Viernes 04/09/15 La situacion del empleo

[Fenix]

Record 94 Million Americans Not In The Labor Force; Participation Rate Lowest Since 1977
Submitted by Tyler D.
09/04/2015 - 09:56

According to the BLS, the main reason why the unemployment rate tumbled to the lowest since April 2008 is because another 261,000 Americans dropped out of the labor force, as a result pushing the total number of US potential workers who are not in the labor force, to a record 94 million, an increase of 1.8 million in the past year, and a whopping 14.9 million since the start of the second great depression in December 2007.



Not So Fast With Those "Rising Wages"
Submitted by Tyler D.
09/04/2015 - 09:31

If wage growth for supervisory workers was indicative of the overall work force, the Fed could indeed claim mission accomplished and hike not 0.25% but 2.5%. There is a problem: supervisory workers only make up 17.5% of the US work force. As such, their wage gains are anything but indicative of the vast 140 or so million US workers. What about the wages for the remaining 82.5% of US workers: the non-supervisory one. Here is the answer...

[Fenix]

Is This Why Copper Is Collapsing?
Tyler Durden's picture
Submitted by Tyler D.
09/04/2015 10:01 -0400


Copper prices are in free-fall this morning, slammed lower by the "good-enough" jobs data.

But we suspect the real reason lies elsewhere... A bottom in commodity prices may come within the next few months, if it already hasn't passed, Dennis Gartman said Thursday.

"I do think that the worst is absolutely behind us because all anyone ever talks about is how awful the commodity market is. I think for the first time in a long time it's proper to be bullish commodities; they may still go down some but I have my severe doubts."

* * *

Nailed It!


Goldman: "No Rate Hike In September"
Submitted by Tyler D.
09/04/2015 10:07 -0400

While we have exposed the ugly under-belly of today's jobs data, mainstream media is spinning it as a 'Goldilocks' report with enough hits-and-misses for every hawk or dove. The market's initial reaction signals rising expectations of a September rate hike but, as Goldman's Jan Hatzius explains, they continue to expect the FOMC to keep policy rates unchanged at the September 16-17 meeting.

Via Goldman Sachs,

BOTTOM LINE: Nonfarm payroll employment increased less than expected in August, although earlier months were revised up. The unemployment rate and broader measures of underemployment declined. We continue to expect the FOMC to keep policy rates unchanged at the September 16-17 meeting.

MAIN POINTS:

1. Nonfarm payroll employment increased by 173k in August, less than expected by the consensus of economists. The deceleration relative to July reflected a downshift in a variety of components, including manufacturing (-17k vs +12k previously) and retail trade (+11k vs +32k previously). The mining sector continued to shed jobs (-9k in August). Overall private payrolls expanded by 140k, down from 224k in July. Firmer government payrolls provided a partial offset, with gains of 33k in August, an acceleration from +21k in July.

2. Other details in the establishment survey were a bit more encouraging. First, payroll growth over the two prior months was revised up by a net 44k. Second, average weekly hours increased to 34.6, and the index of aggregate hours (i.e. employment multiplied by average weekly hours) has now increased at an annualized rate of 3.1% over the past three months. Third, average hourly earnings growth was also slightly better than expected, rising by 0.3% month-over-month and 2.2% from a year earlier.

3. Results from the household survey were mostly positive. The U3 unemployment rate fell to 5.1% (5.112% unrounded) from 5.3% in July, and the broader U6 underemployment rate fell to 10.3% from 10.4%. Household employment increased by a decent 196k (+106k on a payrolls-consistent basis), although the trends in employment growth from this survey remain relatively soft (with three- and six-month average gains of 80k and 123k, respectively). The labor force participation rate was unchanged at 62.6%.

4. With payrolls, unemployment claims, consumer sentiment, vehicle sales, and a number of business surveys in hand, our preliminary read on the August Current Activity Indicator is +2.8%, in line with the July figure. We continue to expect the FOMC to keep policy rates unchanged at the September 16-17 meeting.

[Fenix]

Are Hillary Clinton & Donald Trump Distant Cousins?
Submitted by Tyler D.
09/04/2015 - 10:25

While conspiracy theories of Trump's run as a disruptive influence in the Republican ranks to 'help' Hillary seems to be floundering following his pledge and jibes yesterday, it appears the two have more in common than anyone could have believed. It turns out Hillary Clinton and Donald Trump are distant cousins - sharing royal blood that runs deep in their family lines. No wonder The Oligarchy is so comfortable ruling over us serfs.



NFLX Down 25% From Highs, Tumbles To June Stock Split Levels
Submitted by Tyler D.
09/04/2015 - 10:43

FANG - Forget About New Gains? It appears another one of the legs of the new investing meme has broken. NFLX is now down 25% from its record highs in August and has entirely roundtripped from the post-stock-split exuberance...


Why Capital Is Fleeing China: The Crushing Costs Of Systemic Corruption
09/04/2015 11:36 -0400
Submitted by Charles Hugh-Smith

What China will be left with a poisoned land stripped of talent and capital.

Corruption isn't just bribes and influence-peddling: it's protecting the privileges of the few at the expense of the many. Rampant pollution is corruption writ large: the profits of the polluters are being protected at the expense of the millions being poisoned.

This is why capital and talent are fleeing China: systemic corruption has poisoned the nation and raised the cost of doing business. External costs such as environmental damage must be paid eventually, one way or the other.

Either the cost is paid in rising chronic illnesses, shorter lifespans and declining productivity, or profits and tax revenues must be siphoned off to clean up the damage and the sources of environmental degradation.

In large-scale industrial economies such as China and the U.S., that cost is measured not in billions of dollars but in hundreds of billions of dollars over a long period of time.

I have often noted that one key reason why the U.S. economy stagnated in the 1970s was the enormous external costs of runaway industrialization were finally paid in reduced profits and higher taxes.

China's manufacturing base simply isn't profitable enough to pay for the remedial clean-up and pollution controls needed to make China livable. That means labor and all the other sectors will have to pay the costs via higher taxes.

Pollution and environmental damage is driving away human capital, i.e. talent. This loss of talent is difficult to quantify, but it's not just foreigners who have worked in China for years who are pulling up stakes to escape pollution and repression--talented young Chinese are finding jobs elsewhere for the same reasons.

The game-changer is automation, i.e. robots and software eating the world. To understand the impact on China, let's start with unit labor costs, i.e. the cost of labor needed to produce each unit of output.

If it takes one worker an hour to assemble 10 light fixtures, the unit labor cost of each fixture is 1/10th of an hour's total compensation costs, i.e. wages and overhead. (Total compensation costs include all overhead such as vacation, healthcare, pensions, social security taxes on labor paid by the employer, etc.)

If an automated machine can produce 1,000 of the same units in an hour, and the only labor is the machine's one operator, the the unit labor cost of each fixture is 1/1,000th of an hour's total compensation costs.

When labor's contribution to production costs drop to near-zero, there's no labor arbitrage left to make China a low-cost producer. Frequent contributor Mark G. explains:

"Doing business in China has its own set of local costs. In the past, these costs were outweighed by the greater profit potential of dirt-cheap Chinese labor. But once unit labor costs fall to near-zero as factories are automated, the remaining cost inputs for any manufacturer become a proportionally much larger part of the price.



Environmental regulatory arbitrage is the sole exception. But even this advantage must fade as the Chinese consumer middle class acquires influence. Very few Chinese of any class will have a direct profit stake in automated factories. Any pollution emitted by automated factories becomes a direct cost and a form of tax that those living nearby must bear. Therefore I anticipate that even this current advantage of effectively no environmental regulation will soon dwindle as Chinese tolerance for pollution fades."

Environmental clean-up costs have been avoided due to corruption. Filters are taken off at night, when the smoke is less visible. If local residents complain too loudly, local squads of goons attack them.

The Chinese state exists to enforce the privileges enjoyed by the few at the expense of the many. Paying pollution-remediation costs slash profits--indeed, in many cases, these external costs completely wipe out profits.

Dissenters and anyone daring to question the corruption must be suppressed by whatever means are available, and the central and local governments in China have been liberally deploying every tool of repression.

This systemic repression is the direct consequence and cost of corruption. So by all means, poison the nation and its non-privileged citizens to benefit the few at the top of the heap, and arrest, beat up or silence critics and dissenters.

What China will be left with a poisoned land stripped of talent and capital. That's the ultimate cost of systemic corruption.

[Fenix]

Must Be The Weather?
Submitted by Tyler D.
09/04/2015 11:56 -0400

Low oil prices? Low interest rates? Jobs galore? Wages pressures? Time for a rate hike? Then explain this...

Welcome to the 'recovery'

h/t @Not_Jim_Cramer

And by way of the most recent example - the once-was-a-bellwether... GAP:

* *GAP: BANANA REPUBLIC AUGUST COMP SALES DOWN 11%, EST. DOWN 2.2%
* *GAP INC. AUGUST COMP SALES DOWN DOWN 2%, EST. DOWN 0.4%
* *GAP BRAND AUGUST COMP SALES DOWN 8%, EST. DOWN 4.4%

Apparently this is due to Labor Day's timing... not the weather.



Bull Or Bear?
09/04/2015 12:22 -0400
Submitted by Bill Bonner via Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),
The Bull Market in Stocks May Have Ended Already

As expected, Wall Street’s shills were out in force on Wednesday. And the Dow rebounded from Tuesday’s rout – up 293 points. CNBC assured investors that the “U.S. is a place you should be investing.”



kick-the-can-down-the-road

The can and the road …





And Bloomberg explained that, “based on history,” investors could expect to wait no more than four months until the stock market fully recovers:

“The S&P 500 rally that began in March 2009 has been marked by two previous corrections: a 16% sell-off from April to July in 2010, and a 19% slump over seven months a year later. The benchmark recovered within about four months of each. So if history is any guide, the market may not be back at its May peak until late December.”



Nikkei, LT

Based on Bloomberg’s “history”, the Nikkei is about 25 years “late”, and it looks like it will be even later before everything is said and done – click to enlarge.



But wait… This assumes we’re still in a bull market. As we’ve seen, two factors have been paramount in driving the bull market of the last six years: the Fed’s zero-interest-rate policy (ZIRP) and its QE programs.

And neither of those things is working for the U.S. Now. The Fed’s QE is on pause. As for ZIRP, it seems to have lost some of its zest.

It’s no wonder… As we’ve pointed out many times, lending money that didn’t exist before to people who are already deeply in debt is not a good business model. It doesn’t stimulate an economy. And it doesn’t make people better off. All it does is keep the can bouncing down the road.

And with the Fed now running out of ammo, we MAY no longer be in a bull market. Instead, we MAY be entering a bear market. If so, you can forget about a recovery in four months. Instead, it may take four years… or 40 years… to reclaim the bull market high set this past May.

Remember, from the bull market high set in 1929, it took until 1954 before the U.S. stock market fully recovered. A quarter of a century, and one world war, later. And in Japan, the Nikkei is still roughly 50% below its bull market high set in 1989.

Corrections in a bull market are one thing. Bear markets are something very different.



Admit it

In China bears have been outlawed in the meantime – literally (a Blaustein cartoon from Grant’s Interest Rate Observer)


Liquidity Dries Up

“Excess liquidity” has floated stocks higher over the last six years, argues our friend and economist Richard Duncan. Not earnings. Not growth. Not productivity. Not savings. Not investments. As he puts it, “When liquidity is plentiful, asset prices tend to rise. When it is scarce, asset prices tend to fall.”



richard-duncan

Richard Duncan watches the state of free liquidity. We’re not sure if his view isn’t a little too simplistic – after all, government not only “absorbs” liquid funds when borrowing, it immediately spends them again. Still, he may well be correct that another global synchronized recession is about to start (unfortunately he is also an advocate of big government spending as we have pointed out here)

Screenshot, credit: Financial Times



According to Duncan, a basic “liquidity gauge” for the U.S. is relatively easy to construct. When Washington borrows dollars to fund its budget deficit, it absorbs liquidity. When the Fed creates dollars through QE, it injects liquidity into the financial markets.

In the past, the Fed’s central bankers were practically wearing out the pump handles to get more liquidity into the system. During 2013, for example, Washington absorbed $680 billion to fund its budget deficit. And the Fed injected just over $1 trillion through QE. The difference created $320 billion of excess liquidity.



Monetary Base

Base money, which the Fed controls directly, has begun to drift sideways since the end of “QE” – click to enlarge.

But now Duncan warns that his liquidity gauge for the U.S. is set to turn negative in 2015. Washington will absorb more liquidity than the Fed is set to inject. And he is forecasting a negative reading every year from 2015 to 2020.

As Duncan recently told readers of his Macro Watch advisory, Fed stimulus is “no longer sufficient” to keep the credit bubble inflated. As a result, he warns, the global credit bubble is deflating, and the world is “sliding back into a severe recession.”

The can is no longer rolling along. Instead, it has come to a near halt, with central bankers and government policymakers desperate to give it another boot. Watch out!

[Fenix]

Crude Jumps After US Oil Rig Count Collapses By Most In 4 Months
Submitted by Tyler D.
09/04/2015 - 13:07

After 6 straight weeks of rig count increases, last week saw a 13 rig drop - the most since May. This leave the rig count at its lowest since July 24th. WTI Crude jumped 60c on the news and is holding gains...



"We've Run Out Of Buyers" - Half Of Homes In New York Are Now Losing Value
Submitted by Tyler D.
09/04/2015 - 12:45

"What happens in any bull asset bubble such as what we've seen is you run out of buyers. It's hard to get deals done if the bottom third can't get a mortgage."



End Of Cheap Fossil Fuels Could Have More Severe Consequences Than Thought
Submitted by Tyler D.
09/04/2015 - 13:18

The characteristic feeling of the post-2008 world has been one of anxiety. Occasionally, that anxiety breaks out into fear as it did in the last two weeks when stock markets around the world swooned and middle class and wealthy investors had a sudden visitation from Pan, the god from whose name we get the word "panic." Pan's appearance is yet another reminder that the relative stability of the globe from the end of World War II right up until 2008 is over. We are in uncharted waters. The relentless, if zigzag, rise in financial markets for the past 150 years has been sustained by cheap fossil fuels and a benign climate. We cannot count on either from here on out...

[Fenix]

Fallout From Petrodollar Demise Continues As Qatar Borrows $4 Billion Amid Crude Slump
Submitted by Tyler D.
09/04/2015 - 13:34

Early last month, we noted the irony inherent in the fact that Saudi Arabia, whose effort to bankrupt the US shale space has been complicated by the Fed's ZIRP, was set to opportunistically tap the debt market in an effort to offset a painful petrodollar reserve burn. As Bloomberg reports, Qatar is now doing the same, "raising money from local banks as the slump in oil prices buffets the finances of the Middle East’s largest oil and gas exporters."



Weekend Reading: View From The Edge
Submitted by Tyler D.
09/04/2015 16:30 -0400

Submitted by Lance Roberts

Earlier this week, I posted a fairly in-depth look at the recent correction to try and determine whether this is simply just a correction in a bull market, or potentially something worse. To wit:

"But the underlying fundamental and economic data have been weak for some time, yet the market continued its unabated rise. The Bulls have remained firmly in charge of the markets as the reach for returns exceeded the grasp of the underlying risk. It now seems that has changed. For the first time since 2007, as we see initial markings of a potential bear market cycle.



The first chart below shows the long-term trend of the market."

SP500-Technical-090115

"The bottom part of the chart is the most important. For the first time since 2000 or 2007, the market has now registered a momentum based "sell" signal. Importantly, this is a very different reading that what was seen during the 2010 and 2011 "corrections" and suggests the current correction may be more significant."

I continue to suspect that the weak market internals, deterioration in earnings and a generally weak economic backdrop that odds reside with the "bears" for now. However, we have all been surprised by what happens "next" particularly when the Federal Reserve stands at the helm.

With that in mind, and a dismal August month now behind us, our weekend reading list once again takes a look at the markets from the seemingly "edge of the cliff."
THE LIST

1) Don't Blame China For Market Woes by Ben Stein via CBS News

"August is the cruelest month.



A good chunk of my savings disappeared as the stock market convulsed, and we're down at some points by well over 10 percent. Why did it happen?



The pundits and analysts appeared and said it was because of the Chinese devaluation and possible serious weakness in China. This, in turn, would devastate U.S. exports, supposedly, to China and sink the ship of our prosperity."

Read Also: Jim Chanos - 5 Things About China by Linette Lopez via Business Insider



2) Bad August Months Lead To Worst Septembers by Anora Mahmudova

""In the 11 instances since 1945 when the S&P 500 fell more than 5% in August, September returns were negative 80% of the time, averaging a decline of 4%, said Sam Stovall, U.S. equity strategist at S&P Capital IQ.



History is a good guide, but not necessarily a gospel,"

MW-September-Performance

Read Also: Why This Market Sell-Off Could Keep Going by Paul Lim via Time



3) Nobody Panic - This Is Just A Retest by Ron Insana via CNBC

"Of course, if the market's internal strength deteriorates further on the second wave down, it could be indicative of something more serious.



But right now, we haven't seen any sign of that, so panic would be premature.



It has long been my view that U.S. stocks are in the midst of a secular, or long-term, bull market that is likely in its 5th or 6th inning.



Prior to this correction, it had been 46 months since U.S. markets had suffered a pullback of more than 10 percent. Corrections occur, on average, every 18 months, so this was long overdue."

Read Also: This Is The Start Of The Sell Off by Bill Bonner via ContraCorner



4) If The Market Hits This Level, Then Get Nervous by Heather Long via CNN Money

"Time will tell who is right. But remember that we live in an era where computer trading dominates the American stock market. The "robots" that are making a lot of trading calls aren't sitting around pondering China's economy. They are paying attention to whether stocks fall below key levels.



What are those levels? No one knows exactly. But these two metrics are worth watching. If these thresholds are crossed, both computer and human traders will consider it a game-changer point."



SP500-CNN-Closinglow

Also Read: How To Survive A Market Crash by Brett Arends via MarketWatch



5) Why Fear Dominates Investors Sentiment by John Shmuel via Financial Post

"One difference is that corporate balance sheets and the U.S. economy remain strong. Another is that China, which has been a large source of fear recently, still has significant policy tools available to help it spur growth and calm markets there and, by extension, around the world.



'This episode does not match equity declines in the major sustained financial crises of the last 20 years,' Oxford Economics said.



That does not mean that markets can't go lower. Canaccord notes that the current correction has two analogs in the 1998 and 2011 corrections, with the former preceding a rise in U.S. interest rates and the latter being driven by worries over China and emerging markets."

Read Also: Don't Buy The Stock Market Dip This Time by Jeff Erber via Real Clear Markets
Other Reading

Market Still Isn't Where Its Going by Joe Calhoun via Alhambra Partners

If You Need To Reduce Risk, Do It Now by John Hussman via Hussman Funds

Best Tweets In August by Meb Faber via Meb Faber Research

Recession Odds Surge To Highest Since 2011 via ZeroHedge

This Is The Worst Environment For Investors By Jesse Felder via The Felder Report

"Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the time to sell." - John Templeton

Have a great weekend.

[Fenix]

No Inflation Friday: The Government Admits Its Own Statistics Are Phony
09/04/2015 15:40 -0400
Submitted by Simon Black

In an article that first appeared in Fortune magazine on December 10, 2001, Warren Buffett penned a great letter about falling prices:

“When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying– except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.”

He’s right. Any rational human being actually LIKES falling prices.

We enjoy getting a great deal, and we like it when our money goes further.

To Buffett’s point, investors are a major exception and prefer investing when prices go up, i.e. their money buys less of a high quality asset.

But there’s one more giant exception that Buffett didn’t mention: economists.

Economists quiver in fear at the prospect of falling prices.

They call it ‘deflation’, and it’s a force so dreaded that central bankers have threatened to drop bricks of cash from helicopters in order to prevent it.

Instead, economists prefer INFLATION, i.e. that the things you buy become more expensive.

We can look at official statistics to get a sense of inflation, but these numbers are totally meaningless.

When I was a kid, my father earned enough money to support his family with a single salary.

We had a house, a car, an occasional vacation, and we never missed a meal. All on one income.

But those days are long gone. Now it’s almost obligatory to live in a dual-income household just to make ends meet.

The official statistics never paint this picture.

They focus on some palatable number, telling us the inflation rate is 2%, and then adjust their computational methods to derive that figure.

In fact, the US federal government has changed the way it calculates inflation at least twenty times since the mid 1980s.

And it’s obvious that they have a huge incentive to do so.

The #1 expense of the federal government today is the mandatory entitlement programs that are paid out to seniors in the US– primarily Social Security.

It’s nearing $1 trillion annually and eats up a third of all tax revenue.

The government is required by law to increase the amount of money paid to Social Security recipients each year through what’s called a COLA, or cost of living adjustment.

Essentially they’re adjusting your monthly Social Security payment to keep up with inflation. Or at least, the inflation that they’re willing to admit.

This is where they have a huge incentive to fudge the numbers.

If the real rate of inflation is 5%, but they only give a 2% COLA, the government saves 3%. That’s almost $30 billion.

(Ironically this is 3x the size of the annual budget for the Department of Labor, which is responsible for calculating the inflation statistics.)

But by doing this the government is effectively stealing from seniors.

There’s actually been a new law proposed in Congress to prevent this from happening anymore.

It’s known as HR 3074, and it was written “for the purpose of establishing an accurate Social Security COLA. . .”

So even the government admits that their inflation numbers are a bunch of baloney.

But sadly, according to the legislative watchdog GovTrack.us, this bill has a 0% chance of being passed. So I wouldn’t expect a solution anytime soon.

In fact, this problem will likely get worse given how transfixed economists are on the deflation threat.

Their concern is that the Chinese economic slowdown and currency devaluation will cause a wave of falling prices around the world.

But there’s a very curious effect at work here that most people forget:

It’s entirely possible (and now very likely) to have BOTH inflation AND deflation. At the same time.

Assets and investments can fall, while at the same time the prices of retail goods and services rise.

In other words, the value of your investment portfolio goes down, but your grocery bill goes up.

It’s also important to point out that not all prices rise and fall equally.

Gas prices may be down from a year ago in the US. But as the recently-released Hotels.com Hotel Price Index shows, hotel prices are up sharply.

Salt Lake City: 8%. Raleigh: 5%. Portland: 9%. Washington DC: 5%. Los Angeles: 8%.

I’ve seen the effects of this dual inflation/deflation phenomenon as I’ve traveled around the world in places like Argentina, Greece, and Indonesia.

It is a very real threat. And it may now be coming to US shores.

But everyone is focused exclusively on the deflation side.

You’ll get laughed at in financial circles if you mention the word ‘inflation’ anymore. It’s being completely ignored… even denied.

They’re pretending like half the problem doesn’t even exist, which is seriously foolish.

Inflation is a long-term disease. Quarter by quarter the numbers may change. But over the long run it’s like a cancer, slowly eating away at your lifestyle.

It’s not a question of either/or. It’s not a debate over inflation VS. deflation. It’s only a matter of WHEN we’ll end up with BOTH. And how well you’re prepared for it.

[Fenix]

What Does It Mean If The Fed Hikes... And If It Doesn't
Submitted by Tyler D09/04/2015 17:00 -0400

Today's jobs report was supposed to be a tiebreaker for the Fed's September rate decision, giving fed funds and eurodollar traders some respite after a summer that has been a gut-wrenching, dramamine-chewing rollercoster. It did not, in fact it boosted uncertainty, with the probability of a September rate hike rising from 26% to 30%.



In other words, any hope for clarity was promptly dashed with a job report that once again was both bad and good, depending on one's bias.

Which means that the September 17th decision will come to the absolute wire, with little if any guidance available in the 13 days left until what may be the Fed's first rate hike in 9 years... or not.

Here is an oddly accurate explanation of what it means if the Fed does hike rates on September, and alternatively, what it means if Yellen punts once again, and leaves the decision to the October or December meeting, or just punts to 2016 and onward altogether. As a reminder, Goldman does not expect the Fed to hike on September 17.

On Wall Street only 2 things matter: interest rates and earnings. Everything else is noise unless it impacts rates and earnings. No-one impacts interest rates more than the Fed. So the Fed’s September 17th rate hike decision is a big deal.



Should the Fed decide to raise interest rates, it will be the first Fed hike since June 29th 2006. In the 110 months that have since past, global central banks have cut interest rates 697 times, central banks have bought $15 trillion of financial assets, zero [or negative] interest rates policies have been adopted in the US, Europe & Japan. And, following the Great Financial Crisis of 2008, both stocks and corporate bonds have soared to all-time highs thanks in great part to this extraordinary monetary regime.



As noted above, a rate hike with a stroke ends this era. So:



If they don’t hike…

* It’s an admission that Wall Street threatens to reverse the recovery on Main Street
* It will lead to a short-term relief rally on Wall Street
* It will be relatively positive for EM/commodities/resources, as it unwinds the higher US growth/rates/dollar narrative
* It will be positive for higher-yielding assets
* It will be positive for growth > value, as the Fed is confirming the deflationary recovery
* In short, if the Fed’s failure to hike does not lead investors to completely abandon hope on growth and scurry into gold, cash & volatility, then look for the “barbell of 1999” to reemerge: Über-growth & Über-value were massive outperformers after the Asia crisis (Chart 9).



If they do hike…

* Watch the long-end
* If the long-end concurs with the Fed’s view of economic recovery, then banks, cyclicals and value stocks will receive a bid. Asset allocation toward “strong dollar” & “Fed tightening plays” will harden, with the exception that value will likely outperform growth
* If the long-end rallies, signaling a policy mistake, then cash, volatility, gold & defensive growth will be the way to go.

Most importantly, if the long-end rallies, it's almost over and get ready to bail on any outperforming long-end position, as the reaction itself will signal the beginning of the end of the fiat regime.

[Fenix]

"This Time May Be Different": Desperate Central Banks Set To Dust Off Asia Crisis Playbook, Goldman Warns
Submitted by Tyler D.
09/04/2015 18:00 -0400

Early last month, Bloomberg observed that plunging currencies were “handcuffing bankers from Chile to Colombia.” The problem was described as follows:

Central bankers in commodity-dependent Andes economies aren’t even considering interest-rate cuts to revive growth, even as prices for oil, copper and other raw materials collapse.



That’s because the deepening price slump is also dragging down currencies in Colombia and Chile -- a swoon that’s fanning inflation and tying policy makers’ hands.

That was six days before China’s decision to devalue the yuan.

Needless to say, Beijing’s entry into the global currency wars did nothing to help the situation and indeed, since the yuan devaluation, things have gotten materially worse. The real, for instance, has plunged 10.5%, the Colombian peso is down 6.6%, the Mexican peso is off 4.4%, and the Chilean peso is down a harrowing 8% (thanks copper). And again, that’s just since China’s devaluation.

Meanwhile, plunging commodity prices, falling Chinese demand, and depressed global trade aren’t helping LatAm economies. Just ask Brazil, where the sellside GDP forecast cuts are coming in fast (Morgan Stanley being the latest example) now that virtually every data point one cares to observe shows an economy that’s sliding into depression.

Of course a plunging currency, FX pass through inflation, and a soft outlook for growth is a pretty terrible place to be in if you’re a central bank, but that’s exactly where things stand for the “LA-5” (believe it or not, that’s not a reference to the Lakers, it’s short for Brazil, Chile, Colombia, Mexico, and Peru), who very shortly will be forced to decide whether the risks associated with further FX weakness outweigh those of hiking rates into a poor economic environment.

For Goldman, the outlook is clear: LatAm central banks will, in “stark” contrast to counter-cyclical measures adopted during the crisis, hike in a desperate attempt to shore up their currencies and control inflation.

First, we have the test:

The LA-5 economies are, once again, being tested. They currently face an acute external shock involving a combination of: low (likely for long) commodity prices, incoming monetary policy normalization in the US, and weaker CNY and growth in China with the latent risk of a sharper economic slowdown.

The last time these countries were tested, they had sufficient room to maneuver counter-cyclically:

The Global Financial Crisis of 2008-09 (GFC) provided almost the perfect applied experiment to test the shock-absorbing capacity of the new institutional framework. And the results were remarkably positive. The spike in risk aversion in the initial stages of the crisis was followed by sizeable capital outflows from EMs. Yet, officials across the LA-5 did not attempt to stop the hemorrhage of capital and the ensuing pressures on local currencies by hiking interest rates or by tightening fiscal belts (which would have been the classic pro-cyclical response of the past). To the contrary, the authorities managed to loose fiscal stances and cut interest rates aggressively to support domestic demand, letting exchange rates depreciate significantly along the way.

This time around, however, policy flexibility is severely constrained:

Financial conditions are very accommodative and most currencies are now slightly in undervaluation territory. Initial conditions differ considerably from those prevalent at the beginning of the GFC. Broad financial conditions are, on average, more accommodative today than before (lower real rates and currencies that underwent large adjustments since mid-2013 and are now, on average, slightly undervalued versus domestic fundamentals). Furthermore, with the notable exception of Mexico, inflation has been accelerating across the region (Exhibit 3) and is now tracking above the respective targets, the fiscal stances are on average weaker, and external imbalances are generally wider.




And the crisis - at least as it relates to LatAm, is actually more acute:

Arguably, these combined shocks may pose greater risks to the region compared to the challenges faced during the GFC as the later was largely a DM centered event. In fact, current external headwinds have compounded the effects of domestic developments in places (e.g., Brazil and to some extent Chile), imparting a sizeable adverse shock to sentiment and a negative impulse to growth across the LA-5 economies.

With less policy flexibility and a more acute crisis, comes a divergent response:

Against this backdrop, the continuation of a bearish FX market may be soon followed by higher policy rates, despite admittedly sluggish real business cycles all across the region. That is, a pro-cyclical monetary reaction may be imminent in a number of places – Chile, Colombia, Mexico, and Peru. Policy pro-cyclicality is knocking on the door.




What's particularly interesting here is that round after round of the type of counter-cyclical policy measures Goldman suggests saved the LA-5 in the wake of the 2008 meltdown have not only failed to resuscitate the global economy, but have in fact contributed to the current worldwide deflationary supply glut that is at least partially to blame for the economic malaise plaguing EMs and the attendant pressure on commodity currencies.

That pressure has now put LatAm's financially integrated countries in the position of having to hike rates even as the outlook for their economies - the same economies which were presumably saved by counter-cyclical post-crisis measures - deteriorates. Meanwhile, if the Fed hikes, it will only put further pressure on EM FX, which could serve to drive inflation still higher, prompting a still more hawkish EM CB response which would in turn put still more pressure on their underlying economies.

In the end, Goldman concludes that should LatAm resort to pro-cyclical measures to shore up their currencies at the expense of their economies, it will represent a return to the policies adopted by EMs during the Asian Financial Crisis. This would appear to provide the final piece of evidence we need to conclusively determine that all pundit/analyst protestations aside, we have indeed turned back the clock two decades and sit on the verge of another outright emerging market meltdown. And on that note, we'll give the final word to Goldman:

The LA-5 economies have already spent part of their policy ammunition fighting the initial stages of the current turmoil. In the meantime, a number of economies are still grappling with visible domestic (inflation/fiscal deficits) and external (current account deficits) imbalances. Therefore, the room to ease policy further, i.e., to adopt counter-cyclical policies, is now much more limited than in the past. To the contrary, in some cases monetary tightening may be needed (despite weaker real business cycles) in order to continue to attract foreign capital, anchor domestic currencies and preserve the integrity of the respective inflation targeting frameworks. Hence, we may soon enter a period of weaker FX and higher policy and market rates: i.e., market dynamics that would resemble more the 1997 Asian Financial Crisis (where the authorities hiked rates to stabilize the respective domestic currencies despite the recessionary real sector dynamics) rather than the 2008-09 Global Financial Crisis (where weakening currencies coincided with sharply declining short-term interest rates).

[Fenix]

What Happens Next?
Submitted by Tyler D.
09/04/2015 19:30 -0400

Just like in 1929, The Dow just dropped 13%, bounced, and is retesting the lows... as all the 'experts' comfort a restless investor crowd

So what happens next?

Remember - it's different this time... again.



The Season Of The Glitch (Or "Why Retail Investors Have No Chance")
09/04/2015 19:00 -0400
Submitted by Ben Hunt via

Over the past two months, more than 90 Wall Street Journal articles have used the word “glitch”. A few choice selections below:

Bank of New York Mellon Corp.’s chief executive warned clients that his firm wouldn’t be able to solve all pricing problems caused by a computer glitch before markets open Monday.

– “BNY Mellon Races to Fix Pricing Glitches Before Markets Open Monday”, August 30, 2015



A computer glitch is preventing hundreds of mutual and exchange-traded funds from providing investors with the values of their holdings, complicating trading in some of the most widely held investments.

– “A New Computer Glitch is Rocking the Mutual Fund Industry”, August 26, 2015



Bank says data loss was due to software glitch.

– “Deutsche Bank Didn’t Archive Chats Used by Some Employees Tied to Libor Probe”, July 30, 2015



NYSE explanation confirms software glitch as cause, following initial fears of a cyberattack.

– “NYSE Says Wednesday Outage Caused by Software Update”, July 10, 2015



Some TD Ameritrade Holding Corp. customers experienced delays in placing orders Friday morning due to a software glitch, the brokerage said..

– “TD Ameritrade Experienced Order Routing, Messaging Problems”, July 10, 2015

Thousands of investors with stop-loss orders on their ETFs saw those positions crushed in the first 30 minutes of trading last Monday, August 24th. Seeing a price blow right through your stop is perhaps the worst experience in all of investing because it seems like such a betrayal. “Hey, isn’t this what a smart investor is supposed to do? What do you mean there was no liquidity at my stop? What do you mean I got filled $5 below my stop? Wait… now the price is back above my stop! Is this for real?” Welcome to the Big Leagues of Investing Pain.

What happened last Monday morning, when Apple was down 11% and the VIX couldn’t be priced and the CNBC anchors looked like they were going to vomit, was not a glitch. Yes, a flawed SunGard pricing platform was part of the proximate cause, but the structural problem here – and the reason this sort of dislocation WILL happen again, soon and more severely – is that a vast crowd of market participants – let’s call them Investors – are making a classic mistake. It’s what a statistics professor would call a “category error”, and it’s a heartbreaker.

Moreover, there’s a slightly less vast crowd of market participants – let’s call them Market Makers and The Sell Side – who are only too happy to perpetuate and encourage this category error. Not for nothing, but Virtu and Volant and other HFT “liquidity providers” had their most profitable day last Monday since … well, since the Flash Crash of 2010. So if you’re a Market Maker or you’re on The Sell Side or you’re one of their media apologists, you call last week’s price dislocations a “glitch” and misdirect everyone’s attention to total red herrings like supposed forced liquidations of risk parity strategies. Wash, rinse, repeat.

The category error made by most Investors today, from your retired father-in-law to the largest sovereign wealth fund, is to confuse an allocation for an investment. If you treat an allocation like an investment… if you think about buying and selling an ETF in the same way that you think about buying and selling stock in a real-life company with real-life cash flows… you’re making the same mistake that currency traders made earlier this year with the Swiss Franc (read “Ghost in the Machine” for more). You’re making a category error, and one day – maybe last Monday or maybe next Monday – that mistake will come back to haunt you.

The simple fact is that there’s precious little investing in markets today – understood as buying a fractional ownership position in the real-life cash flows of a real-life company – a casualty of policy-driven markets where real-life fundamentals mean next to nothing for market returns. Instead, it’s all portfolio positioning, all allocation, all the time. But most Investors still maintain the pleasant illusion that what they’re doing is some form of stock-picking, some form of their traditional understanding of what it means to be an Investor. It’s the story they tell themselves and each other to get through the day, and the people who hold the media cameras and microphones are only too happy to perpetuate this particular form of filtered reality.

Now there’s absolutely nothing wrong with allocating rather than investing. In fact, as my partners Lee Partridge and Rusty Guinn never tire of saying, smart allocation is going to be responsible for the vast majority of public market portfolio returns over time for almost all investors. But that’s not the mythology that exists around markets. You don't read Barron’s profiles about Great Allocators. No, you read about Great Investors, heroically making their stock-picking way in a sea of troubles. It’s 99% stochastics and probability distributions – really, it is – but since when did that make a myth less influential? So we gladly pay outrageous fees to the Great Investors who walk among us, even if most of us will never enjoy the outsized returns that won their reputations. So we search and search for the next Great Investor, even if the number of Great Investors in the world is exactly what enough random rolls of the dice would produce with Ordinary Investors. So we all aspire to be Great Investors, even if almost all of what we do – like buying an ETF – is allocating rather than investing.

The key letter in an ETF is the F. It’s a Fund, with exactly the same meaning of the word as applied to a mutual fund. It’s an allocation to a basket of securities with some sort of common attribute or factor that you want represented in your overall portfolio, not a fractional piece of an asset that you want to directly own. Yes, unlike a mutual fund you CAN buy and sell an ETF just like a single name stock, but that doesn’t mean you SHOULD. Like so many things in our modern world, the exchange traded nature of the ETF is a benefit for the few (Market Makers and The Sell Side) that has been sold falsely as a benefit for the many (Investors). It’s not a benefit for Investors. On the contrary, it’s a detriment. Investors who would never in a million years consider trading in and out of a mutual fund do it all the time with an exchange traded fund, and as a result their thoughtful ETF allocation becomes just another chip in the stock market casino. This isn’t a feature. It’s a bug.

What we saw last Monday morning was a specific manifestation of the behavioral fallacy of a category error, one that cost a lot of Investors a lot of money. Investors routinely put stop-loss orders on their ETFs. Why? Because… you know, this is what Great Investors do. They let their winners run and they limit their losses. Everyone knows this. It’s part of our accepted mythology, the Common Knowledge of investing. But here’s the truth. If you’re an Investor with a capital I (as opposed to a Trader with a capital T), there’s no good reason to put a stop-loss on an ETF or any other allocation instrument. I know. Crazy. And I’m sure I’ll get 100 irate unsubscribe notices from true-believing Investors for this heresy. So be it.

Think of it this way… what is the meaning of an allocation? Answer: it’s a return stream with a certain set of qualities that for whatever reason – maybe diversification, maybe sheer greed, maybe something else – you believe that your portfolio should possess. Now ask yourself this: what does price have to do with this meaning of an allocation? Answer: very little, at least in and of itself. Are those return stream qualities that you prize in your portfolio significantly altered just because the per-share price of a representation of this return stream is now just below some arbitrary price line that you set? Of course not. More generally, those return stream qualities can only be understood… should only be understood… in the context of what else is in your portfolio. I’m not saying that the price of this desired return stream means nothing. I’m saying that it means nothing in and of itself. An allocation has contingent meaning, not absolute meaning, and it should be evaluated on its relative merits, including price. There’s nothing contingent about a stop-loss order. It’s entirely specific to that security… I want it at this price and I don’t want it at that price, and that’s not the right way to think about an allocation.

One of my very first Epsilon Theory notes, “The Tao of Portfolio Management,” was on this distinction between investing (what I called stock-picking in that note) and allocation (what I called top-down portfolio construction), and the ecological fallacy that drives category errors and a whole host of other market mistakes. It wasn’t a particularly popular note then, and this note probably won’t be, either. But I think it’s one of the most important things I’ve got to say.

Why do I think it’s important? Because this category error goes way beyond whether or not you put stop-loss orders on ETFs. It enshrines myopic price considerations as the end-all and be-all for portfolio allocation decisions, and it accelerates the casino-fication of modern capital markets, both of which I think are absolute tragedies. For Investors, anyway. It’s a wash for Traders… just gives them a bigger playground. And it’s the gift that keeps on giving for Market Makers and The Sell Side.

Why do I think it’s important? Because there are so many Investors making this category error and they are going to continue to be, at best, scared out of their minds and, at worst, totally run over by the Traders who are dominating these casino gam-es. This isn’t the time or the place to dive into gamma trading or volatility skew hedges or liquidity replenishment points. But let me say this. If you don’t already understand what, say, a gamma hedge is, then you have ZERO chance of successfully trading your portfolio in reaction to the daily “news”. You’re going to be whipsawed mercilessly by these Hollow Markets, especially now that the Fed and the PBOC are playing a giant game of Chicken and are no longer working in unison to pump up global asset prices.

One of the best pieces of advice I ever got as an Investor was to take what the market gives you. Right now the market isn’t giving us much, at least not the sort of stock-picking opportunities that most Investors want. Or think they want. That’s okay. This, too, shall pass. Eventually. Maybe. But what’s not okay is to confuse what the market IS giving us, which is the opportunity to make long-term portfolio allocation decisions, for the sort of active trading opportunity that fits our market mythology. It’s easy to confuse the two, particularly when there are powerful interests that profit from the confusion and the mythology. Market Makers and The Sell Side want to speed us up, both in the pace of our decision making and in the securities we use to implement those decisions, and if anything goes awry … well, it must have been a glitch. In truth, it’s time to slow down, both in our process and in the nature of the securities we buy and sell. And you might want to turn off the TV while you’re at it.

[Fenix]

The IMF Just Confirmed The Nightmare Scenario For Central Banks Is Now In Play
Submitted by Tyler D.
09/04/2015 16:59 -0400

The most important piece of news announced today was also, as usually happens, the most underreported: it had nothing to do with US jobs, with the Fed's hiking intentions, with China, or even the ongoing "1998-style" carnage in emerging markets. Instead, it was the admission by ECB governing council member Ewald Nowotny that what we said about the ECB hitting a supply brick wall, was right. Specifically, earlier today Bloomberg quoted the Austrian central banker that the ECB asset-backed securities purchasing program "hasn’t been as successful as we’d hoped."

Why? "It’s simply because they are running out. There are simply too few of these structured products out there."

So six months later, the ECB begrudgingly admitted what we said in March 2015, in "A Complete Preview Of Q€ — And Why It Will Fail", was correct. Namely this:

... the ECB is monetizing over half of gross issuance (and more than twice net issuance) and a cool 12% of eurozone GDP. The latter figure there could easily rise if GDP contracts and Q€ is expanded, a scenario which should certainly not be ruled out given Europe’s fragile economic situation and expectations for the ECB to remain accommodative for the foreseeable future. In fact, the market is already talking about the likelihood that the program will be expanded/extended.



... while we hate to beat a dead horse, the sheer lunacy of a bond buying program that is only constrained by the fact that there simply aren’t enough bonds to buy, cannot possibly be overstated.



Among the program’s many inherent absurdities are the glaring disparity between the size of the program and the amount of net euro fixed income issuance and the more nuanced fact that the effects of previous ECB easing efforts virtually ensure that Q€ cannot succeed.

(Actually, we said all of the above first all the way back in 2012, but that's irrelevant.)

So aside from the ECB officially admitting that it has become supply*constrained even with security prices at near all time highs, why is this so critical?

Readers will recall that just yesterday we explained why "Suddenly The Bank Of Japan Has An Unexpected Problem On Its Hands" in which we quoted BofA a rates strategist who said that "now that GPIF’s selling has finished, the focus will be on who else is going to sell. Unless Japan Post Bank sells JGBs, the BOJ won’t be able to continue its monetary stimulus operations."

We also said this:

"in 6-9 months, following the next major market swoon when everyone is demanding more action from the BOJ, "suddenly" pundits will have discovered the biggest glitch in the ongoing QE monetization regime, namely that the BOJ simply can not continue its current QE program, let along boost QE as many are increasingly demanding, unless it finds willing sellers, and having already bought everything the single biggest holder of JGBs, the GPIF, had to sell, the BOJ will next shakedown the Post Bank, whose sales of JPY45 trillion in JGBs are critical to keep Japan's QQE going.



The sale of that amount, however, by the second largest holder of JGBs, will only last the BOJ for the next 3 months. What next? Which other pension fund will have the massive holdings required to keep the BOJ's going not only in 2016 but also 2017 and onward. The answer: less and less.

Once again to be accurate, the first time we warned about the biggest nightmare on deck for the BOJ (and ECB, and Fed, and every other monetizing central bank) was back in October 2014, when we cautioned that the biggest rish was a lack of monetizable supply.

We cited Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo, who said that at the scale of its current debt monetization, the BOJ could end up owning half of the JGB market by as early as in 2018. He added that "The BOJ is basically declaring that Japan will need to fix its long-term problems by 2018, or risk becoming a failed nation."

This was our summary:

The BOJ will not boost QE, and if anything will have no choice but to start tapering it down - just like the Fed did when its interventions created the current illiquidity in the US govt market - especially since liquidity in the Japanese government market is now non-existant and getting worse by the day. All that would take for a massive VaR shock scenario to play out in Japan is one exogenous JGB event for the market to realize just how little actual natural buyers and sellers exist.

That said, our conclusion, which was not to "expect the media to grasp the profound implications of this analysis not only for the BOJ but for all other central banks: we expect this to be summer of 2016's business" may have been a tad premature.

The reason: overnight the IMF released a working paper written by Serkan Arslanalp and Dennis Botman (which was originally authored in August), which confirmed everything we said yesterday... and then some.

Here is Bloomberg's summary of the paper:

The Bank of Japan may need to reduce the pace of its bond purchases in a few years due to a shortage of sellers, said economists at the International Monetary Fund.



There is likely to be a “minimum” level of demand for Japanese government bonds from banks, pension funds, and insurance companies due to collateral needs, asset allocation targets, and asset-liability management requirements, said IMF economists Serkan Arslanalp and Dennis Botman.

Here are the excerpts from the paper:

We construct a realistic rebalancing scenario, which suggests that the BoJ may need to taper its JGB purchases in 2017 or 2018, given collateral needs of banks, asset-liability management constraints of insurers, and announced asset allocation targets of major pension funds.



... there is likely to be a “minimum” level of demand for JGBs from banks, pension funds, and insurance companies due to collateral needs, asset allocation targets, and asset-liability management (ALM) requirements. As such, the sustainability of the BoJ's current pace of JGB purchases may become an issue.

Back to Bloomberg:

While Governor Haruhiko Kuroda said in May that he expects no obstacles in buying government bonds, the IMF analysts join Nomura Securities Co. and BNP Paribas SA in questioning the sustainability of the unprecedented debt purchases.

Who in turn merely joined Zero Hedge who warned about precisely this in October of last year.

Back to the IMF paper, which notes that in Japan, where there is a limited securitization market, the only "high quality collateral" assets are JGBs, and as a result of the large scale JGB purchases by the JGB, "a supply-demand imbalance can emerge, which could limit the central bank’s ability to achieve its monetary base targets. Such limits may already be reflected in exceptionally low (and sometimes negative) yields on JGBs, amid a large negative term premium, and signs of reduced JGB market liquidity."

To the extent markets anticipate limits, the rise in inflation expectations could be contained, which may mitigate incentives for portfolio rebalancing and create a self-fulfilling cycle that undermines the BoJ’s objectives.

For those surprised by the IMF's stark warning and curious how it is possible that the BOJ could have put itself in such a position, here is the explanation:

So far, the BoJ’s share of the government bond market is similar to those of the Federal Reserve and still below the Bank of England (BOE) at the height of their QE programs. Indeed, the BoE held close to 40 percent of the conventional gilt market at one point without causing significant market impairment. Japan is not there yet, as the BoJ held about a quarter of the market at end-2014. But, at the current pace, it will hold about 40 percent of the market by end-2016 and close to 60 percent by end-2018. In other words, beyond 2016, the BoJ’s dominant position in the government bond market will be unprecedented among major advanced economies.

As we expanded yesterday, the biggest issue for the BOJ is not that it has problems buying paper, but that there are simply not enough sellers: "under QQE1, only around 5 percent of BoJ’s net JGB purchases from the market came from institutional investors. In contrast, under QQE2, close to 40 percent of net purchases have come from institutional investors between October 2014 and March 2015."



This is where things get back for the BOJ, because now that the BOJ is buying everything official institutions have to sell, the countdown has begun:

given the pace of BoJ purchases under QQE2 and projected debt issuance by the government (based on April 2015 IMF WEO projections of the fiscal deficit), we estimate that Japanese investors could shed some ¥220 trillion of JGBs until end-2018 (Table 2, Figure 4). In particular, Japanese insurance companies and pension funds could reduce their government bond holdings by ¥44 trillion, while banks could sell another ¥176 trillion by end-2018, which would bring their JGB holdings down to 5 percent of total assets. At that point, the BoJ may have to taper its JGB purchases.



Then there are the liquidity issues:

As the BoJ ascends to being a dominant player in the JGB market, liquidity is likely to be affected, implying that economic surprises may trigger larger volatility in JGB yields with potential financial stability implications. As noted in IMF (2012), demand-supply imbalances in safe assets could lead to deteriorating collateral quality in funding markets, more short-term volatility jumps, herding, and cliff effects. In an environment of persistent low interest rates and heightened financial market uncertainty, these imbalances can raise the frequency of volatility spikes and potentially lead to large swings in asset prices.

This, too, is precisely what we warned yesterday would be the outcome: "the BOJ will not boost QE, and if anything will have no choice but to start tapering it down - just like the Fed did when its interventions created the current illiquidity in the US govt market - especially since liquidity in the Japanese government market is now non-existant and getting worse by the day."

The IMF paper conveniently provides some useful trackers to observe just how bad JGB liquidity is in real-time.

The IMF is quick to note that the BOJ does have a way out: it can simply shift its monetization to longer-dated paper, expand collateral availability using tthe BOJ's Securited Lending Facility (which basically is a circular check kiting scheme, where the BOJ lends banks the securities it will then repurchase from them), or simply shift from bonds to other assets: "the authorities could expand the purchase of private assets. At the moment, Japan has a relatively limited corporate bond market (text chart). Hence, this would require jumpstarting the securitization market for mortgages and bank loans to small and medium-sized enterprises which could generate more private assets for BoJ purchases."

But the biggest risk is not what else the BOJ could monetize - surely the Japanese government can always create "monetizable" kitchen sinks... but what happens when the regime shifts from the current buying phase to its inverse:

As this limit approaches and once the BoJ starts to exit, the market could move from a situation of shortage to one with excess supply. The term premium could jump depending on whether the BoJ shrinks its balance sheet and on the fiscal deficit over the medium term.

When considering that by 2018 the BOJ market will have become the world's most illiquid (as the BOJ will hold 60% or more of all issues), the IMF's final warning is that "such a change in market conditions could trigger the potential for abrupt jumps in yields."

At that moment the BOJ will finally lose control. In other words, the long-overdue Kyle Bass scenario will finally take place in about 2-3 years, tops.

But ignoring the endgame for Japan, and recall that BofA triangulated just this when it said that "the BOJ is basically declaring that Japan will need to fix its long-term problems by 2018, or risk becoming a failed nation", what's worse for Abe is that the countdown until his program loses all credibility has begun.

What happens then? As BNP wrote in an August 28-dated report, "Once foreign investors lose faith in Abenomics, foreign outflows are likely to trigger a Japanese equities meltdown similar to the one observed during 2007-09."

And from there, the contagion will spread to the entire world, whose central banks incidentally, will be faced with precisely the same question: who will be responsible for the next round of monetization and desperately kicking the can one more time.

But before we get to the QE endgame, we first need to get the interim point: the one where first the markets and then the media realizes that the BOJ - the one central banks whose bank monetization is keeping the world's asset levels afloat now that the ECB has admitted it is having "problems" finding sellers - will have no choice but to taper, with all the associated downstream effects on domestic and global asset prices.

It's all downhill from there, and not just for Japan but all other "safe collateral" monetizing central banks, which explains the real reason the Fed is in a rush to hike: so it can at least engage in some more QE when every other central bank fails.

But there's no rush: remember to give the market and the media the usual 6-9 month head start to grasp the significance of all of the above.

[admin]

Los sauditas apostaron, y Texas les ganó
Por GLENN HEGAR
Jueves, 3 de Septiembre de 2015 0:02 EDT
En noviembre de 2014, los líderes de Arabia Saudita hicieron una de las mayores apuestas de la historia. Su estrategia era defectuosa y ya han perdido.

En una reunión de la Organización de Países Exportadores de Petróleo (OPEP) ese mes, Arabia Saudita anunció que mantendría niveles de producción altos a pesar de la caída de los precios. Los sauditas apostaban a que el mantener los precios bajos protegería su cuota de mercado y acabaría con el renacimiento energético de Estados Unidos, una resurrección impulsada en gran parte por Texas, que produce 37% del petróleo de país norteamericano y 28% de su gas natural comercializado.

La estrategia saudita parecía tener sentido. La creencia general era que los productores de energía que operaban en formaciones de esquisto con márgenes ajustados se verían presionados por los bajos precios, puesto que sus métodos de extracción —la fracturación hidráulica y la perforación horizontal— son más costosos que la perforación convencional. Por lo tanto, cuando sucediera eso, Texas estaría en graves problemas.

Columnistas de The New York Times y otros medios dijeron que el “milagro de Texas” se desvanecía, o que incluso estaba muerto... y algunos de ellos parecían contentos por eso.

Sin embargo, sucedió algo interesante en el camino al colapso de la economía de Texas: no colapsó.

Primero, muchas personas aún parecen no darse cuenta de lo diversificada que se ha vuelto la economía del estado. En 1981, la producción de petróleo y gas y los servicios que la respaldan representaron cerca de 20% del Producto Interno Bruto de Texas. Hoy, después de años de un crecimiento increíble en la industria, esta contribuye menos de 14%.

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Dallas y Austin están en auge, pero no debido al crudo y el gas. Incluso en los años 90, cuando el petróleo pasó gran parte de la década a menos de US$30 el barril, la economía del estado se expandió de forma constante.

Y pese al descenso de los precios de la energía, la producción de petróleo y gas en Texas y EE.UU. ha seguido creciendo. En el año fiscal 2015, los precios del crudo fueron más bajos de lo que había proyectado mi oficina, pero los ingresos de los impuestos a la producción petrolera de Texas resultaron mayores de lo previsto, de casi US$2.900 millones.

Lo que los sauditas y los detractores más cerca de casa parecen haber olvidado es que el libre mercado es la mayor incubadora de innovación tecnológica. Los productores de energía en este país han calculado los desafíos de los menores precios, están trabajando para abordarlos, y esto está dando resultados.

La tecnología detrás de la producción de esquisto está avanzando rápidamente y sus costos están cayendo. Hoy la industria puede explotar múltiples reservas de petróleo separadas desde un solo pozo vertical, al perforar de forma horizontal a través de kilómetros de roca con brocas que se pueden guiar con computadoras. Algunos de estos pozos “pulpo” pueden tener hasta 18 aberturas horizontales.

Los artículos sobre la reducción del número de plataformas no tienen en cuenta esto. Estamos viendo innovaciones adicionales como el uso de agua de “fracturación hidráulica”, dióxido de carbono y otras sustancias recicladas para quebrar formaciones, reduciendo el uso de preciada agua fresca en la perforación.

Un prolongado período de precios por debajo de US$40 —si eso es lo que nos espera— tendrá un efecto sobre la industria y muchas familias deberán soportar una consolidación y despidos. Los actores más débiles y sobreapalancados se irán a la quiebra. La industria petrolera tal vez nunca vuelva a ser la misma que conocimos antes de que cayeran los precios.

Pero si la historia sirve de guía, los precios del petróleo y el gas no permanecerán bajos por siempre. Y la tecnología, el personal capacitado y la infraestructura asociados con el renacimiento energético de EE.UU. no desaparecerán. Estos son nuevos hechos en el entorno global. Cuando los precios suban, el capital estadounidense volverá a fluir hacia la región petrolera y la producción crecerá de nuevo.

La jugada de la OPEP para matar la innovación estadounidense fue una estrategia a corto plazo sin un desenlace ni una apreciación de cómo la estrategia estimularía mayores eficiencias e innovación en EE.UU. Que sea un recordatorio amable: nunca es aconsejable apostar contra el capitalismo, especialmente en Texas.

—Glenn Hegar es el contralor de cuentas públicas de Texas.

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Hillary pagó a empleado por mantenimiento de su correo privado

Hillary pagó a empleado por mantenimiento de su correo privado
Washington. Hillary Clinton usó dinero propio para pagar un empleado del Departamento de Estado por el mantenimiento de un servidor de correo electrónico que usaba tanto para asuntos personales como de Gobierno cuando se desempeñaba como jefa de la diplomacia estadounidense, reportó el sábado el The Washington Post.

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Un funcionario mencionado en el reporte, que no fue identificado pero que trabaja para la campaña de Clinton por la nominación para las elecciones del 2016, dijo al diario que el acuerdo sobre el pago con Bryan Pagliano garantizó que los dólares de los contribuyentes no fueran gastados en un servidor privado que también fue usado por la familia de la ex secretaria de Estado y asesores del ex mandatario Bill Clinton.

La ex senadora demócrata y ex primera dama ha sido criticada por usar un servidor poco seguro para tratar asuntos del Gobierno cuando se desempeñaba como jefa del Departamento de Estado entre el 2009 y el 2013, y por la manera en que manejó información clasificada.

Pagliano declinó esta semana entregar documentos y testificar ante una comisión de la Cámara de Representantes en torno al servidor, invocando el derecho de la Quinta Enmienda que lo protege de auto-incriminarse.

Pagliano era el director de tecnología informática de la campaña presidencial de Clinton en el 2008 y llegó a trabajar al Departamento de Estado cuando Clinton asumió el cargo del Gabinete.

El Post reportó que los Clinton pagaron a Pagliano 5.000 dólares por sus servicios en informática antes de empezar a trabajar para el Departamento de Estado, y citó un documento de datos financieros que entregó el ex funcionario en abril de 2009.

En el pasado, Clinton ha contratado a personas para trabajar junto a ella de manera simultánea por asuntos privados y públicos, dijo el diario. La campaña de Clinton no respondió de inmediato al pedido para emitir comentarios sobre el informe aparecido el sábado.

Fuente: Reuters

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Moratoria a transgénicos afectaría producción de maíz y algodón

Moratoria a transgénicos afectaría producción de maíz y algodón
No usar semillas transgénicas en la producción de maíz amarillo duro y algodón significa una pérdida económica de S/.3.500 millones, como mínimo, para cada caso, durante los 10 años que esté instaurada la moratoria, según los cálculos preliminares del investigador de la Universidad Nacional Agraria La Molina, Marcel Gutiérrez-Correa.

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Para el cálculo, el científico tomó en cuenta los ahorros que significan un menor uso de insecticidas, mano de obra y energía eléctrica con los transgénicos. También tomó en cuenta el incremento de la productividad que puede ser en promedio 30% mayor.

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Gutiérrez-Correa señaló que, como mínimo, los productores de maíz están perdiendo S/.3.500 millones en el lapso de ese tiempo. En el caso del algodón, la pérdida puede fluctuar entre los S/.3.600 millones y S/.8.500 millones, según difundió durante el foro Impactos de la Regulación de la Biotecnología, organizado en el Hotel Río Verde en Piura.

También expresó su preocupación por la posible reducción en la importación de semillas convencionales para la producción de maíz, de no establecerse un umbral de por lo menos 2% para la presencia no intencional de transgénicos en lo adquirido del exterior.

AVANCES
En cambio, la investigadora de la misma casa de estudios, Antonietta Gutiérrez, comentó que lo que requiere el país es más bien investigación de las semillas convencionales.

Frente al temor de que el mercado quede desabastecido de semillas, comentó que el INIA ha logrado buenos resultados en estos años de moratoria, con semillas convencionales de mayor productividad.

En cuanto al algodón, afirmó que las variedades transgénicas no corresponden a las necesidades del mercado local. “Alguna vez se quiso introducir una especie distinta y no se tuvo éxito”, resaltó. En resumen, opinó que no existe mayor afectación por la moratoria de semillas transgénicas en ese producto.

SUPERVISIÓN PENDIENTE
► Acciones. Como parte de la moratoria se estableció que el Senasa se encargaría de supervisar la importación de las semillas, lo que aún no ocurre.

► Problema. Lo que se teme es que el maíz importado tenga trazas mínimas de transgénicos, debido a contenedores contaminados.

► Posición. El INIA también propuso establecer un umbral de 2% de presencia de trazas transgénicas en las semillas convencionales importadas.

► Génesis. La Ley 29811, que establece la moratoria de productos transgénicos, fue aprobada por el Congreso en el 2011 y promulgada por el Ejecutivo.

MÁS DATOS
► Multas. El gobierno estableció una multa de hasta S/.36,5 millones para quienes importen transgénicos.

► Mercado. La soya y el maíz amarillos son los transgénicos que más se usan en el mundo.