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Submitted by Pater Tenebrarum of Acting-Man blog,

We recently opined that it takes a decline of between 1,500 to 2,000 points in the Nikkei to raise doubts about 'Abenomics' (i.e., hoary inflationism combined with deficit spending). In order to test that hypothesis we surveyed a few headlines that have appeared in the press between November and January. Apparently even smaller declines in the Nikkei tend to sow doubt. It is really quite amazing how the stock market almost literally 'writes the news'. The same goes of course for the US and Europe – all the talk about 'recovery' is mainly motivated by rising asset prices. In other words, people mistake the temporary effects of massive monetary inflation for a sign of 'growth'. It isn't. Rather, it is a sign that scarce capital is likely being consumed.

Anyway, here is a chart of the Nikkei with accompanying newspaper headlines – it is really quite funny:

 

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Abenomics: lauded when the Nikkei rallies, doubted as soon as it begins to correct – click to enlarge.

 

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Of the articles listed in the chart above, the following struck us as especially interesting, as it reflects the  current consensus view quite well: “Abenomics Needs a Booster Shot”. Note that the article fails to mention a very important point: the rate of growth of Japan's money supply remains subdued, as the BoJ's 'QE' modus operandi tends to massively increase bank reserves, but fails to boost the money supply directly. Other than that, the article points out that further measures from the BoJ should be expected, as it will attempt to 'balance out' the effect of the coming sales tax increase. That it is basically sheer lunacy to expect genuine growth to result from a combination of inflationism and mercantilism is of course not discussed.

The Nikkei has meanwhile arrived at a crucial support level – a bounce from here seems likely. Conversely, if this support level fails, it would have to be seen as a big short to medium term negative in our opinion:

 

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The Nikkei currently resides near converging support lines – click to enlarge.

 

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JGB and Yen

We just came across an article published in 2009 about the 'impending big crash in the  JGB market'. The risks to JGBs are currently no doubt greater than they have been in quite some time, but this example shows why shorting JGBs has become widely known as the 'widow-maker trade'. Time and again the crash of this market has been expected and speculated on – and yet, JGBs remain only a smidgen below their all time high:

 

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10 year JGB: at 144.86, it is only a little over one point below its all time closing high – click to enlarge.

 

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So far, there's still only one JGB crash:

 

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'Crash' – a novel by JG Ballard (or JGB for short).

 

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Clearly, the JGB market doubts that 'Abenomics' will manage to produce a lasting increase in inflation, in spite of the recent uptick in consumer prices on account of yen weakness.

It also seems that the yen continues to move closer to the minimum target range for the upward correction we recently discussed:

 

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The yen continues to look perky. Money supply growth in Japan remains very low compared to that in other developed nations, and the entire decline in the yen seems to have been driven by a change in sentiment alone – click to enlarge.

 

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Conclusion:

We are still wondering what Abenomics is supposed to achieve. With a graying population and consequently a shrinking work force, inflationary policies seem especially ill-conceived in Japan. Given that
unemployment was already very low when Abe came to power, there seems to be no point in employing the Keynesian trick of lowering the real incomes of workers even from the point of view of those who normally support such policies (which sadly includes most of the economic mainstream). 

If the BoJ were to alter its modus operandi and actually boost the money supply directly, an upset in the the JGB market would become increasingly likely.  Maintaining the market's calm is predicated on the belief that the inflationary policy pursued  by Abe/Kuroda will actually fail. Moreover, Japan's government can simply not afford higher borrowing costs, as 25% of its tax revenue is already going toward merely servicing interest costs on its current outstanding debt. In other words, Japan's government bond market is a glaring example of a Ponzi scheme (actually, all government bond markets are, but Japan's is topping the list among industrialized nations). If the BoJ 'succeeds', this might ultimately be the consequence:

 

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Elbonian inflation: purchasing a potato becomes a complex task.

via Zero Hedge http://ift.tt/1k49zcT Tyler Durden

Submitted by Pater Tenebrarum of Acting-Man blog,

We recently opined that it takes a decline of between 1,500 to 2,000 points in the Nikkei to raise doubts about 'Abenomics' (i.e., hoary inflationism combined with deficit spending). In order to test that hypothesis we surveyed a few headlines that have appeared in the press between November and January. Apparently even smaller declines in the Nikkei tend to sow doubt. It is really quite amazing how the stock market almost literally 'writes the news'. The same goes of course for the US and Europe – all the talk about 'recovery' is mainly motivated by rising asset prices. In other words, people mistake the temporary effects of massive monetary inflation for a sign of 'growth'. It isn't. Rather, it is a sign that scarce capital is likely being consumed.

Anyway, here is a chart of the Nikkei with accompanying newspaper headlines – it is really quite funny:

 

---

 

Abenomics: lauded when the Nikkei rallies, doubted as soon as it begins to correct – click to enlarge.

 

---

 

Of the articles listed in the chart above, the following struck us as especially interesting, as it reflects the  current consensus view quite well: “Abenomics Needs a Booster Shot”. Note that the article fails to mention a very important point: the rate of growth of Japan's money supply remains subdued, as the BoJ's 'QE' modus operandi tends to massively increase bank reserves, but fails to boost the money supply directly. Other than that, the article points out that further measures from the BoJ should be expected, as it will attempt to 'balance out' the effect of the coming sales tax increase. That it is basically sheer lunacy to expect genuine growth to result from a combination of inflationism and mercantilism is of course not discussed.

The Nikkei has meanwhile arrived at a crucial support level – a bounce from here seems likely. Conversely, if this support level fails, it would have to be seen as a big short to medium term negative in our opinion:

 

---

 

The Nikkei currently resides near converging support lines – click to enlarge.

 

---

 

JGB and Yen

We just came across an article published in 2009 about the 'impending big crash in the  JGB market'. The risks to JGBs are currently no doubt greater than they have been in quite some time, but this example shows why shorting JGBs has become widely known as the 'widow-maker trade'. Time and again the crash of this market has been expected and speculated on – and yet, JGBs remain only a smidgen below their all time high:

 

---

 

10 year JGB: at 144.86, it is only a little over one point below its all time closing high – click to enlarge.

 

---

 

So far, there's still only one JGB crash:

 

---

 

'Crash' – a novel by JG Ballard (or JGB for short).

 

---

 

Clearly, the JGB market doubts that 'Abenomics' will manage to produce a lasting increase in inflation, in spite of the recent uptick in consumer prices on account of yen weakness.

It also seems that the yen continues to move closer to the minimum target range for the upward correction we recently discussed:

 

---

 

The yen continues to look perky. Money supply growth in Japan remains very low compared to that in other developed nations, and the entire decline in the yen seems to have been driven by a change in sentiment alone – click to enlarge.

 

---

 

Conclusion:

We are still wondering what Abenomics is supposed to achieve. With a graying population and consequently a shrinking work force, inflationary policies seem especially ill-conceived in Japan. Given that unemployment was already very low when Abe came to power, there seems to be no point in employing the Keynesian trick of lowering the real incomes of workers even from the point of view of those who normally support such policies (which sadly includes most of the economic mainstream). 

If the BoJ were to alter its modus operandi and actually boost the money supply directly, an upset in the the JGB market would become increasingly likely.  Maintaining the market's calm is predicated on the belief that the inflationary policy pursued  by Abe/Kuroda will actually fail. Moreover, Japan's government can simply not afford higher borrowing costs, as 25% of its tax revenue is already going toward merely servicing interest costs on its current outstanding debt. In other words, Japan's government bond market is a glaring example of a Ponzi scheme (actually, all government bond markets are, but Japan's is topping the list among industrialized nations). If the BoJ 'succeeds', this might ultimately be the consequence:

 

---

 

Elbonian inflation: purchasing a potato becomes a complex task.

via Zero Hedge http://ift.tt/1k49zcT Tyler Durden

It was only a few days ago that Emerging Market FX was rallying on the back of a Turkish Central Bank rate hike that "fixed" everything. It was only a few days ago that investors were told they were "stupid" if bearish on US stocks because of EM weakness. Things have not gone as planned. That temporary blip has been demolished and EM FX has crumbled lower to fresh 5-year lows with many hitting record lows… and no, this does not mean money will flow back into US stocks (as we exclaim below).

• *COLOMBIAN PESO EXTENDS DROP, FALLS 1.7% TO 2,050.25 PER USD
• *ARGENTINE PESO WEAKENS 0.2% TO 8.0344/USD IN OFFICIAL MARKET
• *TURKISH STOCK INDEX DECLINES 2ND DAY TO LOWEST SINCE JULY 2012
• *YANUKOVYCH SAYS UKRAINE MUST STOP `EXTREMISM AND RADICALISM'

 

EM FX hits fresh 5-year low…

 

As the hope of "fixed" is gone…

 

We suspect the topic of "buying US stocks because money will flow back to the US from EM" will be popular among asset-getherers (and Tom Lee) – we offer the following clarification of that idiocy (from Sean Corrigan):

The ironists among market punters will even attempt to construe all this as a reason to buy more developed world stocks on the premise that the money flooding out of such places as Thailand, the Ukraine, Turkey, and Argentina will be parked in the S&P and the DAX (perhaps overlooking the fact that the purchase price of these now-unwanted positions was most likely borrowed, meaning that their liquidation will also extinguish the associated credit, not re-allocate it).

 

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For their part, the biddable are already trying to drown out the noise of the Cacerolazo by making the fatuous argument that the EMs account for such a piffling portion of world GDP that their fate should be a matter of complete indifference to the rest of us.

 

Needless to say this is a touch disingenuous at best. Their share of end consumption-biased GDP may be lower, but they account for an equivalent fraction, if not a small majority, of global industrial production – and they have been responsible for an even bigger proportion of its growth this past decade. Ditto for trade and ditto for resource use.

 

Spot the difference – one of these is EM FX, one is USDJPY, and one is the S&P 500…

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1kFcC9d Tyler Durden

Following today’s crash in the US Manufacturing ISM, we now have the following snapshot of global manufacturing: only three countries are currently in contraction (sub 50 PMI) mode: Australia, Russia and France. Look for many more to join them if today’s US print is a harbinger of things to come to the global manufacturing space.

We already commented on the US manufacturing tracker. Here is Bank of America discussing the rest of the world.

On the first workday of a new month, global PMI manufacturing surveys are released around the world. That gives us an early read on the state of manufacturing. As the nearby table shows, out of the 22 countries that have reported so far, 13 reported improvements in their manufacturing sectors in January, while 8 recorded a weakening in their manufacturing sector and 1 was unchanged. A reading above 50 reflects expansion while below 50 indicates contraction. In this regard, there were only 3 countries in negative territory and 19 in positive. Of particular mention, Greece shifted from contraction to expansion.

Yeah, that Greek print: fade it, because the country which so many expect to enter a Grecovery in 2014, may already be in Grecession: “In contrast to expectations of a 0.6 percent recovery after six years of recession, the Greek economy may in fact not grow this year and could even post a small contraction, the Foundation for Economic and Industrial Research (IOBE) claims in its latest quarterly report that was made public on Thursday.”

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

Submitted by Howard Kunstler via Kunstler.com,

The rot moves from the margins to the center, but the disease moves from the center to the margins. That is what has happened in the realm of money in recent weeks due to the sustained mispricing of the cost of credit by central banks, led by the US Federal Reserve. Along the way, that outfit has managed to misprice just about everything else  — stocks, houses, exotic securities, food commodities, precious metals, fine art. Oil is mispriced as well, on the low side, since oil production only gets more expensive and complex these days while it depends more on mispriced borrowed money. That situation will be corrected by scarcity, as oil companies discover that real capital is unavailable. And then the oil will become scarce. The “capital” circulating around the globe now is a squishy, gelatinous substance called “liquidity.” All it does is gum up markets. But eventually things do get unstuck.

Meanwhile, the rot of epic mispricing expresses itself in collapsing currencies and the economies they are supposed to represent: India, Turkey, Argentina, Hungary so far. Italy, Spain, and Greece would be in that club if they had currencies of their own. For now, they just do without driving their cars and burn furniture to stay warm this winter. Automobile use in Italy is back to 1970s levels of annual miles-driven. That’s quite a drop.

Before too long, the people will be out in the streets engaging with the riot police, as in Ukraine. This is long overdue, of course, and probably cannot be explained rationally since extreme changes in public sentiment are subject to murmurations, the same unseen forces that direct flocks of birds and schools of fish that all at once suddenly turn in a new direction without any detectable communication.

Who can otherwise explain the amazing placidity of the sore beset American public, beyond the standard trope about bread, circuses, and superbowls? Last night they were insulted with TV commercials hawking Maserati cars. Behold, you miserable nation of overfed SNAP card swipers, the fruits of wealth and celebrity! Savor your unworthiness while you await the imminent spectacles of the Sochi Olympics and Oscar Night! Things at the margins may yet interrupt the trance at the center. My guess is that true wickedness brews unseen in the hidden, unregulated markets of currency and interest rate swaps.

The big banks are so deep in this derivative ca-ca that eyeballs are turning brown in the upper level executive suites. Notable bankers are even jumping out of windows, hanging themselves in back rooms, and blowing their brains out in roadside ditches. Is it not strange that there are no reports on the contents of their suicide notes, if they troubled to leave one? (And is it not unlikely that they would all exit the scene without a word of explanation?) One of these, William Broeksmit, a risk manager for Deutsche Bank, was reportedly engaged in “unwinding positions” for that that outfit, which holds over $70 trillion in swap paper. For scale, compare that number with Germany’s gross domestic product of about $3.4 trillion and you could get a glimmer of the mischief in motion out there. Did poor Mr. Broeksmit despair of his task?

Physicist Stephen Hawking declared last week that black holes are not exactly what people thought they were. Stuff does leak back out of them. This will soon be proven in the unwinding derivatives trades when most of the putative wealth associated with swaps and such disappears across the event horizon of bad faith, and little dribbles of their prior existence leak back out in bankruptcy proceedings and political upheaval.

The event horizon of bad faith is the exact point where the credulous folk of this modern age, from high to low, discover that their central banks only pretend to be regulating agencies, that they ride a juggernaut of which nobody is really in control. The illusion of control has been the governing myth since the Lehman moment in 2008. We needed desperately to believe that the authorities had our backs. They don’t even have their own fronts.

Is the money world at that threshold right now? One thing seems clear: nobody is able to turn back the plummeting currencies. They go where they will and their failures must be infectious as the greater engine of world trade seizes up. Who will write the letters of credit that make international commerce possible? Who will trust whom? When do people seriously start to starve and reach for the pitchforks? When does the action move from Kiev to London, New York, Frankfurt, and Paris?

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