brief four-month period in 2003-04 (see Exhibit 1). Other than those
two episodes, the US stock market has never traded at a P/E of 17x or
above.

A graph of the historical distribution of P/E ratios clearly
highlights that outside of the Tech Bubble, the market has only rarely
(5% of the time) traded at the current forward multiple of 16x (see
Exhibit 2).

 

The elevated market multiple is even more apparent when viewed on a median basis. At 16.8x, the current multiple is at the high end of its historical distribution (see Exhibit 3).

 

The multiple expansion cycle provides another lens through which we
view equity valuation. There have been nine multiple expansion cycles
during the past 30 years. The P/E troughed at a median value of 10.5x
and peaked at a median value of 15.0x, an increase of roughly 50%. The
current expansion cycle began in September 2011 when the market traded
at 10.6x forward EPS and it currently trades at 15.9x, an expansion of
50%.

 

*  *  *

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Can beggars be choosers again? Judging by the drop in Greek bond prices, the answer is no. As Bloomberg reports, Greek PM Samaras is pushing back against Troika demands for up to $3 billion more savings (i.e. cuts to spending) in 2015. The impasse risks leaving Greece without a backstop on Jan. 1 after the program ends, they said. With Greece full of bravado over managing to issue debt publicly, perhaps they feel they can ignore warnings from the uberlords in Brussels. “It’s crucial that Greek authorities work with the troika to complete the current review,” but with the government in Athens refusing to concede there is a funding hole, the standoff means Greece may miss a Dec. 8 deadline for agreement on the steps required to unlock the ‘aid’ tranche.

 

Of course in this idiotic world, while GGBs are down over 1 pt – hovering near 9-month low prices (high yields), Greek stocks are up 3.3% today…

 

As Bloomberg reports,

Greece’s government and its international creditors are deadlocked over a final round of measures required to release the last tranche of the country’s bailout, two people familiar with the negotiations said.

 

Prime Minister Antonis Samaras’s government is resisting pressure from the so-called troika of creditors for additional budget savings in 2015 of as much as 2.5 billion euros ($3.1 billion), said the people, who asked not to be named because the negotiations are private. The impasse risks leaving Greece without a backstop on Jan. 1 after the program ends, they said.

 

Troika representatives are furious because the Greek government has failed to come up with any concrete measures to plug the fiscal gap since euro-area finance ministers warned earlier this month about a lack of progress in Greece meeting its commitments, one person said. With the government in Athens refusing to concede there is a funding hole, the standoff means Greece may miss a Dec. 8 deadline for agreement on the steps required to unlock the aid and what comes after it, both said.

 

…

 

While reviews by the troika of the International Monetary Fund, the European Commission and the European Central Bank have been characterized by unforeseen twists and deadlock, the difference now is that Greece’s 144.6 billion-euro bailout program is due to expire in a matter of weeks.

 

…

 

A compromise needs to be found within hours, one of the people involved in the talks said yesterday. Failure to resume the review this week would make it impossible to complete it by Dec. 8, the person said.

*  *  *
Greece! again? But they are the cleanestr dirty short in Europe right? all that yummy GDP growth?

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So far the ECB’s attempts to stimulate the Eurozone economy with relentless jawboning have been a failure as absent the GDP boost from “drugs and prostitution”, Europe would be in a triple-dip recession by now. Furthermore, while its recent foray into covered bond purchases is commendable, the lack of freely floating assets available for purchase has meant that the central bank has been limited in buying up to a paltry €3 billion in covered bonds weekly as we learned most recently yesterday:

 

And while the world debates if the ECB will finally unleash government bond QE, or not over the resistance of the Bundesbank and in direct contravention with the ECB’s mandate to not engage in government monetary financing (in Draghi’s own words), there remains one last wildcard: the previously announced purchases of ABS securities. The problem here, however, is that even the ECB itself is not sure what it can and can not monetize, having changed its eligibility criteriea at least twice already as reported in “The ECB Changes Its Mind Which Bonds It Will Monetize, Then It Changes It Again.” That and the now generic issue plaguing Europe: an insufficient amount of securities available to buy to make much of a dent in the ECB’s planned €1 trillion balance sheet expansion.

And yet one bank is already set to benefit from the ABS program no matter what its actual outcome and impact on the European economy: the same bank that spawned none other than ECB’s head… Mario Draghi. According to Bloomberg, Goldman Sachs Group says it’s adding staff to its European asset-backed securities business as the bank prepares for a resurgence in the $305 billion market that shrank more than 40 percent over the past four years.

New securities will be generated as hedge funds and private equity firms seek to repackage debt as they enter the direct lending market, according to Simone Verri, who is co-head of financial institutions group financing at Goldman in London. Investors buying bad loans from the region’s banks will also want to securitize the assets, he said.

Why? Because the ECB is there as a backstop and will buy the worst of the worst as it rushes to become Europe’s bad bank, pardon bad hedge fund.

“We have invested a lot in this opportunity by hiring more people, especially for ABS structuring,” said Verri, a partner at the New York-based investment bank. “The specialty finance players and quasi-banking sector could use ABS to fund loan origination and that’s a very attractive commercial opportunity in the medium term.”

 

“Buyers of loan portfolios need financing and they can get that either from an investment bank or eventually via selling ABS backed by these loans,” said Verri. “This could be an important development as non-performing loan disposals will improve banks’ balance sheets and risk capital.”

And just so there is no confusion, the ECB’s ABS purchase program may be good for Goldman; others? Not so much.

While the program signals the ABS market has been rehabilitated after being blamed for worsening the financial crisis, its impact on bank lending will be limited, said Verri.  “Many European banks are capital constrained, so I don’t see the ECB’s ABS purchase program necessarily as a game changer,” said Verri. “It doesn’t address capital needs and therefore it doesn’t necessarily unlock credit origination.”

In other words, the stated purpose of the ECB’s buying of ABS, “unlocking credit origination” will not succeed. It will however succeed in making Goldman richer as it branches out to cover yet another riskless market.

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