Japan rewarded for launching the currency war

Japan’s “Merchandise Trade” exports surprised to the upside this morning. All of a sudden Japan’s export activity is picking up steam.Source: EconodayFurthermore, Japan just overtook China as the largest exporter into the US.CNN: – Japan has posted its narrowest trade deficit for nine months, helped by a big rise in the value of shipments to the US,…

Is China’s anti-corruption campaign responsible for global commodities sell-off?

Commodities came under severe pressure yesterday, in part driven by some negative news out of China, the world’s largest single consumer of natural resources.CRB Commodity Index (Bloomberg)The nation’s GDP growth rate came in below expectations.Source: EconodayAnecdotal evidence suggests that some large hedge funds were forced to unwind commodity hol…

Canadian households may face more deleveraging

Some recent data out of Canada points to a slowdown in growth of consumer indebtedness. According to RBC, the non-mortgage consumer debt has grown at the slowest rate in 20 years.Global News: – Non-mortgage debt including credit cards, personal loans, lines of credit and other loans stood at $512 billion — up 2.5 per cent, the smallest 12-month inc…

Declining dry powder of LBO funds

The private equity industry’s capacity for leveraged buyouts continues to decline. Here are some reasons for this trend:Monetizations of portfolio companies have been talking longer in recent years. That traps investors’ capital, reducing capacity for redeployment in new funds or in some cases for recycling in existing funds.Newly launched buyout fun…

Corporate CDS tightens to multi-year lows; bonds lag

US corporate CDS are tightening to new lows, as the Fed continues to pump liquidity into the market. The JPMorgan CDX indices which measure spreads for the “on-the-run” CDX (and include rolling into the most current series) are showing the tightest spreads in years. In fact the HY CDX spread is now at levels not seen since 2007.Source: JPMorganBond s…

The bet on retail could be premature

Among the bets that may end up backfiring in the near future is the recent bet by investors on US retail shares. Just this year the S&P Retail Index has outperformed the S&P500 by nearly 6%.Source: Ycharts (click to enlarge)With recent improvements in the labor and housing markets, investors have piled into retail focused shares. However, tod…

US government’s bearish crude oil forecast

In spite of the Fed’s ongoing monetary expansion, the US Department of Energy is projecting a moderate decline in crude prices over the next couple of years. Here is the key component of their rationale:EIA: – Non-OPEC supply growth, particularly in North America, is expected to keep pace with world liquid fuels consumption growth and contribute to…

Taking QE to a whole new level

The Bank of Japan is taking the concept of quantitative easing to a whole new level. Unlike the Fed who is only focused on treasuries and agency MBS securities, the BOJ is authorized to purchase ETFs and REITs in addition to JGBs.Reuters: – “The BOJ can buy whatever amount of ETFs and REITs it can. It can even buy government bonds more forcefully, as…

Why has the US broad money supply flat-lined in 2013?

The US money indicators have been showing something odd in the last few months. While the monetary base (M0) has been rising sharply due to increasing bank reserves (the liability side of the Fed’s balance sheet), the broader money supply has stalled.Both M2 and MZM measures of money stock have been relatively flat this year.Some attribute this to li…

Egypt’s descent into chaos

Egypt’s cities are erupting in protests once again. Commentators have been focused on the nation’s politics and the government’s attempts to suppress certain freedoms. After all that’s what usually makes for great news. The reality however is grounded in Egypt’s deteriorating economic conditions. It goes back to James Carville’s “it’s the economy, s…

Paul Krugman’s new Japan

Paul Krugman’s dream for Japan is finally coming true as BOJ embarks on a round of massive monetary expansion.Paul Krugman (NYT): – Let it not be said that the scribblings of academic economists have no effect. Some of us have been urging the Bank of Japan to get truly aggressive and adventurous on monetary policy — and it’s happening! And it onl…

Trends behind declining LTRO balances; Italy overtakes Spain as the largest LTRO borrower

As European banks find some private sources of capital to fund themselves, they continue to repay their ECB loans – particularly in the 3y LTRO program.FoxBusiness: – Next week, nine banks will repay just over 4 billion euros … in loans during the first round of three-year financing in late 2011, ECB data showed Friday. Eleven banks will repay just…

Small business loan approval rates – latest trends

The latest statistics on small business lending show application approval rates rising at banks. It seems however that banks are still relying on taxpayer support to provide credit.Biz2Credit: – “Smaller banks are making more and more loans through the SBA’s Small Loan Advantage Program, which range in amounts from $50,000 to $350,000 and require lit…

A shift away from RORO?

Something strange happened in the market today. The dollar (DXY) and the US equity indices traded lower – together.Source: MarketWatchHistorically one would indeed expect a positive correlation between these markets. After all, a healthier US economy – at least in principle – should benefit both the US dollar and the stock market. And the reverse al…

Hedge funds hurt by drop in corn, wheat prices, but the decline may be short-lived

Agricultural commodities got slammed last week as a result of two news items.1. Corn planting acreage is expected to hit the highest level since 1936. With supplies low and prices expected to stay firm, farmers are planning to expand the number of acres used for corn. This points to an immense flexibility of the US agricultural economy.Farm Futures: …

French consumer recession worse than Italy’s; Euro area economy in trouble

As discussed earlier (see post) the French economy continues to struggle. The nation’s consumer recession is now thought to be worse than Italy’s.Markit (Trevor Balchin): – “France has overtaken Italy as having the worst performing retail sector of the three largest euro area economies. Sales fell at a survey-record pace, as did employment. Italy…

In spite of being a horrible standalone investment, treasuries remain an effective portfolio hedge

With all the talk of the so-called Great Rotation, evidence points to investors still pumping billions into fixed income. And in spite of a fairly broad conviction that rates will be rising in the near future, investment portfolios are loaded with treasuries. Demand for US government paper continues to be strong in spite of the worst risk/return prof…