Around the Globe 11.05.2013

BOJ Gov. Kuroda Calls Easing Steps Successful –

BOJ Struggles to Convince on 2% as Abenomics Shine Fades – Bloomberg.

Japan Salaries Extend Fall as Abe Urges Companies to Raise Wages – Bloomberg.

Japanese Incomes  Japanese GDP Performance Through 2Q2013

Japanese Inflation Rate


Printapalooza throughout the world continues, but the Bank of Japan is leading the world in money creation.  Printing inflates asset prices while deflating labor costs, i.e. wages.  In the first chart, note the trend of Japanese wages since the BoJ began printing over a decade ago.  It is not surprising that the Japanese economy is weak, because consumers have been on a slow, inexorable wage reduction for almost 15 years.  The current round has proven ineffective at raising GDP growth, as illustrated in our second chart.  Indeed, Japan witnessed stronger growth in the aftermath of Lehman than it is under Abenomics, which is also the last time Japanese inflation exceeded 2%.  If you examine the third chart, you can see what happened after the last three times the mainstream financial press called an end to Japanese deflation.

In the meantime, the export and stock market gains fueled by the weak yen have probably peaked.  The USDJPY exchange rate is highly correlated to the ratio between BoJ and Fed assets.  As our last chart details, the market has already priced in the more rapid expansion of the BoJ’s balance sheet.  A reduction in Fed purchases, the dreaded taper, will allow the yen to depreciate further.

BoJ to Fed Balance Sheet Ratio vs. JPYUSD


Service Industries in U.S. Grow at Faster Pace Than Forecast – Bloomberg.

Service sector exapnds more than expected in October: ISM.

U.S. service sector growth quickens in October: ISM | Reuters.

ISM NMI 11.2013

The economic data continues to tell a tale of stagnation.  The MFP is breathlessly reporting that the services PMI beat the consensus forecast despite the “shutdown.”  Numbers above 50 signal expansion, but a 55.4 is nothing to write home about.  Expected GDP growth at this level is below 2%, which is far below the 3.5% growth required to stir the labor market.

Pressure mounts on Draghi following eurozone forecasts –

Rehn Confident Greece to Meet Targets as Troika Talks Resume – Bloomberg.

EU Forecasts Sluggish Growth as Austerity Continues –

EU cuts euro zone growth forecasts for 2014.

Uncertainty over ECB caps moves in shares, euro | Reuters.

Euro Fair Value at 1.37


Everyone is trying to predict what the ECB will do on Thursday: will it cut rates or not? Most commentators seem to believe that the ECB will cut its discount rate, because the EU just cut its Eurozone growth forecast for 2014 to 1.1%.  The EU has been relentlessly cutting growth forecasts since 2010, so there is no crisis here.  The only thing you need to know about how the ECB will conduct monetary policy is contained in the chart above.

As long as the euro remains weak enough to promote German exports, there will be no rate cut to lower the euro exchange rate.  If the euro attains and maintains the low $1.40’s for a time, then there will be a rate cut.  At the current rate of $1.35, Germany is benefiting from both low inflation and a weak currency.


Around the Globe 04.18.2013

Italian parliament fails to elect state president | Reuters.

Italian 10yr Yield 04.18.2013

Bersani wants to form a government and needs Berlusconi’s support to do so.  A political deal was made between the two coalitions, and they agreed to jointly support Franco Marini for President.  However, the choice angered half of Bersani’s supporters, and they refuse to vote for his chosen candidate.  The uprising appears to be lead by Florentine mayor Matteo Renzi.  Until this deadlock is resolved, there will be no movement on forming a government.  Meanwhile, markets are taking all of this in stride.  Italian debt is at recent lows thanks to traders attempting to frontrun BoJ money printing.

More Children in Greece Are Going Hungry.

Cyprus, if you’re paying attention, this is the cost of remaining within the Eurozone.  In order to preserve the status quo for banksters, politicians, public employees and Germany, the children of Greece must be sacrificed on the altar of the euro.  Do you still want that bailout?

Japan March Exports Exceed Analyst Estimates After Yen Slide – Bloomberg.

The mainstream media’s enthusiasm for money printing is giving birth to the “Japanese Recovery Meme:”

Better-than-forecast trade numbers add to positive signs for Japan’s economy…

C’mon Bloomberg, give some support for the statement.  What are the positive signs?

Notwithstanding that Japan’s trade numbers remain abysmal and this is merely a blip upward amidst a very troubling trend, what exactly are the positive signs that this news adds to? The stock market is rising as traders frontrun the BoJ, but  industrial activity and consumption remain depressed.

In the real world, Japan has experienced positive growth in only one of the last five quarters, and retail sales have declined in the last two consecutive months on a year over year basis:

japan-retail-sales-annual japan-gdp-growth

‘Sense of Urgency’ as ECB Rate Cut Talk Rises.

The Eurozone’s dire situation is way beyond the help of an ECB rate cut.  All this action will do is push markets higher with virtually no effect on the economic situation on the ground.  There is plenty of money in the Eurozone, but banks are unwilling and unable to lend it due to weakness of their balance sheets and the economy.

My favorite quote in the article:

Europe’s economy is not out of the woods yet, so the ECB is keeping all its policy options on the table and that is the sensible way to go about it, especially if they are concerned about German growth slowing.

Stating that Europe is not out of the woods yet implies that they are moving in the right direction.  Europe is still lost as it foolishly clings to the euro despite all of the evidence that the common currency is the cause of its economic decline.

If I Were ‘Dictator,’ QE Would End Now, Fed’s Lacker Says.

Ending QE now would create a market panic, so let’s all give thanks that Lacker is not in charge.  Once a central bank commences money printing, it cannot stop.  After the effects of the current program wear off and markets begin to waver, the Fed will announce another round.  The excuse for this market support will be that employment is still weak.  The Fed cloaks its policy for the rich with concern for the worker.

Morgan Stanley Beats Estimates on Brokerage-Revenue Gains – Bloomberg.



The TBTF bank story remains the same.  Profits rise due expense cuts and a bull market while revenue continues to fall.  Morgan Stanley relied on increased profits from its wealth management arm for this quarter’s results.  As asset prices increase due to money printing, it earns more money from clients who pay a fixed percentage of their portfolio values in management fees.  Larger portfolios mean more fees without having to perform extra work.  Once the markets stop rising, profits will fall dramatically.  Perhaps this is why the TBTF firms have been beat up this week.

Nokia Sales Hit 13-Year Low as Phone Demand Falls Short – Bloomberg.

NOK 04.18.2013

From BBG

Nokia is dying.  Using Windows as its phone operating system was the wrong move.  Microsoft’s OS is an also ran in the smartphone arena with single digit market share.  If Nokia begins offering smartphones run by Android, there is no reason why the company cannot reverse its descent.

U.K. Retail Sales Drop More Than Forecast on Weather: Economy – Bloomberg.

Wow, the weather must have been really fierce in the U.K. to cause such a drop in retail sales.  There must have been many days below freezing with a couple of blizzards.  Actually, the temperatures were mostly in the 40’s with no unusually strong storms:

London March Weather 2013 – AccuWeather Forecast for City and County of the City of London United Kingdom.

Ignoring the hype for a moment, the real reason British sales are down is because the economy is not performing well.