>
> (email exchange)
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> The following houses have lowered Q1 GDP:
>
> BAC, GS, Barclays, Noumura, DB, MS… most to just above 2% (2.1% for GS from 2.3%) or
> just below ( Nomura 1.9% from 2.1%). Barclays lowered their estimates by a full 0.4%
> to 2% flat.
>
Yen Drops Versus Peers as Tankan Fuels Easing Speculation
Right!
Lower rates!
More QE!
Be patient, monetary policy works with a lag
It’s only been 20 years
Hyper inflation is just around the corner…
Yen Drops Versus Peers as Tankan Fuels Easing Speculation
April 2 (Bloomberg) — The yen weakened versus all of its major peers after a Bank of Japan (8301) report showed that sentiment failed to improve at the nation’s largest companies, stoking prospects the central bank will boost monetary stimulus.
The Japanese currency slid against the dollar and euro as signs that manufacturing is improving in the U.S. and China, the world’s two biggest economies, undermined demand for haven assets. The euro remained higher after a quarterly gain versus the greenback as European governments called for a bigger global financial emergency fund after engineering a firewall to fight the region’s debt crisis.
“The worse-than-expected Tankan survey seems to be fueling talk that the BOJ will ease policy further,” Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore, said about the central bank’s quarterly sentiment survey. “This is probably leading to selling of the yen.”
The yen lost 0.4 percent to 83.18 per dollar as as of 10:19 a.m. in Tokyo. It slid 0.4 percent to 110.97 per euro. Europe’s 17-nation currency was little changed at $1.3341 after rising 3 percent versus the greenback in the three months ended March 31.
The Tankan index for Japan’s largest manufacturers was unchanged last quarter from minus 4 in December, the BOJ said today in Tokyo. That was less than the median estimate of minus 1 in a Bloomberg News survey of economists. A negative number means pessimists outnumber optimists.
BOJ Meetings
BOJ policy board members are scheduled to meet April 9-10 and April 27 this month. The central bank held off from expanding asset purchases at its meeting in March as it monitored improvements in the economy. In February, it expanded bond purchases by 10 trillion yen ($120 billion) and set a 1 percent inflation goal in February.
The Institute for Supply Management’s factory index for the U.S. probably rose to 53 last month from 52.4 in February, according to the median estimate of economists surveyed by Bloomberg before the figures are released today.
An index of Chinese manufacturing climbed to 53.1 last month, the highest since March 2011, the logistics federation and the National Bureau of Statistics said yesterday. The measure has a pattern of rising each March.
bit more bad news for housing
Japan Must Overhaul Taxes to Avoid Bond Rout, Bank Lobby Says
Translation: Japanese bankers are against growth because it might cause losses from rate hikes?
Japan Must Overhaul Taxes to Avoid Bond Rout, Bank Lobby Says
By Shigeru Sato and Takako Taniguchi
April 1 (Bloomberg) — Japan must avoid delaying an overhaul of the tax system to prevent government borrowing costs from spiraling in the next decade, the new chief of the country’s banking lobby said.
“The risk of a tumble in government bond prices would increase if taxation and social security reform are left unsolved for years,” said Yasuhiro Sato, president of Mizuho Financial Group Inc. (8411), whose tenure as chairman of the Japanese Bankers Association began today. “The country’s financial assets are dwindling with the aging population dipping into savings.”
Japanese banks hold a record amount of the nation’s bonds, prompting central bank Governor Masaaki Shirakawa to warn in February that lenders risk incurring trillions of yen in losses if yields rise. Prime Minister Yoshihiko Noda faces opposition to his plan to double the sales tax by 2015 to pay for swelling welfare costs and contain the world’s biggest public debt.
“Any delays to the reform that’s being debated may raise concern that bonds may be unable to be absorbed domestically in the long run, say, in 2022,” Sato said in an interview last month. “But there are no signs of a JGB price plunge in the near term.”
Japan’s 10-year bonds yielded 0.985 percent late on March 30. The cost to insure Japan’s debt against nonpayment has been falling, with CMA data showing five-year credit default swaps declined to 98.6 basis points on March 29 from a record 154.8 on Oct. 4, indicating perceptions of creditworthiness are improving.
Hoarding Cash
Shirakawa said in February that a 1 percentage-point increase in benchmark yields would cause losses of about 3.5 trillion yen ($43 billion) on notes held by major banks. With households and companies hoarding cash rather than borrowing, lenders have been buying bonds, holding a record 167.8 trillion of sovereign debt in February, according to central bank data.
The International Monetary Fund dispatched a mission to Tokyo last month as part of a regular review it’s conducting this year into the stability of Japan’s financial sector. While the IMF’s Financial Sector Assessment Program contains a stress test for banks, brokerages and insurers, it’s unclear whether it will examine risks from their government bond holdings.
“Japan’s financial system is strong and stable,” Sato said. “It’s hard to imagine that the IMF would make any kinds of requirements for Japan” based on any examination of bonds held by financial institutions, he said.
Bond Profits
The nation’s three biggest lenders — Mitsubishi UFJ Financial Group Inc. (8306), Sumitomo Mitsui Financial Group Inc. (8316) and Sato’s Mizuho — earned a combined 231 billion yen from trading bonds and other securities in the quarter ended December, almost double from a year earlier, according to Bloomberg calculations based on their latest earnings figures.
Japan’s government bond sales have largely been absorbed by the domestic market, with about 92 percent of the debt owned by investors at home, central bank data show. The capacity of households to fund public spending may decline in coming years as the growing ranks of pensioners withdraw assets.
Households had 1,483 trillion yen of financial assets at the end of December, down 0.3 percent from a year earlier, according to the Bank of Japan. Government borrowings will climb to 1,086 trillion yen in the year ending March 2013, the Finance Ministry forecast in January.
Prime Minister Noda is seeking parliament’s approval of his tax bill in the current Diet session, while opposition Liberal Democratic Party leader Sadakazu Tanigaki has suggested elections should be called first. Noda’s Cabinet on March 30 approved the proposal to raise the sales levy to 8 percent in April 2014 and 10 percent in October 2015.
“Japanese banks conduct their own simulations and assessments of various risks such as those arising from bonds and stocks,” Sato said. “We are now far from the situation where a bomb may explode in the near future.”
Mike Norman video
Saudi price setting
Saudi Oil Minister: There’s No Shortage of Supply
By Amena Bakr
March 1 (Reuters) — Top oil exporter Saudi Arabia sought to soothe fears about high oil prices, saying on Tuesday world supplies were well in excess of demand and that $125-a-barrel crude prices were not justified given the anemic state of the world economy.
Cleverly trying disguise their role as swing producer/price setter.
Saudi Oil Minister Ali al-Naimi said the kingdom had satisfied all of its customers’ requests for oil and stood ready to raise output to full capacity of 12.5 million barrels per day (bpd), if needed.
Yes, at their posted prices. That’s how monopoly works. The monopolist sets price and lets quantity demanded adjust.
“I want to assure you that there is no shortage of supply in the market,” Naimi told reporters at a press briefing in Doha, Qatar. “We are ready and willing to put more oil on the market, but you need a buyer.”
As the only nation with said excess capacity, they are necessarily swing producer/price setter.
Oil is trading above $123, just $24 short of an all-time high, as tighter Western sanctions on Iran threaten to slow the country’s exports.
“Oil prices today are unjustifiable on a supply and demand basis,” said Naimi. “We really don’t understand why the prices are behaving the way they are.”
Oh really? How about because that’s where you are setting your prices?
Try lowering your prices by $10 and see what happens?
He said supply of oil was now out-pacing demand by more than 1 million bpd and that customers were not asking for extra crude.
Right, at their posted prices.
“From our point of view, we have had no customer not satisfied. We have satisfied every request for every customer that has come asking,” said Naimi. “We ask the customers, ‘Do you need more?’ and invariably the answer is ‘No thank you.'”
Yes, that’s how monopoly works.
Riyadh is now pumping 9.9 million bpd – the highest in decades – and is willing to produce at full capacity of 12.5 million bpd immediately, should demand warrant, Naimi said. He said he expected output next month to stay at 9.9 million bpd.
Saudi spare production capacity now stands at 2.5 million bpd, he said.
And no one else has any spare capacity to speak of.
“We spent a lot of money building that capacity. We finished building it in 2009, and it is there to be used,” said Naimi.
Yes, they would like more demand at their posted prices.
How hard is this to understand?
The risk now is that WTI converges to Brent when the new pipeline out of Cushing starts flowing, which will be June 1 last I heard.
Storage inside the kingdom was full and Riyadh was holding about 10 million barrels outside of Saudi Arabia in Rotterdam, Sidi Kerir and Okinawa, he said.
“Our inventories both in Saudi Arabia and worldwide are full.”
NORWAY OIL FUND TO CUT EUROPE BOND HOLDINGS TO 40% FROM 60%
Was Quantitative Easing A Tax?
Good to see someone telling it like it is!
Was Quantitative Easing a Tax?
By John Carney
March 29 (CNBC) — In the last of his four lectures to students at George Washington University, Ben Bernanke explained how the Fed’s quantitative easing programs worked. As it turns out, they were akin to a tax hike.
This aspect of government asset purchase-and-resale-for-profit programs is not well understood. I explained it in terms of a Treasury program last week.
A tax takes dollars out of the private sector, leaving households and businesses with fewer dollars and the government with more dollars. When the government buys something for $10 and sells it back to the private sector for $12, the net effect is the same as if the government had taxed away those $2.
Bernanke doesn’t come out and call quantitative easing a tax. But he comes close.
“The Fed’s asset purchases are not government spending, because the assets the Fed acquired will ultimately be sold back into the market. Indeed, the Fed has made money on its purchases so far, transferring about $200 billion to the Treasury from 2009 through 2011, money that benefited taxpayers by reducing the federal deficit,” he explains in one of the prepared slides.
Here’s a good rule of thumb. If something reduces the federal deficit, it is either the equivalent of a spending cut or a tax hike.
eu credit growth slows
So much for the LTRO “bazooka”:
EMU Growth Watch: Credit Growth Slows
Frankfurt, Germany (AP) — The European Central Bank says the flow of credit available to businesses slowed down in February — a sign that the bank’s massive series of cheap loans to the financial system has yet to kickstart a lagging eurozone economy. Figures Wednesday showed loans to nonfinancial corporations — a key credit indicator — grew by only 0.4 percent on an annual basis, down from 0.7 percent in January. The ECB made two massive rounds of cheap loans to banks Dec. 21 and Feb. 29, adding about €500 billion ($666 billion) in net new credit to the financial system. The loans were introduced in the hope that the money would eventually find its way to businesses and consumers as loans and, in turn, promote growth. The loans are credited with easing the eurozone debt crisis by removing fears that one or more of Europe’s shaky banks might fail, and by making it easier for heavily indebted governments such as Italy to borrow on bond markets.
Our Take: LTRO’s do not mean banks will be lending.
Global themes
- Austerity everywhere keeps domestic demand in check and export channels muted
- Non govt credit expansion pretty much stone cold dead in the US and Europe
- Rising oil energy prices subduing global aggregate demand
- US federal deficit just about enough to muddle through with modest GDP growth
- Rest of world public deficits also insufficient to close output gaps, including China which has calmed down considerably
- Zero rate policies/QE/etc. in the US, Japan, and Europe doing their thing to keep aggregate demand down and inflation low as monetary authorities continue to get that causation backwards
- All good for stocks and shareholders, not good for most people trying to work for a living
- Europe still in slow motion train wreck mode, with psi bond tax risk keeping investors at bay and ECB waiting for things to get bad enough before intervening
So still looking to me like a case of
‘Because we fear becoming the next Greece, we continue to turn ourselves into the next Japan’
The only way out at this point is a private sector credit expansion, which, in the US, traditionally comes from housing, but doesn’t seem to be happening this time. Past cycles have seen it come from the sub prime expansion phase, the .com/y2k boom, the S&L expansion phase, and the emerging market lending boom.
But this time we’re being more careful of ‘bubbles’ (just like Japan has done for the last two decades). So I don’t see much hope there.
Still watching for the euro bond tax idea to surface, which I see as the immediate possibility of systemic risk, but no real sign yet.