145 Years Of Japanese “Growth” And Inflation

Well into the second year of Abenomics, doubts have risen about the effectiveness of Japanese Prime Minister Shinzo Abe’s approach of boosting economic growth and overcoming deflation via ‘three arrows’ of monetary, fiscal, and structural policy. Yet another set of disappointing data recently released for July has reinforced these doubts. As several key turning points approach before year-end, whether Abenomics will succeed or stumble is at the forefront of most traders’ minds (whether they understand that or not). In the interest of some context for just how far Japan has fallen, we present 145 years of growth and XX-flation for the Japanese economy…

This post was published at Zero Hedge on 09/03/2014.

Unions are Not Capitalism

Labor unions are a dying breed. According tothe Pew Research Center, union membership in America ‘is at its lowest level since the Great Depression.’ In 1983, there were approximately 17.7 million union workers. Today, that numberstands at 14.5 million, with every estimate showing a continued downward trajectory. Clearly, the Norma Raes of the world are going extinct.
But as Samuel Johnson quipped, one should never dismiss the triumph of hope over experience. In celebration of Labor Day, the leftie rag New Republic recently published an interview with labor strategist Rich Yeselson defending the role of unions in the U. S. As a labor organizer, Yeselson’s bias is on full display. Instead of giving an objective view of stagnating union membership, he obfuscates to boost his own profession.
When asked if unions are dead, Yeselson rightly says ‘no’ while pointing out that millions of Americans are still active members. Unions not only retain fairly hefty membership, but also own valuable real estate in big cities and pension funds worth billions of dollars. Despite declining membership, there is still plenty of capital left over from organized labor’s heyday.
Fancy buildings and promised retirement benefits aren’t enough to reverse the downward trend however. Public opinion about unions is also on the decline. Between Volkswagen plant workers voting against joining the United Auto Workers and the confectionary company Hostess declaring bankruptcy to rid itself of unionized employees, there is a growing perception of greed directed at labor organizers. There is also the uncomforting fact that state and local governments – the industry most heavily unionized in the country – areunderwater on their pension obligations.

This post was published at Mises Canada on September 2nd, 2014.

Eurobonds – the Coming Federalization of Europe

Europe will move to Eurobonds for now Brussels gets it – if the euro fails, they lose their jobs in Brussels. Individual government bond issues have prevented the Euro from becoming a major currency and it now trails even the Chinese Yuan in trade. Nonetheless, some are trying to argue such as the German bank co-chief Anshu Jain that he naively claims that maintaining separate debts for each country is strangely an important disciplining effect for debt reduction. The problem with his view – government do not pay back debt and that includes Germany as is the case with the USA. Where is the discipline?
The Eurobonds are coming when the ECM turns down from 2015.75 and this will be seen as the great solution…

This post was published at Armstrong Economics on September 3, 2014.

“A Printer And A Prayer” – The Three Problems With The Fed “Liquidity Coverage Ratio” Plan

A little over a week ago we wrote that in order to mitigate problems arising from record debt and soaring NPLs, the G-20 had a modest proposal for global banks: more debt. Specifically “in November said leaders will agree “that the world’s top banks must issue special bonds to increase the amount of capital which can be tapped in a crisis instead of calling on taxpayers to come to the rescue, industry and G20 officials said.” In other words, suddenly the $2.8 trillion in Fed injected excess reserves, split roughly equally between US and European banks, are no longer sufficient, and while regulators are on one hand delaying the implementation of Basel III and its tougher capital rules, on the other they are tactically admitting that whatever “generous” capital buffer banks have on their books right now will not be sufficient when the next crisis strikes.”
The proposal for the first time introduced GLACs, or bonds known as “gone concern loss absorption capacity”, seen by regulators as essential to stopping the world’s 29 biggest lenders from being “too big to fail.”
Some of our thoughts at the time: “according to the G-20, instead of having to collapse liabilities to offset that scourge of the New abnormal, namely Non-Performing Loans, banks are hoping to lever up, pun intended, the current scramble for yield and instead beef if up their cash asset, even if it means increasing the liability side of the balance sheet by issuing more debt. Because really all the GLAC do is limit how the banks may use the proceeds from such bond issuance. Then again, these being banks, one can be certain that the moment the GLAC cash is wired in, the funds will be used to ramp risk instead of sitting in a drawer somewhere, awaiting rainy days. Because nobody in a bank is paid for avoiding a crisis, and everyone is paid to generate a return even if it means making the systemic bubble even bigger.”

This post was published at Zero Hedge on 09/03/2014.

Gold Daily and Silver Weekly Charts – Non Farm Payrolls – Freedom Is Best

“The stupidity of the average man will permit the oligarch, whether economic or political, to hide his real purposes from the scrutiny of his fellows and to withdraw his activities from effective control…
The American business oligarchy is not as hereditary as European landed aristocracies, but is for that reason neither more virtuous nor less tenacious in clinging to its power and privilege.”
Reinhold Niebuhr, Moral Man and Immoral Society
Dico Tibi Verum, Libertas Optima Rerum Nunquam Servili Sub Nexu Vivito, Fili.
‘I tell you the truth, my son, that the best of all things is freedom. Never live under the bondage of slavery’.
William Wallace Memorial
Markets continue to slough off the geopolitical drumbeat to war that Obama and his Merry Neo-cons are playing. Even a cheery beige book was unable to turn that market frown completely upside down. Profit taking is underway in stocks. I suspect that this means that we are soon to see another wash and rinse ahead of the Alibaba IPO which is a bit more than twenty days away.

This post was published at Jesses Crossroads Cafe on 03 SEPTEMBER 2014.

Mr. Cantor Goes to Wall Street

Hightailing it out of the United States House of Representatives after losing his reelection effort in the Republican Party primary is paying off well for uber war advocate and former House Majority Leader Eric Cantor (R-VA). With four months remaining in the House term he left early, Cantor is already literally raking in his Wall Street millions. The New York Times reports the lucrative figures of Cantor’s new job at a ‘Wall Street boutique investment bank’:
Mr. Cantor will be joining Moelis & Company as vice chairman and a director on its board, the firm said on Tuesday. He is expected to serve as a senior adviser to the firm’s clients on strategic matters.

This post was published at Ron Paul Institute on September 3, 2014.

Scotiabank Expects A Dovish Draghi, But Markets Will Be Disappointed

Draghi’s Difficult Dance
Draghi’s clever Jackson Hole speech unleashed financial market expectations of additional stimulus measures at Thursday’s meeting. However, the situation is complicated. Thus, numerous interpretations have unfolded on what he signaled (or didn’t signal) and on what types of ECB-led solutions are possible. Some pundits have argued that large-scale QE for Europe would do more harm than good. Regardless, markets are likely to be disappointed as the October meeting seems to be a more practical time for any announcement.
Draghi further complicated quarrels by saying that such a program would ultimately not be effective without action that occurs in parallel with fiscal changes. In his concluding remarks, for example, he said that ‘a coherent strategy to reduce unemployment has to involve both demand and supply side policies, at both the Euro area and the national levels.’ (some have referred to this as Draghi’s three arrows)
He was basically telling politicians that the stance of Eurozone fiscal policy needed to be re-examined. His New-Keynesian framework probably did not go over well in Berlin. It was leaked in the German press that Merkel called Draghi after his speech. He might have chosen to lecture politicians, because of his tacit acknowledgement that the economy is facing a liquidity trap; implied by his comment, ‘due to the zero lower bound constraint, there is a real risk that monetary policy loses some effectiveness in generating aggregate demand’.
Draghi is a savvy political operator. He is fully aware of the limitations and consequences of a sovereign debt QE program. He knows that a central bank’s willingness to purchase a country’s debt (in ‘whatever -it-takes’ quantities), basically places an implicit cap on the price of a country’s funding. Such a program rids a government of fiscal discipline, while simultaneously eliminating the spikes in yields that would normally result. Complacency or fiscal stalemate ensues; enabled specifically by monetary actions.

This post was published at Zero Hedge on 09/03/2014.

sept 3/GLD loses another 2.69 tonnes of gold as inventory drops to 790.51 tonnes/Strangely silver inventory at the SLV rises by 1.918 million oz/inventory at SLV now 333.446 million oz/gold and s…

Gold closed up $5.20 at $1268.90 (comex to comex closing time ). Silver was up 4 cents at $19.11
In the access market tonight at 5:15 pm
gold: $1269.50
silver: $19.18
Gold and silver equity shares languished despite gold’s rise. Silver also was in the dumpster most of the day. A good sign that the boys are going to raid again tomorrow. The bankers just do not like the high OI on silver and it is driving them crazy.
GLD : a loss of 2.69 tonnes of gold (inventory now at 790.51 tonnes)
SLV : a rise of silver inventory to the tune of 1.918 million oz at the SLV/now 333.446 million oz
Today we have commentaries concerning the Ukraine, Russia, France, Japan and the terror of ISIS and Ebola.
We will discuss these and other stories
So without further ado………………
Let’s head immediately to see the data has in store for us today.
First: GOFO rates/
All months basically moved towards the negative needle.(except one year)
London good delivery bars are still quite scarce.
Sept 3 2014
1 Month Rate: 2 Month Rate 3 Month Rate 6 month rate 1 yr rate
.076000% .0880000% .10400% .13600% .2280000%
September 2.2014:
1 Month Rate 2 Month Rate 3 Month Rate 6 month Rate 1 yr rate
08200% .10000% .118000% .14600% .22000%
Let us now head over to the comex and assess trading over there today,

This post was published at Harvey Organ on September 3, 2014.

Ecuador will be the First Country to Start Digital Currency

Ecuador has announced it will begin to circulate electronic currency created by its central bank in December. This is the way of the future. They often take a country like this for the test case. Ecuador will begin the process and we will see it swing to the USA and Europe during the decline in the ECM after 2015.75. This is the way to the future.
Ecuador’s currency is effectively the US dollar. Ecuador is planning to take the first step toward abandoning the country’s existing currency, the U. S. dollar as people perceive the action. But this is a trial run for the USA since it will be a digital replacement that is going to emerge as a new electronic currency.

This post was published at Armstrong Economics on September 3, 2014.

Icahn, Soros, Druckenmiller, And Now Zell: The Billionaires Are All Quietly Preparing For The Market Drop

“The stock market is at an all-time, but economic activity is not at an all-time,” explains billionaire investor Sam Zell to CNBC this morning, adding that, “every company that’s missed has missed on the revenue side, which is a reflection that there’s a demand issue; and when you got a demand issue it’s hard to imagine the stock market at an all-time high.” Zell said he is being very cautious adding to stocks and cutting some positions because “I don’t remember any time in my career where there have been as many wildcards floating out there that have the potential to be very significant and alter people’s thinking.” Zell also discussed his view on Obama’s Fed encouraging disparity and on tax inversions, but concludes, rather ominously, “this is the first time I ever remember where having cash isn’t such a terrible thing.” Zell’s calls should not be shocking following George Soros. Stan Druckenmiller, and Carl Icahn’s warnings that there is trouble ahead.
Billionaire 1: Sam Zell
On Stocks and reality…

This post was published at Zero Hedge on 09/03/2014.

SP 500 and NDX Futures Daily Charts – Getting Sentimental

“Also, it was in 1987 the previous time the Investors Intelligence service said in its survey that Bears fell to 13. Today, Bears fell to 13.3 for the first time since then vs 15.1 last week. Bulls rose to 56.1 from 52.5 and the spread at 42.8 pts puts the difference back in the ‘dangerous’ camp according to II. Above 30 is a ‘worry.’
I want to emphasize that this is not a timing mechanism and is just a SHORT TERM indicator but at least should put to rest the belief that this is somehow a ‘hated’ rally when bears are at a 27 year low.”
Peter Boockvar
“Adversity makes men, and prosperity makes monsters.”
Victor Hugo
I don’t think that the rally is ‘hated.’ But I do think that the stock market and Wall Street have become generally despised and seen as fraudulent. AAPL was a drag on the NDX, ahead of its new product announcements. Everything in this market today smelled of profit taking. And well it could be, given the rocket like bounce that the indices took off the end of the last wash-rinse cycle. And for those who called me foolish in forecasting this bounce, how that’s perma-bearishness working out for you so far?

This post was published at Jesses Crossroads Cafe on 03 SEPTEMBER 2014.

In Bankrupt Argentina CDS Auction, Barclays Buys Whatever JPM Has To Sell; Citi Goes For The Hail Mary

It has been a while since Creditex ran a CDS settlement auction of any note for two reasons: CDS no longer is a credible or legitimate method to hedge against default risk (see Greece, Banco Espirito Santo), thus making the stated purpose of CDS irrelevant, and when the default carries with it systematic risk ISDA will simply screw over CDS-holders and change terms whenever it sees fit following a few politically-connected phone calls, at which point good luck collecting on your “insurance.” Which is why the just concluded Argentina CDS settlement auction following its bankruptcy last month, was a welcome reminder of what markets looked like in the BC (Before Central-planning) era.

This post was published at Zero Hedge on 09/03/2014.

Infographic: Gold History and Mining in the USA

The United States has always had a love affair with the yellow metal. It all started in Stafford, Virginia in 1782, when Thomas Jefferson documented the first gold discovery himself.
Since then, Americans have been searching for gold far and wide. The California Gold Rushbrought hundreds of thousands of people to the West in search of newfound wealth. Years later, many more ventured into Alaska’s wilderness to hit it rich.

This post was published at Gold-Eagle on September 2, 2014.

AAPL’s Worst Dump In 7 Months Sparks Nasdaq Slump

China’s Services PMI for August veered upwards, but that’s not the news. Noting that China’s massive but fracturing bubble in unused luxury apartments (upwards of 70 million are empty) is a serious headwind, analysts for HSBC were quick to plead for more stimulus:
The economy still faces downside risks to growth in the second half of the year from the property sector slowdown. We think policy makers should use further easing measures to help support the recovery.’
Stunning. Even the comrades in Beijing know that China’s credit tsunami has unleashed a dangerous speculative mania throughout the land that has no parallel in human history. For crying out loud, total credit outstanding (which Beijing’s red capitalists are pleased to call ‘social financing’) has exploded from $1 trillion at the turn of the century to $25 trillion today.
It goes without saying that there is nothing in the financial world more dangerous than easy credit. But when it multiples by 25X in just 14 years in an economy where there is essentially zero market discipline (because all debts are bailed-out and rolled-over when push comes to shove), you are dealing with a monumental catastrophe in the making.

This post was published at David Stockmans Contra Corner on September 3, 2014.

“Deflation In Europe Is Just Beginning”… And How To Trade It

Deflation in Europe is Just Beginning
Differently than Russia/West crisis, the problem of deflation in Europe is far more structural of an issue, likely to hold the stage for the foreseeable future.
As often stated, we believe Europe looks like Japan in the early 90′s. Similarly to Japan, Europe has few unmistakable connotations at interplay:
High level of indebtedness, drawing resources away from productive investments into sterile debt service. Overvalued currency, especially to peripheral European countries (30% overvalued against D-Mark, 40% overvalued against the rest of the world). Peripheral Europe is experiencing a currency crisis as if they borrowed in foreign hard currency. Secular trend of falling working population mixed with falling productivity rates. The data released in the past few weeks provided evidence of European growth having grounded to a halt for most countries, including Germany. Italy dipped in triple-dip technical recession, while France slowed down concerningly and even Germany contracted in Q2. All the while, inflation averaged 0.3% for the Euro Area as a whole, well below the ECB target and on a clear downtrend.
In Japan in the early 90′s, it took four years for disinflation to become deflation, under the push of a strong Yen and with the help of an inactive Central Bank dismissing such risk until late.
Likewise in Europe, the EUR is far too strong when measured against GDP growth prospects and productivity trends. A misleading current account surplus of 200bn only managed to make it stronger (overshadowing imbalances across countries in Europe), together with a shrinking balance sheet of the ECB for almost Eur 1 trn on deleverage flows and LTROs repayments.

This post was published at Zero Hedge on 09/03/2014.

Homebuilder Stocks Getting Hit Again Despite Higher Dow

[note: the DJUSHB Dow Jones Home Construction Index has hit a new low on the day since I posted this report – it’s down almost well over 2% nearly 3% now] Despite what seems to be an inexorably rising stock market, the homebuilder stocks continue their negative divergence from the direction of the general market. In fact, the homebuilder stocks dropped over 1% at today’s market open despite another unexplained ‘pop’ in the S&P 500.
The message of the market is unmistakable: the housing sector is tanking (click to enlarge).
This is despite the fact that 30-yr mortgage rates have come down to their lowest level in a year. That fact that buyers are disappearing is reflected in today’s mortgage purchase applications report from the Mortgage Bankers Association which showed another 2% drop in applications files vs. the previous week and a 12% plunge from a year ago.

This post was published at Investment Research Dynamics on September 3, 2014.

What does a ‘good’ Chinese adjustment look like?

People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason. But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right. The sensitivity of the poor to injustice is a trivial thing compared with that of the rich.
– John Galbraith, The Age of Uncertainty
Malinvestment occurs when people do stupid things with free money. One of the characteristics of malinvestment is its dominance; i.e., other investments have little chance of competing. Malinvestments always bust and end in liquidation.
– Joan McCullough, writing yesterday in her daily commentary
Worth Wray and I have been writing for some time now about the problems that are developing in China. Worth is somewhat more pessimistic about the outcomes than I am, but we agree that China is problematic. China is the number one risk, in my opinion, to global financial economic stability, more so than Europe or Japan, which are also ticking time bombs.

This post was published at Mauldin Economics on SEPTEMBER 3, 2014.

Citi Warns Every FX Trade Is The Same Carry Trade Now

In Citi’s Steven Englander’s latest note, he notes that every major FX trade in place right now is a carry trade in one form or another, differing only in their scope and in the risk they entail. This has 5 significant implications…
Via Citi,
This note argues that every major FX trade in place right now is a carry trade in one form or another, differing only in their scope and in the risk they entail. Consider the following trades that encompass the vast majority of FX trades in place:
1) In Asia, long CNH, short USD
2) In G3, long USD, short EUR and JPY
3) In G10 long AUD and NZD, short G3
4) Globally, long EM, short G3
In the short term, we think 2) remains the most robust because acutely disappointing economic outcomes will likely induce ECB and BoJ action. If anything, FX moves are lagging moves in vol-adjusted carry. Fear of more aggressive Fed tightening is the likely driver of higher volatility but this would push spreads further in favor of the USD, offsetting some of the impact of higher volatility. Hence, these carry trades are not as vulnerable as 3) or 4) to Fed-induced volatility. However, we saw earlier this year that long USD against EUR and JPY is sensitive to generalized position unwinds, at least temporarily.
On a 2-4 month horizon 3) and 4) are the most vulnerable because we expect investors to become much less certain that the Fed pricing pace will be as shallow as the market now expects (link), and they would be hit doubly by any backing up of volatility. We look to payrolls and FOMC this week and next as potential triggers for an unwind of these trades, but we think there will be more sensitivity once QE is ended and the unemployment rate falls below 6% — most likely in early November.

This post was published at Zero Hedge on 09/03/2014.

Gold price suppression needs no whistleblowers; it’s in the open because nobody notices

Over the long Labor Day holiday weekend in the United States GATA's secretary/treasurer Chris Powell sent the following e-mail to many financial journalists and mining company executives in the hope of calling their attention to the latest smoking-gun proof of central bank intervention against the gold market and other markets.
Dear —–:
The Gold Anti-Trust Action Committee is publicizing a document discovered last week on the Internet site of the U.S. Commodity Futures Trading Commission. It suggests that central banks are surreptitiously intervening in all major futures markets operated by CME Group — that is, suggests that all these markets are rigged. This strikes me as a pretty big news story and I've sent it to many major news organizations in the hope of inducing them to pursue it. See what you think. The document and some context for it can be found at GATA's Internet site here:
Of course there were few acknowledgments, but one mining executive did reply cordially, to the effect that 1) conspiracies are hard to keep secret, 2) despite GATA's many years of exposing market manipulation not one disgruntled employee or former spouse or jilted lover has ever come forward to describe how the manipulation works. Until he could see information from someone actually involved in gold price suppression, he wrote, he would remain a skeptic.
Chris Powell replied as follows….

This post was published at GATA