There was some good and some bad news in tonight’s Chinese March inflation (and deflation in the case of PPI) data.
The good news, for those who believe that rising inflation is a positive economic outcome, was that Producer Prices declined “only” 4.3% Y/Y, or less than the -4.6% exoected, and better than the -4.9% drop last month. On a sequential basis, PPI rose by 0.5% on the back of various commodity input prices posting a modest increase in the past month on the back of China’s epic January loan injection.
However, putting that rebound in context, on an annual basis, Chinese gate inflation, or rather deflation, has now been negative for 49 consecutive months.
The not so good news, was in the CPI print, which rose 2.3% Y/Y, missing expectations, and in line with last month’s identical increase. This tied headline inflation at a 22 month high, even as non-food inflation rose a paltry 1% in March.
On a sequential basis, however, CPI dropped by 0.4% M/M, driven by a 0.1% decline in non-food inflation coupled with a much needed 1.8% drop in food inflation. As a reminder, in recent months Chinese food inflation has exploded driven by a 60% jump in pork prices which had risen to the point where the population was starting to grumble about the surging prices of this most popular protein in the mainland.
Still, on a Y/Y basis, food inflation rose once more, increasing 7.6% Y/Y and remains the only stable component of inflation, hardly the “diet” for a stable, growing economy, in which consumers are forced to spend their discretionary income on staples instead of pushing up broader, core prices.
The best news, however, since China’s inflation appears to have once again peaked, is that this means the media will be flooded with expectations of more stimulus from the PBOC in the form of either RRR or interest rate cuts, which in turn pushed the Shanghai Composite more than 1% higher and back over 3000 (which may or may not be the result of more direct PBOC buying: as a reminder, as of last week we now know the Chinese central bank is directly buying bank stocks, breaking a core central banking taboo).
Then again, whether the PBOC agrees with such an assessment, one which by definition will further weaken the Yuan which has become the Achilles heel of China’s “Impossible Trinity” remains to be seen.
One of the more significant, if largely underreported events from last Friday, was the Fed’s surprising announcement that it would conduct a closed meeting tomorrow, April 11, at 11:30am “under expedited procedures” during which the Board of Governors will review and determine advance and discount rates charged by the Fed banks.
This is notable because the last time such a meeting took place was on November 21, less then a month before the Fed’s historic first rate hike in years.
Moments ago things got even more interesting, when in yet another unexpected announcement, the White House said that both Obama and Joe Biden would meet with Janet Yellen on Monday to discuss the economy and Wall Street reform, the White House said late on Sunday. The meeting is expected to take place some time “in the afternoon.”
“In the afternoon, the president will meet with Federal Reserve Chair Janet Yellen to discuss the state of the American and global economy, Wall Street reform, and the long-term economic outlook; the vice president will also attend,” the statement said.
According to Reuters, the president and the Fed chair meet regularly to discuss economic issues. Still, one can’t help but wonder what will be said in these two back to back meetings, both of which will be closed to the public.
In the meantime, we are confident numerous Fed speakers will explain how the Fed may or may not raise rates in the immediate future, unless it of course, does not, all depending on data which the Fed no longer cares about.
CEO Keith Neumeyer Warns: “There’s Going To Be a Major Revolt… We’re Going To See Riots“
With negative interest rates now the order of the day in much of the Western world, it’s only a matter of time before financial institutions start charging American depositors for the privilege of keeping their money safe in the U.S. banking system.
And according to Keith Neumeyer in his latest interview with SGT Report, that could spell disaster for socio-economic stability. Neumeyer, who is the CEO of one of the world’s top primary silver producers First Majestic Silver and the Chairman of mineral bank firm First Mining Finance, says that should The Fed and government policy makers implement negative interest rates and continue on their current course of bailing out big business while impoverishing average Americans, we could well see riots in the streets.
Negative interest rates are a way that governments are trying to tax the people… it’s going to start with big corporations that have a lot of cash sitting around in the banks and then it’s going to trickle down to the average person on the street… the people that get hurt are the small investor… the people that could least afford it… the retired people that rely on their interest on their savings that they expected to have… this is all changing… the world is changing…
I think there’s going to be a major revolt… If we actually do see negative interest rates in North America… we’re going to see riots.
The Fed has lost credibility. And that has left the average person on the street with an air of uncertainty and concern over the stability of the system.
This, says Neumeyer, is why many investors, both large and small, have started turning to tangible assets as a safe haven.
The Fed is losing credibility… there’s talk of negative interest rates… people are looking to gold now as a safe haven to be in as protection against these major forces that are occurring in the world.
But it’s not just the retail investor that is terrified of the consequences of Fed policy.
We’re seeing State mining companies go on an acquisition spree looking around the world for gold mines to buy. They are very bottom-up players… very long-term players… a lot of the people we’re talking to are actually looking to buy gold mines…
Of course there’s the institutional investor and retail investor who wants to have the physical gold…
Last year Neumeyer warned that a global reset is in the cards and urged investors to start positioning themselves for that eventuality.
He also famously penned an open letter to the CFTC highlighting the rampant manipulation in the system in which he claimed that a small concentration of market players were attempting to control the price of silver through paper trading.
But that manipulation will eventually become ineffective, he says, because industrial and retail demand for physical silver will overwhelm the paper markets:
I’m a believer in the market. We go through phases where we have imperfections… and that’s one of the areas now that we have a price fixing mechanism that is very inefficient… it is very damaging to the miners… it’s damaging for investors who believe the metal should be at higher prices… so as long as the regulators allow the banks to sell unlimited amounts of silver and gold, I’m not sure if the system can ever be fixed on its own.
What I think is going to happen is there will simply be a physical shortage of metal. We’re consuming more silver today than we ever have as a human race. The use of silver is climbing each year. We’ve seen production in 2015 drop from 2014 in silver. It looks like 2016 is going to be another year for lower silver production as well.
Silver is a very rare metal and people don’t understand that. We’re currently mining on a global basis 10 ounces of silver for every 1 ounce of gold.
That’s a shocking number.
We’re trading at 80-to-1 [silver-to-gold]. So how can you possibly trade at 80-to-1 and be mining at 10-to-1. That relationship cannot possibly last.
… The regulators are sitting on their hands… the banks are making too much money… there’s no incentive to change the system… but it will be a supply squeeze that will eventually change the system.
As SGT Report echos, there is no incentive for them to change the system except for the time when people actually do reach their boiling point and start to march in the streets because they’ve been thrown under the bus for much too long.
And when those riots do start, just as Zero Hedge previously reported during the Greek riots, the price of physical precious metals versus the bank manipulated paper prices will skyrocket. In 2010 the price difference between the two was as high as 40% above the paper spot price as Greeks scrambled for real money in the midst of their country’s collapse.
Things will be no different in America when a jobless, hungry, and marginalized majority takes to the streets. When that comes to pass we will see the real value of physical silver and gold emerge, and you can be almost certain that it will be significantly higher than the suppressed paper prices the banks want us to believe.
Things are going from bad to worse for the efficacy of the grand – and failed from the beginning – experiment known as Abenomics. As Bloomberg reports, Larry Fink’s Blackrock has changed its stance on investing in Japan, and joins Citigroup, Credit Suisse, and LGT Capital Partners, the $50 billion asset manager based in Switzerland in their decision to head for the exits.
Ironically, Blackrock’s decision comes only a few months after blogging about “The Case for Investing in Japan”, in which they explicitly cited increased demand for Japanese stocks.
INCREASED DEMAND FOR JAPANESE STOCKS
The BOJ and other large institutions have increased their investments in Japanese equities. Meanwhile, the recent successful Japan Post initial public offering has renewed domestic interest in equities and likely increased demand for Japanese equities by investors around the globe.
This is the latest in a long list of setbacks for Japan in their quest to inflate consumer prices and their stock market. Foreign investors have been getting out of the market all year long, as concerns about the global economy and a strenthening yen continue to be at the forefront. So far they’ve dumped $46 billion in shares according to Bloomberg.
Meanwhile, Japan is doing all it can (according to the Abenomics playbook). NIRP, Japan’s latest central bank tool form the proverbial “toolbox” has been fully implemented, with a negative 10Y bond auctioned just last month. So far it is not enough.
It has also apparently done enough damage on the fixed income side to sway the worlds biggest state investor, their very own Government Pension Investment Fund, to move more into equities. However with other major players not wanting to be invested in Japan, the BoJ may very well have to increase their ETF holdings to roughly 100%.
But most entertaining would be Peter Panic’s reaction. A photographer’s s rendering of Kuroda’s face upon hearing that even his most devoted supporters are now giving up on him would probably look like the change from this…
One of the biggest unconfirmed secrets of recent market action was whether or not there was a Shanghai Accord in February, in which the G20 and central bankers decided to push the dollar lower to benefit China at the expense of Japan and Europe, both of whom have suffered substantially in recent weeks as a result of their own currencies surging, pushing local stock markets lower (and sending European banks sliding).
Earlier today, Japan’s government spokesman Suga came as close as possible to admitting that there was in fact a tacit “Shanghai Accord” agreement when he said that the Group of 20’s agreement to avoid competitive currency devaluation “does not mean Japan cannot intervene in response to one-sided currency moves.”
It got better: in an interview with Reuters Suga added that Japanese Prime Minister Shinzo Abe’s comment to the Wall Street Journal last week that countries should avoid “arbitrary intervention,” was misunderstood and does not rule out intervention for Japan, Suga said.
And yet it did rule out intervention until now? He clarified. “What the G20 is talking about is arbitrary intervention, which is different from responding to a one-sided move,” Suga told Reuters in an interview on Saturday.
As Reuters notes, some traders have said Japan cannot sell its own currency now, because the G20 warned countries in February to refrain from competitive devaluation. Suga, who coordinates other ministers in Abe’s cabinet, rejected this idea outright and said Abe’s remarks about arbitrary intervention in a Wall Street Journal interview last week were misunderstood.
“The prime minister’s comments were based on the G20 understanding that long-term manipulation of currencies is undesirable.”
As a reminder, the last time Japanese authorities intervened directly in the market was in 2011, when Tokyo got an explicit G7 consent to stem a yen spike driven by speculation that a devastating earthquake and nuclear disaster in March would force Japanese insurers to repatriate funds to pay claims.
What is fascinating is how weak even Japan’s attempts at verbal intervention have become.
The attempts at posturing continued:
Suga also rejected the argument that the adoption of negative rates was a sign the BOJ’s attempts to meet its 2-percent price target had reached a limit.
Abe is meeting foreign economists to prepare to host a summit of G7 finance ministers and central bank governors in May, where he will urge other countries to coordinate policies to accelerate global growth.
“The prime minister strongly believes G7 should lead the global economy with sustainable growth,” Suga said.
At this point Japan has become such a joke in trader circles, the nickname which we penned for Kuroda aka “Peter Panic”, appears to have stuck.
Of course, there is a quick way to find out just how much leeway Japan actually has: if at the next BOJ meeting, one which have taken place after a tremendous surge in the Yen which is up over 10% YTD, Kuroda does nothing, then as expected all of the above will have been merely the latest bout of ridiculous posturing, and the Shanghai Accord indeed made it so that only the USD is allowed to weaken.
Meanwhile, keep an eye on the USDJPY downside. As we reported last week, this is where various banks expect the BOJ will have no choice but to intervene:
Bank of Singapore: 100
BofAML: 105
CBA: 100
Daiwa Securities: 100
JPMorgan: 95
Julius Baer: 100-105
Macquarie: 100
Mitsubishi UFJ Morgan Stanley: 99
NAB: 100
Nomura: 105
RBS: 105-110
Societe Generale: 104
Swissquote Bank: 100
Westpac: 106.5
Finally, here is SocGen chiming in on the matter with a note released this afternoon.
We do not believe in a “secret” currency agreement reached at the February G20 meeting in Shanghai. We do, however, believe that the official statement places certain limitations of what policymakers can do with the sentence ”we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes”. Interestingly, Chief Cabinet Secretary Suga noted in a Reuters interview on Saturday that the G20 statement does not exclude intervention against “one-sided” currency moves.
To our minds, intervention is likely to remain verbal for now given not only the poor track record of one sided intervention and the fact that politically the situation is challenging for Japan as it prepares to host the G7 summit in May. Japan last intervened unilaterally in October 2011; the impact proved short-lived and back then USD/JPY was below 80 when the intervention took place. The March 2011 intervention was more successful, but this one enjoyed the blessing of the G7 post the Fukushima disaster. Then too, USD/JPY was below 80 when the intervention began.
Turning to the BoJ, the recent move in the yen has not changed our probability of 30% for additional easing. Our Chief Japan Economist, Takuji Aida, would increase this to 40% if USD/JPY breaks 105. The problem of effective BoJ tools remains, however. Given the poor public image of negative rates, PM Abe would be amongst those disappointed to see it used again and not least ahead of the Upper House elections in July.
More likely to our minds is that PM Abe will use the current situation to further build the case to delay the consumption tax hike (due next April) as part of a new fiscal package that we expect will be released in the course of May. Ironically, such a policy could be argued to favour further yen strength – at least in the short-term.
One day after reprorting that British military information services Janes, had found confirmation of several shipments amounting to 3,000 tons of weapons and ammo to Al-Qaeda linked Syrian rebels in a transport solicitation on the U.S. government website FedBizOps.gov, today Veterans Today goes deeper into the rabbit hole and reports that several Iraqi policemen claim to have seen US aircraft dropping weapons and munitions for ISIS terrorists in a region west of the Anbar province on Friday.
According to VT, in a video posted on Iraq’s al-Maaloomah news website on Sunday, the policemen are purportedly heard saying that the American plane had also jammed their communication devices in the Hadisah Island district.
“There is an American aircraft seen at four o’clock in the morning on Friday over the Hadisah Island district of the Anbar province, delivering weapons and munitions to ISIS criminals,” one of the policemen says.
“The plane proceeded to jam radar devices of the police regiment stationed in Hadisah Island to prevent contact between the affiliates and the headquarters of the regiment,” he added.
The man said they had seen a military vehicle of ISIS arriving in the region a few minutes later and transferring the weapons to the place the group controlled.
In the video, the man and his associates are heard appealing to Iraqi Prime Minister Haidar al-Abadi to follow up the issue.
VT adds that the Iraqi army and the volunteer Hashd al-Shaabi forces liberated the district from ISIS terrorists just last month. The US may have different plans, however.
Ironically, this took place just hours after US SecState John Kerry visited Baghdad on Frday, where he said ISIS was losing ground, including more than 40 percent of the territory that they once controlled in the country.
President Barack Obama is reportedly weighing an increase in the number of American troops in Iraq but Kerry said there had been no formal request from the Iraqis and the issue had not been raised on Friday.
Even more curiously, the Daily Beast reported last week that there are at least 12 U.S. generals in Iraq, “a stunningly high number for a war that, if you believe the White House talking points, doesn’t involve American troops in combat. And that number is, if anything, a conservative estimate, not taking into account the flag officers running the U.S. air war, the admirals helping wage the war from the sea, or their superiors back at the Pentagon.”
For now any additional deployments are being kept under the curtain of fighting ISIS: the US, officials said, looked to “accelerate recent gains” against ISIS.
Further to that, recall that as reported this morning, the US Air Force deployed B-52 bombers to Qatar, the first time they have been based in the Middle East since the end of the Persian Gulf War in 1991.
“The B-52 demonstrates our continued resolve to apply persistent pressure on Daesh and defend the region in any future contingency,” said Charles Brown, commander of US Air Forces Central Command.
Contingecy such as carpet bombing and paradropping supplies to unknown recipients?
But back to the alleged US delivery of weapons for ISIS – it would not be the first time this has happened. In October 2014, ISIS released a new video in which it bragged it recovered weapons and supplies that the US military intended to deliver to Kurdish fighters in the Syrian city of Kobani.
Some Iraqi MPs have also accused the US of deliberately arming ISIS, citing an arms air-drop case in Tikrit, but government officials have rejected it.
In Syria, the US military has airdropped tons of ammunition to Al Qaeda-linked rebels and militants.
If all this US weaponry is indeed ending up in Al Nusra and/or ISIS’ hands, it remains to be seen where just it will be used.
Following Hillary’s recent interview with Matt Lauer, in which she very boldly declared she’ll never be seen in handcuffs, none other than President Obama weighed in on the topic.
In an interview with Chris Wallace, the President discussed his thoughts around Hillary Clinton’s email debacle.
On this subject, Obama has gone from categorically denying any wrongdoing, to a slightly different tone. Be that as it may, the President wants the American public to feel fine about Hillary’s unsecured server and blackberry, because, well, he’s handled a lot of confidential information.
And then he goes on to explain that “there’s classified, and there’s classified. There’s stuff that’s really top secret, top secret, and then there’s just stuff being presented to the President or Secretary of State.”
Another quote worth noting is how the President responded when Wallace asked him if he could direct the DOJ to ensure the investigation into Hillary Clinton will be handled based on fact, and it’s to to go where the evidence leads. That Hillary won’t be in any way protected.
So there we have it. As far as national security concerns around Hillary’s unsecured communications, don’t be alarmed because there’s classified, and then there’s classified. As far as whether or not justice will be served if it is determined that Hillary broke the law, everyone can also rest assured that the outcome of the FBI’s investigation will be solely based on evidence, and nothing more – just as the process is supposed to work.
At this juncture, we’re still trying to wrap our minds around what the difference between classified and classified is, but it’s something Edward Snowden certainly wishes he knew about.
I hear some candidates say we should carpet bomb innocent civilians, that is not a productive approach to defeating terrorism. Our approach has to be smart.
Not a day passes without the Vancouver real estate market succeeding to amaze us all over again.
Just over a month ago we were amazed to learn that, in confirmation of the local buying frenzy, the Vancouver home shown on the photo below sold for $735,000 above asking.
As Vancity Buzz wrote, “The house at 3555 West 1st Avenue was built in 1912, is 3,400 square feet and sits on a standard 33 x 120 foot lot without a view. The selling price of $4.23 million is about $1.6 million above the lot’s assessed property value.”
For his part, real estate agent Brandan Price is incredulous. “For it to go over $4 million is remarkable. I had five offers,” he said. “These were local buyers just looking to make a shift who wanted to move into this area.”
“They were willing to sacrifice lot size to move into this area.” Maybe, but things seem to be getting out of hand and part of the “problem” may indeed be demand from investors attempting to find a home for capital they’ve moved out of China. As Thomas Davidoff with UBC’s Sauder School of Business told Vancity Buzz: “These prices are getting pretty freaking nuts in my opinion.”
Which led us to observe that in Canada, an interesting paradox is visible. On the one hand, the country’s oil patch in Alberta is mired in a painful depression, where the worst 12 months for job losses in 34 years is contributing to rising property crime, higher food bank usage, and a rash of unsold condos and empty office space in Calgary.
On the other hand, if simply looking at real estate in Vancouver and Ontario you’d think you were looking at home prices for an economy that is thriving. In fact, prices in Vancouver have reached nosebleed levels. In January for instance, the average selling price of detached homes was an astronomical $1.82 million.
According to a recent report by Knight Frank, prime residential property prices in Vancouver increased by 25% in 2015 “due to lack of supply, foreign demand and weaker Canadian dollar.” But mostly foreign demand as Chinese buyers scramble to launder their money in this Canadian city.
Vancouver’s soaring home prices posted nearly double the growth rate of the next few residential markets of Syndey (14.8% Y/Y), Shanghai (14.1%), Istanbul (13.0%) and Munich (12.0%).
And while there has been some speculation the government may crackdown on this runaway home price inflation, this has yet to happen. In the meantime, the horror stories of Vancouver’s houing market persist.
According to the National Post, another west side Vancouver home has sold for more than $1 million above the asking price. The Dunbar area bungalow was listed for $3.188 million and sold earlier this week for $4.19 million.
SunThis Dunbar area house sold for $1 million over the asking price this week.
This is the second time in just one month when a Vancouver home sells more than $1 million above asking. Just over a month ago, a Point Grey home with a view sold for $1.172 million more than the asking price. The sale price for the house on Bellevue Drive was more than $9 million and the new owner planned to rent it out then tear it down and rebuild in a couple of years, according to the realtor. The house had not been updated.
SunThe house has a new roof, updated bathrooms and a gourmet kitchen.
But the 71-year-old Dunbar house has been fully renovated, according to the MLS listing. It sits on a 44 by 122-foot lot and has a view from the back of the North Shore mountains. The house has a new roof, updated bathrooms and a gourmet kitchen as well as a one-bedroom basement suite.
“Perfect for families,” says the listing. Or, “hold and build.”
SunThe bungalow was listed for $3.188 million and sold for $4.19 million
University of B.C. real estate professor Tsur Somerville said the Dunbar home may have been listed low. “That is one third more than the asking price,” he said. “It looks a whole lot like a realtor playing games.”
That or the panic buying frenzy is getting bigger by the day.
Getting the right listing price for a property in Metro Vancouver’s overheated market is difficult, Somerville acknowledged.
“Because prices are going up so rapidly, so out of control, it’s hard to know what the price is,” he said. “The rate of price increases is reaching hysteria levels. It’s not sustainable.”
This is what is known as a bubble, and while everyone admits it, the frenzy goes on.
SunThe house sits on a 44 by 122-foot lot and has a view from the back of the North Shore mountains.
Homes sales in Metro Vancouver surpassed 5,000 last month, making it a record-breaking month according to statistics from the Real Estate Board of Greater Vancouver. The benchmark price for detached properties in the region increased 27.4 per cent to $1,342,500 in March 2016 compared to the same month last year.
Something else everyone can agree on: the Vancouver housing bubble will eventually burst. The question is when, and how much longer will the government ignore this ridiculous surge in prices while pretending everything is perfectly normal. Naturally, when it does burst leading to a collapse in the local economy and crushed living standards for everyone, the excuse will be a well-known one: “nobody could have seen it coming.“
Falling oil prices, China growth fears, submerging markets, Brexit and Italian banks. All of those risks have one thing in common: They have not derailed the US economy. Despite concerns about a recession, it continues to grow at a steady pace. According to the Atlanta Fed, real GDP is expected to grow by 0.7% in Q1’16. That is not a great number; however, the series is extremely volatile.
It would not be surprising to see growth rebound to 2% or more in the coming quarters.
Global investors are counting on the US because of lackluster growth elsewhere. Europe is doing fine; however, deflation remains a concern and bank credit growth is turning down. Japan continues to fall in and out of recession. In the emerging world, the BRICs are crumbling. Brazil & Russia are suffering due to falling commodity prices while China continues to decelerate. Going forward, rate differentials, relative economic strength and divergent monetary policies should provide support for the USD.
Sentiment & Positioning
With all that said, as of Mar29’16, the net speculative long position in the USD was 7% of open interest, the lowest it has been since Q2’14. This indicates that speculators are the least bullish they have been in nearly two years.
The US Dollar Index is sitting at 94.62, just above a critical support zone at 93-94. Meanwhile, the Trade-Weighted Dollar Index has pulled back ~3.4% from its high on Jan20’16. It is hard to tell that long USD is a consensus trade because investors have lost their conviction.
FX, Rates & Monetary Policy
USDCAD: Has fallen to 1.3011 from a high of 1.4692 on Jan20’16. This is a direct result of the relief rally in oil, which has risen to $36.79 from a low of $26.05 on Feb11’16. These moves have not been driven by improving fundamentals. Rather, they are mostly attributable to short covering.
EURUSD & USDJPY: In Europe and Japan, easy monetary policy will be present for an extended period of time. The ECB and BOJ have made it clear that they will do “whatever it takes” to protect their countries from deflation. The ECB recently announced a set of new measures intended to support the Euro Zone. Equities have responded positively but the Euro has not. EURUSD is trading at 1.1389, up from a low of 1.0538 on Dec3’15. Japan is facing the same issue. Even though Japanese equities are up since oil bottomed on February 11th, the Yen is the strongest it has been since Q4’14. It is unlikely EUR and JPY strength will persist for the same reasons mentioned in the previous paragraph.
World Reserve Currency
The USD is the most widely held reserve currency in the world. It represented 64% of official foreign exchange reserves at the end of Q3’15. Countries tend to hold Dollar-denominated assets because they are relatively stable. Foreign central banks also use the USD as collateral for loans and to protect their currencies. For example, if the ECB feels as though the EUR is too strong, it can sell Euros to buy Dollars, thereby reducing the amount of USD in circulation. In theory, this would weaken the Euro.
The foreign exchange market also speaks to the structural importance of the USD. According to the BIS’ Triennial Central Bank Survey, “FX deals with the US Dollar on one side of the transaction represented 87% of all deals initiated in April 2013.”
Lastly, it is important to recognize that many commodities are priced in USD. Therefore, people who want to buy or sell them are required to hold Dollars.
These facts help to explain why demand for the USD will persist. It is still the world reserve currency and that will not change in the near future.
Major Risks
The two major risks to the USD are a dovish Fed and slowing US economic growth.
The Fed is the world’s central bank. Even though both of its mandates are domestic, the Fed has become increasingly concerned about the global economy. This is evident when we look at the rising number of times the Fed has mentioned key terms such as “Global” and “Dollar” in recent meetings.
A strong USD is good for US consumers and bad for commodities & exporters. The Fed is well aware of this relationship; however, it alone does not guarantee dovish monetary policy. Not long ago, market participants thought that 4 rate hikes in 2016 was a possibility. Now, it is unclear whether or not we will see 1. As of Mar29’16, the probability of a hike in December was just 65%. The market is positioned for easy US monetary policy. As such, positive surprises from the US or negative surprises out of Europe or Japan will force investors to reassess their outlooks. If that happens then the Fed may turn more hawkish, which would be positive for the US Dollar.
2) Slowing US Growth
The US economy continues to muddle along, backed by steady employment and consumption growth. The Eurozone is doing fine but most of its gains are attributable to Germany. Other major players such as France and Italy have not fared as well. Moreover, Japan continues to tread water. Canada has rebounded. That said, its economy is dependent on commodity prices, which may roll over in the short run.
Rate differentials, relative economic strength and divergent monetary policies should provide support for the USD. In addition, it will likely benefit from safe haven flows when global risks return to the headlines.
If the Dollar resumes its uptrend then commodities will suffer.
Oversupply in many industries such as oil, iron ore and coal remains an issue. On the demand side, China’s deceleration is not helping. The emerging markets are inextricably linked to commodities. If prices fall then the EMs will underperform.
When we previewed Venezuela’s upcoming hyperinflation, which in January was predicted to be 720% and as of this moment is likely far higher…
… we said “This Is What The Death Of A Nation Looks Like” and said “there is no good news in any of the above for the long-suffering citizens of this “socialist paradise” which any minute now will be downgraded to its fair value of “socialist hell.“
Sadly, while we have been warning for years about Venezuela’s inevitable, economic devastation, we said it was only a matter of time before the chaos spreads to broader society and leads to total collapse.
But back to the morgue of central Caracas, where FT correspondent Andres Schipani writes that the stench forces everyone to cover their nostrils. “Now things are worse than ever,” says Yuli Sánchez. “They kill people and no one is punished while families have to keep their pain to themselves.”
Ms Sánchez’s 14-year-old nephew, Oliver, was shot five times by malandros, or thugs, while riding on the back of a friend’s motorcycle. His uncle, Luis Mejía, remarked that in a fortnight three members of their family had been shot, including two youths who were shot by police.
Sounds a little like Chicago on a Friday… only in Venezuela things are even worse: “an economic, social and political crisis facing Nicolás Maduro, Venezuela’s unpopular president, is being aggravated by a rise in violence which is prompting fears that this oil-rich country risks becoming a failed state.”
Even the morgue employees are asking if they should give up.
“What can we do?” Mr Mejía asks. “Give up.” The morgue employee in charge of handling the corpses notes that a decade ago he received seven or eight bodies every weekend. These days, he says, that number has risen to between 40 and 50: “This is now wilder than the wild west.”
Critics say that the Venezuelan government is increasingly unable to provide citizens with water, electricity, health or a functioning economy which can supply basic food staples or indispensable medicines, let alone personal safety.
In other words, total socioeconomic collapse. This is what it looks like:
Last month alone, Venezuelans learned of the summary execution of at least 17 gold miners supposedly by a mining Mafia, the killing of two police officers allegedly by a group of students who drove a bus into a barricade, and a hostage drama inside a prison at the hands of a grenade-wielding criminal gang. On Wednesday, three policemen were killed when an armed gang busted a member out of a lock-up in the capital.
At least 10 were killed in a Caracas shanty town after a confrontation between local thugs armed with assault rifles, while a local mayor was gunned down outside his home in Trujillo state last month. There are widespread reports of lynchings.
All this is creating a broad unease that Mr Maduro is unable to maintain order… There is a lack of basic goods. Analysts warn that the economic crisis risks turning in to a humanitarian one.
Some refuse to acknowledge that a state erected on so much oil wealth can be a failed state:
“Failed state is a nebulous concept often used too lightly. That’s not the case with today’s Venezuela,” says Moisés Naím a Venezuelan distinguished fellow at the Carnegie Endowment for International Peace. “The evidence of state failure is very concrete in the country that sits on top of the world’s largest oil reserves.”
Alas, a failed state is precisely what Venezuela has become: Venezuela is already one of the world’s deadliest countries. The Venezuelan Observatory of Violence, a local think-tank, says the murder rate rose last year to 92 killings per 100,000 residents. The attorney-general cites a lower figure of 58 homicides per 100,000. This is up from 19 per 100,000 in 1998, before Maduro’s predecessor Hugo Chavez took power.
It gets worse, because in addition to a soaring murder rate, the government itself is implicated.
“Venezuelans are facing one of the highest murder rates in the hemisphere and urgently need effective protection from violent crime,” said José Miguel Vivanco HRW’s Americas director. “But in multiple raids throughout the country, the security forces themselves have allegedly committed serious abuses.”
Their findings show that police and military raids in low-income and immigrant communities in Venezuela have led to widespread allegations of abuse, including extrajudicial killings, mass arbitrary detentions, maltreatment of detainees, forced evictions, the destruction of homes, and arbitrary deportations.
And like all other failed governments, Maduro’s administration is quick to deflect blame, instead accusing violence within its borders on Colombian rightwing paramilitaries “engaged in a war against its revolution.” But as David Smilde and Hugo Pérez Hernáiz of the Washington Office on Latin America, a think-tank, recently wrote: “Attributing violence in Venezuela to paramilitary activity has been a common rhetorical move used by the government over the past year, effectively making a citizen security problem into a national security problem.”
For many Venezuelans it no longer matters who is to blame. “It is a state policy of letting anarchy sink in,” says a former policeman outside the gates of a compound in Caracas.
The FT adds that the former police station now houses the Frente 5 de Marzo, one of the political groups that consider themselves the keepers of socialism’s sacred flame. The gates bear the colours of the Venezuelan flag and are marked with bullet holes. The man believes there is something akin to a civil war going on.
“Venezuela is pure chaos now. It seems to me there is no way back,” the former policeman says. He is right.
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And since words can not fully do a failed state justice, here is a video clip from Jeff Berwick showing the reality on the ground in the country where “socialism’s sacred flame” is about to go out for good.
