Around the Globe 07.26.2013

Japan central bank finds the pessimists come from within | Reuters.

Japan prices turn higher, but BOJ’s goal remains tall order | Reuters.

Japan Prices Rise Most Since ’08 in Boost for Abe: Economy – Bloomberg.

Yen per BBL of WTI
Japan is getting its inflation in the form of higher energy prices.  The price of oil in Japan has risen from under ¥7000 to ¥10,500 since November.  The mainstream media seem very excited about this, but I don’t understand how consumers spending more money on energy produced overseas rather than goods produced domestically will help the economy grow. 

One of the symptoms of Japan’s economic malaise in deflation.  Covering up the symptom with money printing does not seem like it will fix anything. 

Moody’s Sees Local Default as $21 Billion Matures: China Credit – Bloomberg.

China 7 Day Repo Rate 07.26.2013

The China Cash Crunch is threatening to break out again.  Word on the street is that the PBOC is keeping a lid on this widely watched rate to cover up the true extent of stress in its financial markets.  In the meantime, new Chinese leadership is hell-bent on reforms to the economy.  China’s government thinks it will be able to control the consequences of allowing some local government bonds to default.  Let’s hope they’re right. 

Greek Aid Slice Gets Green Light From Euro Zone –

Greek FlagWe all knew that Greece was getting its aid.  Each successive bailout has failed to make Greece’s debt load sustainable, and the country continues its slow bleed. 

A fourth bailout is out of the question before German elections.  Watch for Greece to use the ECB’s ELA program to remain afloat for a few months until a 4th Bailout can safely be arranged. 

ELA allows banks to present collateral to the ECB for cash. This is how Greece has used the system to remain solvent in between bailouts.  The Greek treasury issues T-Bills, which are immediately “purchased” by the banks.  Since the banks are bust, they present the paper to the ECB for cash, which is used to pay the treasury for their purchases in time for settlement. 

The recovery should start any minute now. 

Euro Zone Edges Toward Stabilization –

Draghi Pledge One Year On Rescues Bonds Not Economy – Bloomberg.

Markit Eurozone Flash PMI 07.2013

Draghi’s pledge and the resultant OMT program have allowed European sovereign bonds to rally tremendously in the last year.  Europe has also remained in the recession that entire time allowing debt ratios in the Eurozone to rise to 92.2% of GDP as of last count.  The PIIGS have not used this time wisely making very little progress towards reforming their economies.  At this point, we’re all curious about what will happen if a country actually must avail itself of OMT.  I have a feeling that the ECB will not be able to do whatever it takes when the time comes. 



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