The Japan Triangle

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Given all that has transpired in China this past year, year and a half it is likely that confusion will continue if only due to bias and preconceptions about “omniscience” in central banking. For my part, the PBOC has been unusually open and candid about “what” it is doing, particularly in the framework of the high degree of secrecy under which the Chinese central bank almost always operates. That it has been very public about “reform”, in contrast, is itself highly indicative of what they want to accomplish.

The less obvious and direct part is the “why.” On the surface that seems to be almost as straightforward as “reform”; in other words bubbles simply don’t work and they want to try to manage them as best they can before it gets wholly out of control and, more importantly, irreversible. That is true, but it is also a pattern that has been seen and done before, to which the Chinese are very much aware but apparently loathe (or forbidden) to directly address.

I have not written before about this element of what I see as the impetus for “reform” in China because it is mostly conjecture on my part. Here you have to engage a lot of study and put some disparate pieces together (which subjects your analysis to your own bias, which is why it’s nothing more than conjecture). Unlike the monetary policies they have engaged in 2014, the underpinnings of the philosophical shift have never, to my knowledge, been outwardly admitted by the PBOC or anyone in power. Nor do I expect them ever to do so. In that sense, this is about as close to connecting dots or reading between lines as you can get and maintain logical consistency with stated goals and activated monetary experimentation as it exists now.

OBAMA’S ANTI-RUSSIAN ALLIANCE ALREADY FALLING APART

Submitted by Jim Quinn  –  The Burning Platform

It’s funny how you never hear about peace talks between Russia, Ukraine, Germany and France in the American MSM.

Russia sanctions ‘must be lifted now’ – Hollande

Published time: January 05, 2015 11:14

French President Francois Hollande (AFP Photo/Remy de la Mauviniere)

French President Francois Hollande is wary of the impact economic crisis in Russia might have on Europe. He has called for sanctions imposed against Moscow to be lifted as soon as there’s progress in peace talks over Ukraine.

“If Russia has a crisis, it is not necessarily good for Europe,” Hollande said during a two-hour interview with radio station France Inter. “I’m not for the policy of attaining goals by making things worse, I think that sanctions must stop now.”

READ MORE: More Russia sanctions to provoke ‘dangerous situation’ in Europe – German vice-chancellor

Hollande said he wanted to make sure there’s progress in peace talks over the situation in Ukraine, before putting an end to sanctions.

He said he hopes to see signs of mutual understanding at the January 15 talks in Astana, Kazakhstan. The meeting is being organized by Ukrainian President Petro Poroshenko, and Russian President Vladimir Putin and German Chancellor Angela Merkel are expected to be among the participants.

A man walks past the damaged residential building in the eastern Ukrainian city of Shakhtarsk on December 21, 2014. (AFP Photo/Vasily Maximov)

Moscow has repeatedly said it was doing all in its power to facilitate the peace process in eastern Ukraine. A major breakthrough was achieved during September’s Minsk peace talks, brokered by Russia.

Russia’s Foreign Minister Sergey Lavrov has sarcastically described western sanctions, also announced in September, as “a ‘reward’ for Russia’s role in the Minsk agreements and more generally for its part in organizing the meeting.”

Another round of peace talks in Minsk took place in December. The negotiations, which brought no breakthrough in the crisis, were overshadowed by Ukrainian parliament voting to revoke the country’s “nonaligned” status, paving its way for closer ties with NATO and eventual full membership.

READ MORE: ‘Difficult’ new Ukraine peace talks begin in Minsk as Kiev sets course for NATO

Hollande said he understands that Kiev’s striving for NATO membership can hardly contribute to the peace process.

“Mr. Putin does not want to annex eastern Ukraine. I am sure. He told me so,” Hollande told France Inter. “What he wants is to remain influential. What Mr. Putin wants is that Ukraine does not become a member of NATO. The idea of Mr Putin is not to have an army at Russia’s borders.”

Negotiators of a contact group on Ukraine in Minsk on September 5, 2014. (AFP Photo)

The Ukrainian crisis has strained relations between Russia and France, with Paris putting on hold the delivery of Mistral helicopter-carrying amphibious assault ships to Moscow.

Hollande decided to suspend the delivery of the first such ship “until further notice” in late November, despite the fact that the move might hit the French economy hard.

France is facing a multibillion-dollar fine if it fails to deliver the ships under the terms of the contract. The delay of the warships’ delivery has also reportedly entailed additional costs for Paris.

2015: Grounds for Optimism

Submitted by Dmitry Orlov  –  The ClubOrlov Blog

This may seem like an odd line of reasoning to pursue given what everyone else seems to be saying. Some are thinking that 2015 will be a repeat of 2014 with a few incremental changes (always a safe bet, but makes for boring reading) while others are warning of the potential for a nuclear confrontation between the US and Russia (always a possibility, on par with an asteroid strike or a supernova in our galactic vicinity). But this is all more of the same. The interesting question to ask is, How has the ground shifted in 2014, if indeed it has?

To my mind, the really interesting development of 2014 is that the world as a whole (with a few minor exceptions) has become quite lucid on the topic of what the United States, as a global empire, is and stands for. It is now very commonly and completely understood that:

1. The United States is an evil empire, attempting not so much to rule the world as to disrupt it to its short-term advantage.

2. The United States is failing, as an empire and as a country, and no amount of fraud, mayhem, torture and murder is going to save it.

3. The United States is still quite powerful and can cause massive damage on its way down. This damage must be contained, while plans are drawn up for an international arrangement that will arise upon its demise.

Looking back on 2013 and before, such sentiments were already being expressed, but on the fringes and quietly. The difference is that in 2014 they became commonplace knowledge, and their expressions thundered from presidential podiums. What’s more, there just isn’t that much of a counterargument being voiced. I don’t hear a single voice out there arguing that the US is a benevolent force that is on the up-and-up, would never hurt a fly and is the permanent center of the universe. Yes, some people can still think that, but it’s hard to see value in such “thought.”

KWN Interviews Michael Pento: Negative Bond Yield Chaos

Submitted by Michael Pento – Pento Portfolio Strategies

KWN Interview

The ECB Is Nothing More Now Than A Headless Chicken

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

The “inflation” results out of Europe this morning highlight and emphasize the disingenuousness at the heart of monetary economics. While some of the “peripheral” nations (as if they are less European) are deeply into “negative inflation”, Germany (as if it is more European) has been an almost singular source of what the ECB views as a standard. However, even Germany is now on the verge of acting, “unexpectedly”,downright peripheral.

The annual rate of inflation in Germany, measured according to common European Union standards, was 0.1% in December, while prices rose 0.1% also on the month, the Federal Statistics Office said Monday. The yearly rise was the weakest since October 2009.
The figures were weaker than analysts had expected. Economists in a survey by The Wall Street Journal had projected the German consumer-price index would rise 0.3% both on the month and on the year. In November, prices rose 0.5% in annual terms.

With these results it is almost guaranteed that “inflation” for the combined whole of Europe will have been negative in December. And while that can be attributed to energy, but not energy alone, it simply begs the same problems as have been apparent going back to the 2011 euro crisis.

“Clearly there’s a high probability of negative inflation for the eurozone” in the wake of the German figures, said ING Bank economist Carsten Brzeski in Frankfurt. “It’s increasing pressure on the ECB to act.”

As per usual with what is left out by the obligatory credentialed economist, what hasn’tthe ECB done yet? It’s not as if the central bank has been idle for the better part of three years, sitting aside and watching the economy sink further and further. In some respects, and contrary to the notion of these economists and their credentials, the ECB has gone further than the Fed in trying to engineer “something” out of nothing. Rather than “pressure on the ECB to act” it is instead the full mark of failure of all prior actions. The ECB in taking on these actions promised nothing short of full restoration in finance and economy, instead failing to deliver on even restoration as the economy lurches further toward a 2008-type abyss (what are oil prices saying, after all?).

This Oil Thing Is The Real Deal

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

DPC Court Street, Ames Building, Young’s Hotel, Boston, MA 1906

Well! WTI below $50 and Brent below $53 when I start writing this. Who knows where they’ll be by the time I’m finished?! The euro down below $1.20, US stocks flirting with -2%, major European ones off -3%, Italy and Greece over -5%. Welcome to the real world, baby! Didn’t think you’d see it again so soon, did you? Welcome to the world where the Kool-Aid recovery does not reign supreme.

Not that you’re not going to hear that anymore, and 24/7 incessantly so, but there’s no recovery with these oil prices, no matter what anybody says. The damage must be gargantuan by now. Everybody’s invested in oil. Sure, lots of shorts and stuff by now, but that’s not going to do much good. Not for pensions funds, or for governments. This thing will not blow up or over softly.

There’s not an oil major or minor or a producing country left that makes a profit at these prices, and there’s no sign anywhere to be seen that the drop will stop. If this keeps going, someday soon somebody’s going to go to war. Maybe domestically, maybe across a border, but it’ll happen.

There are dozens of regimes out there for whom oil prices have become a huge threat to their powers, their status, their lives, and there are dozens of others waiting in the wings, eager to take over. The move is just too big not to lead to bloodshed.

‘Grexit’ Risk and Lehman Collapse Concerns See Euro Gold at 1,020 Per Ounce

Submitted by Mark O’Byrne  –  GoldCore

With Greeks going to the polls to elect a new government in just over two weeks, concerns over a potential Greek exit or ‘Grexit’ from the euro is growing and this has led to the euro falling against the dollar and particularly gold.

Speculation as to the consequences of a Syriza victory has caused the euro to fall to it’s lowest level against the dollar since 2010. Gold has surged to close to EUR 1,020 per ounce this morning – building upon the 11% gains seen in 2014.

Gold in Euros – 10 Years (Thomson Reuters)

Over the weekend Germany’s Der Spiegel reported Angela Merkel’s view that Germany would be “comfortable” with a Greek exit and that “any fallout would be manageable.”

That the Chancellor felt the need to make such comments is been seen by some as an attempt to scare the Greek people away from voting for anti-austerity group Syriza.

Syriza’s leader, Alexis Tsipras has already indicated that it is not his intention to pull Greece out of the Euro-zone but to renegotiate certain aspects of the bailout agreements with the Troika, particularly those seen as an unjust debt burden placed on average Greek citizens.

Europe’s Monetary Madhouse

Submitted by David Stockman – The Contra Corner Blog

If you want to know where the global experiment in massive money printing is heading—-just take a look at the monetary madhouse in Europe. And that particular phrase has full resonance once again as it becomes more apparent by the hour that Europe and the Euro were not fixed at all. Indeed, beneath the surface of Draghi’s “whatever it takes” time out, the crisis has been metastasizing into ever more virulent deformations.

The coming European monetary crack-up is rooted in the fact that the ECB’s financial repression and ZIRP policies have—like everywhere else—-destroyed honest price discovery in Europe’s massive sovereign debt market.There is no other way to explain the preposterously low 10-year bond yields prevailing this morning for the various and sundry fiscal cripples that comprise the EU-19.

In the wake of Hollande’s two odd years of serial tax, regulatory and fiscal blows to his nation’s economy, for example, why not load-up on some French ten-year bonds at a yield of 0.78%?  Yes, the French benchmark bond is now trading in Japanese style basis points, not the whole integers that French state debt has carried since the time of the Black Plague. Indeed, today’s miniscule yield is but a tiny fraction of the rates prevailing in more recent times, including the 3.5% rate at the bottom of the global financial meltdown in late 2008.

BMO’s Brian Belski Bites Back at First Rebuttal

Submitted by Thad Beversdorf  –  The First Rebuttal Blog

A couple months back I wrote a fairly fiery rebuttal to comments made by BMO CIO Brian Belski.  Brian was touting a 20 year bull run and claiming that the outstanding performance of the past 6 years in the markets was driven by strong consumer demand.  That really hit a nerve with me.  I asked Brian, in the event he read the rebuttal, to reach out to me as I wanted to understand his incredibly positive view.

And well, to his credit, Brian recently did reach out to me.  His initial e-mail to me not only explained that my rebuttal was based on poor analysis but that I was using scare tactics, and by doing so I am the one hurting this nation.  He also expressed that we need to believe and unite in order to improve things here in America.  In my head that sounded like someone who didn’t want to discuss the issues and I replied as such.  It was then that we began to walk through the issues, and again it’s to Belski’s credit for taking this head on.  In his second email Brian’s team provided various in-house analyses to substantiate his view point.  His third email to me is his answer to a question I posed in my response to his second email to me.

The following is Brian’s last email to me (maroon font below) and my responses to that email (in black font below) which Brian will receive via this article.  I asked him to specifically help me understand BMO’s call for a capex revival which, in his team’s opinion, is to be a main driver of 14 more years of all time market highs.  Additionally, I queried why there is no mention of the words ‘revenue’ or ‘sales’ even once anywhere in their economic and financial forecasts.

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Oil Below $49 As Sector Faces Its ‘Hunger Games’ (CNBC)
• Brent Falls Below $52 As Oil Hits New Five And A Half Year Lows (Reuters)
• Oil Drama Drives Shares Lower In Asia And Europe (Reuters)
• Some Traders Are Betting On $20 Oil (MarketWatch)
• Caterpillar Is Latest Victim Of Sliding Oil Price (MarketWatch)
• Saudi Slashes Monthly Oil Prices To Europe; Trims US., Ups Asia (Reuters)
• Saudi Arabia Raises Price of Main Oil Grade for Asian Buyers (Bloomberg)
• Oil Below $55 May Force Norway to Cut Rates Again (Bloomberg)
• Oilfield Writedowns Loom as Market Collapse Guts Drilling Values (Bloomberg)
• Greece vs Europe: Who Will Blink First? (AEP)
• The Black Hole Theory Of The Eurozone (Coppola)
• As Goes Greece, So Goes the Euro (Bloomberg ed.)
• A New Year, A New Europe? Don’t Count On It (CNBC)
• Goldman Says JPMorgan Should Break Itself Into Pieces (Bloomberg)
• China Fast-Tracks $1 Trillion in Projects to Spur Growth (Bloomberg)
• Venezuelan Leader Maduro Seeks Economic Help On Tour (BBC)
• The Demise of UK’s Lucky Years Pits Winners Against Losers (Bloomberg)
• The Economics (and Nostalgia) of Dead US Shopping Malls (NY Times)
• Forecast 2015 – Life in the Breakdown Lane (Jim Kunstler)
• 2015: Grounds for Optimism (Dmitry Orlov)
• The People Pushed Out Of Ethiopia’s Fertile Farmland (BBC)
• Does CNN Really Have A Video Ready For The Apocalypse? (BBC)

Continue Reading: Debt Rattle January 6 2015 – The Automatic Earth