Around the Globe 10.09.2013

Nothing to do but duck and cover if US defaults: Kyle Bass.

There is nowhere to run if the U.S. government defaults, but that isn’t stopping the US CDS from rising dramatically since the “crisis” began.  If the government really defaults, then the financial system will freeze, and no one will get paid on their hedges.  After a time, the government will get its act together and reopen.  The debt will come off default, and the CDS hedges won’t matter.

Obama to choose Yellen for top Fed job, markets relieved | Reuters.

Janet Yellen, a Backer of Pushing the Fed’s Policy Boundaries – WSJ.com.

Janet Yellen will easily be confirmed by the Senate.  Summers had administration support, but he was an unfavorable candidate from the perspective of the banksters.  Yellen is a known serial printer, but Summers would have probably ceased monetary easing.  The banksters spend a lot of money on the Senate, and this lobbying paid off.

At the very least, Yellen will continue to current program, and there is an excellent chance she may even add to it.  Bernanke would have begun winding down bond purchases had the government shutdown not intervened, so this development is being viewed favorably by the banksters and permabulls.

Icelanders Run Out of Cash to Repay Foreign Debts: Nordic Credit – Bloomberg.

Iceland must run a large current account surplus in order to generate the cash necessary to pay its debts, because foreigners will not invest in the country as long as the capital controls remain in place. Removing the capital controls is a giant gamble, but it is also the only way to take a shot at getting the country back to normal.  Expect no gambling from Iceland’s leaders.  They’ll have to go hat in hand to obtain another loan from someone.

Puerto Rico Yields Above Venezuela’s in Worst Rout: Muni Credit – Bloomberg.

U.S. Treasury Said to Have No Puerto Rico Assistance Plan – Bloomberg.

The Puerto Rican debt crisis is similar in form to the Eurocrisis. Ultralow rates have induced Puerto Rico to issue too much debt rather than cutting back on expenses. Furthermore, the dollar is too strong a currency for Puerto Rico, which renders the commonwealth noncompetitive on world markets.   You can say the same thing about Greece, Italy, Spain, Cyprus or even France.  There is no way to bail out a state or territory if it gets into trouble, which is similar to the relationship between the Eurozone countries and the ECB.  Saving Puerto Rico would require an act of Congress, and that does not seem likely at the present juncture.

Around the Globe 09.23.2013

Yellen Would Bring Tougher Tone to Fed – WSJ.com.

Fed watchers have redesignated Janet Yellen as the frontrunner to replace chairman Ben Bernanke.  What no one has discussed is who will replace Jon Hilsenrath as unofficial Fed mouthpiece?

Journalists must straddle a fine line between treating subjects with kid gloves to obtain access and while maintaining the necessary distance to continue objective reporting.  Hilsenrath became too close to Bernanke and the Fed so that he was no longer a reporter, merely a conduit of information from his anonymous source.  This fact bodes well for his retaining his unofficial title as he has proven himself in the role.

Moreover, he is off too a good start to gaining the favorite’s confidence with this puff piece.  Clichés like “hard-charging” and “demanding” are deployed while we learn little about the candidate that we already did not know.  All you really need to know about Janet Yellen is that she is the candidate most willing to crank up the magic money machine to 11, and that is why she is garnering crucial support of the financial industry that will vault her into the role come 2014.

Triumphant Merkel starts tough task of seeking coalition | Reuters.

Merkel Wins Big in German Election – WSJ.com.

Merkel’s Victory Is Stunning and Depressing – Bloomberg.

Angela Merkel, courtesy of Armin Kübelbeck http://commons.wikimedia.org/wiki/File:Angela_Merkel_15.jpg

Germany experienced a shift to the right in Bundestag elections. Merkel’s own party drew support not seen since Helmut Kohl unified Germany and the two libertarian parties polled over 9% of the vote.

Much to both parties’ chagrin, the new AfP siphoned critical support away from FDP so that neither earned the 5% necessary to enter the Bundestag.  So while Merkel received a large mandate, in practice it will be difficult to exploit this as she must either enter a grand coalition with the Social Democrats or pick one of the small, leftist parties with which to govern.  This means that Merkel will rule from the center again, which probably indicates a more dovish approach to dealing with the periphery.  Get ready to open your wallets, Germans.

China’s Data Suggest Rebound – WSJ.com.

Fox News likes to tell us that they report and we decide; not that it works this way in practice, but at least the issue is on their radar.  On the other hand, the affiliated Wall Street Journal does not offer a similar claim.  This is probably why it has reported that China flash PMI has risen to a six month high and decided that the number indicates an economic rebound.

Well, you’re not the boss of me, Wall Street Journal! I am deciding that the six month high in Chinese data represent easy money shenanigans courtesy of your PBOC.  The green arrow indicates the July low in PMI that was cured by record injections of liquidity into the Chinese financial system.  Some of this money is being used to inflate export receipts to create additional funds to invest outside the country, and that is why PMI is rising.  In reality, Chinese manufacturing remains stagnant, not good but not bad either, more like meh.

Euro-Zone Business Activity Rises – WSJ.com.

Journalists travel in the circles of banksters, central banksters, government officials and corporate leaders so their views of the economy are very much influenced by these groups.  If you belonged to one of those groups, you could be forgiven for believing that the economy is doing well.  Stock markets are frothy, and now these PMIs are rising indicating a little GDP growth, which is at least better than a contraction.

However, the truth lies in the PMI employment component, which was given short shrift by the mainstream media.  If you take a peek at our chart, you will discover that the Eurozone’s “recovery” just applies to those who own stocks and bonds while employment in the periphery continues to contract. Cheap money may be able to assist corporations financially engineer profits, but it does not seem to promote employment no matter which of the alphabet soup of central banksters you choose: the Fed, BoE, BoJ or ECB.

Draghi Says ECB Will Offer More Long-Term Loans If Needed – Bloomberg.

Draghi Says ECB Willing to Consider More Loans to Banks – WSJ.com.

There are two reasons for doing something: the real reason and the reason one uses.  The reason Draghi is using to print more money is some wonkish and obscure factors regarding “monetary transmission.” The real reason that Draghi will gladly offer another round of LTROs is that sick European banks cannot easily fund themselves.  Since they are keeping their host countries afloat by continuing to purchase sovereign debt, they cannot be allowed to fail.

 

 

Around the Globe 05.13.2013

A Top Contender at the Fed Faces Test Over Easy Money – WSJ.com.

Here are the reasons that the Janet Yellen will be nominated as next head of the Federal Reserve.

First, Dr. Yellen has been an outspoken advocate for money printing.  In fact, the current policy is probably a bit too hawkish for her.  If you think the printing presses are running at full speed now, wait until she takes over in the beginning of 2014.  While the current Fed chatter is revolving around an exit strategy, she will advocate raising the Fed’s monthly bond purchases once she assumes the chairmanship.  This position guarantees her the support of the TBTF banks.

Second, the current administration would love to nominate the first female Fed head.  This is the type of maneuver that will strengthen the Democrats’ support with female voters.  While she is not a close supporter of the Obama administration, she is not an enemy either and has played the political game rather well.  In fact, President Romney may have nominated her for the position, too.

Last, Jon Hilsenrath just wrote this puff piece extolling her virtues and keeping the criticism light, just the way chairmen like it.  This article will assist him in retaining his title as unofficial Fed spokesman.

Bank of Israel Unexpectedly Cuts Lending Rate – Bloomberg.

Central banks for one-quarter of the world’s GDP have cut rates in the last month since Japan announced the start of Printapalooza.  Since Draghi’s pledge and Bernanke’s QEternity announcement, the shekel has gradually strengthened save for a brief respite during the lead up to U.S. presidential elections.  The move surprised markets, and the shekel weakened as a result.  As long as inflation remains low, the world central banks will continue easy money policies.

Bond Sales to Fall 1st Time Since 2010 as U.S. Revenue Soars – Bloomberg.

Are Bond Vigilantes Taking On the Fed?.

The Fed continues printing money to purchase $85bn in U.S. government and mortgage bonds ever month.  The steady improvement in the government’s finances over the past few years is shrinking the supply of eligible debt for the Fed’s program.  Within a few months, the Fed will be buying all of the Treasury’s new issues.  Furthermore, some of Kuroda’s newly printed yen will find a home in the U.S. treasury market.  As low as yields have gone, they still have further to fall.

Euro Recession Seen Longest in Single Currency Era – Bloomberg.

How long can the Eurozone recession continue? As long as the continent uses the euro, it will be doomed to contraction.  The only large country exhibiting economic growth is Germany, and it is barely mustering a 1% rate.  With looming slowdowns in the U.S. and China, Germany may join France, Italy and Spain in recession as export orders fail to materialize.

Insight: Housing improvement may herald return of U.S. workforce mobility | Reuters.

Lots of negative equity and few good jobs across the country will keep people from moving.  Those facts do not dissuade the authors from attempting to be the first to spot a trend.  If they are correct, they will puff their chests proudly and boast of their insight.  If they’re wrong, they’ll just keep writing articles until they are right.  That’s pretty good racket.

Is the Canadian Housing Market Falling Apart?.

Canada did not figure out a magical formula for economic growth.  Rather, a natural resources boom fueled the economy resulting in a housing bubble that is putting the American version to shame.  Eventually, Canada will have its own version of the American housing crisis complete with its own recession, but it will have to wait until oil prices drop.

Weaker Yen Raises Hope and Fear – WSJ.com.

Nikkei hits new 5-1/2-year high on weak yen; financials, exporters lead | Reuters.

The Yen briefly crested above 102 Monday morning in Tokyo.  While the cheap currency will continue to fuel stock markets throughout the world, it will not revive the Japanese economy.  All those factories moved out of Japan years ago.  70% of the cars for the U.S. market are made in the U.S.  Furthermore, while the yen may make Sony products cheaper, Sony has nothing to sell you.  All of the cool electronics are now made in China or South Korea, and they are designed in Silicon Valley.