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THINGS THAT MAKE YOU GO

A walk around the fringes of finance

By Grant Williams

To learn more about Grant's new investment newsletter, Bull's Eye Investor, Click here

8 APRIL 2013

A Date Which Will Live in Yenfamy

"All serious poker players try to minimize their tells, obviously. There are a couple ways to go about this. One is the robotic approach: where your face becomes a mask and your voice a monotone, at least while the hand is being played.... The other is the manic method, where you affect a whole bunch of tics, twitches, and expressions, and mix them up with a river of insane babble. The idea is to overwhelm your opponents with clues, so they can't sort out what's going on. This approach can be effective, but for normal people it's hard to pull off. (If you've spent part of your life in an institution, this method may come naturally.)" Dan Harrington, Harrington on Hold 'Em, Volume 1: Expert Strategy for No Limit Tournaments "It's desirable that foreign exchange rates reflect fundamentals." Haruhiko Kuroda "You got to know when to hold 'em, know when to fold 'em, Know when to walk away, know when to run. You never count your money when you're sittin' at the table. There'll be time enough for countin' when the dealin's done." Kenny Rogers, The Gambler
Copyright Mauldin Economics. Unauthorized disclosure prohibited. Use of content subject to terms of use stated on last page.

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Contents
THINGS THAT MAKE YOU GO HMMM... ....................................................3
Putin: Russia May Profit from Cyprus Crisis ........................................................16 97% of Spain's Social Security Pensions Are Invested in Spanish Government Debt .........17 Down and Out in Paris ................................................................................18 North Korea Readies Missile Launch as Fears of a Covert Cyberwar Grow ...................19 Egypt's Descent into Chaos ...........................................................................20 Six Years of Low Interest Rates in Search of Some Growth .....................................22 Rehn: Big Bank Depositors Could Bear Cost of Bank Failure ....................................23 Is Divorcing an Abusive Spouse Ever Too Expensive? .............................................24 Helicopter QE Will Never Be Reversed .............................................................25 Contagion Starts Small ................................................................................26

CHARTS THAT MAKE YOU GO HMMM... ..................................................29 WORDS THAT MAKE YOU GO HMMM... ..................................................23 AND FINALLY ................................................................................34

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Things That Make You Go Hmmm...

April 4 is a day when things tend to happen. Big things.
April 4, 1841 saw President William Henry Harrison, the ninth President of the United States, die of pneumonia after only 31 days in office. Twenty-four years later to the day, President Abraham Lincoln would be haunted by a disturbing dream. As Lincoln's close friend Ward Hill Lamon recollected: ... the President had dreams on this night in 1865 of "the subdued sobs of mourners" and a corpse lying on a catafalque in the White House East Room. In the dream, Lincoln supposedly asked a soldier standing guard "Who is dead in the White House?" to which the soldier replied, "The President. He was killed by an assassin." On April 11, he told Lamon that the dream had "strangely annoyed" him ever since. Ten days after having the dream, Lincoln was shot dead by an assassin while attending the theater. (History Channel) Fifty-three years later, in 1918, April 4 marked the end of the second Battle of the Somme, leaving over 500,000 combatants on both sides either killed or captured. In 1949, April 4 saw the NATO Pact signed after relations with the Soviet Union deteriorated rapidly the previous year largely over the proposed recovery and eventual rearmament of Germany and the world was plunged into what became known as the 'Cold War'. Then, April 4, 1960 was the day Ben Hur was presented 11 Academy Awards, and it was also the day that Muddy Waters celebrated his 47th birthday whilst Maya Angelou celebrated her 32nd. In 1982, The Great One, Wayne Gretzky, finished a single National Hockey League season with a staggering 212 points on April 4. And, of course, as immortalized in the U2 song, on April 4th, 1968, a shot rang out in the Memphis sky which tragically took the life of Dr. Martin Luther King Jr. But April 4 also has special significance in the history books of Japan: in 1884 that day saw the birth of Isoroku Yamamoto, the man who would become perhaps Japan's greatest military strategist and the architect of the surprise attack, on December 7th, 1941, on US naval forces stationed at Pearl Harbor.

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Admiral Yamamoto convinced the government of Hideki Tojo that only a surprise attack of immense force would be enough to cripple the US fleet and allow Japan any chance of victory; and he meticulously planned an air strike of huge scale and complexity that delivered shock and awe in the skies over the Hawaiian island of Oahu. Wave upon wave of dive bombers, torpedo planes, and deadly Mitsubishi Zero fighters descended upon Pearl Harbor, sinking several battleships (including the USS Oklahoma), destroying 180 aircraft, and crippling the US Pacific Fleet. This huge show of force by Japan was meant to win the war in a day, because Yamamoto saw no way that Japan could prevail in a long, drawn-out conflict with the mighty United States of America. Of course, history would prove that Yamamoto was correct, but no surprise attack would have been sufficient to close out a conflict on the scale of World War II. After the initial effects of such tactics are countered, time has a habit of turning the tide and making the seemingly impossible ... actually impossible. I have written previously (TTMYGH January 29, 2013) about the unfolding Global Currency War; but this week, Bank of Japan Governor Haruhiko Kuroda unleashed a set of monetary measures so extreme that I feel certain April 4th, 2013 will come to take its place in the pantheon of great April 4ths. Before we get to what Kuroda did, as well as the potential effects, let's take a look at Japan's history of money printing, because it is important to understand this back story in order to fully grasp the magnitude and implications of the BoJ's actions this week. Fittingly, it was the Bank of Japan that first used the term quantitative easing (ryteki kin'y kanwa), in referring to its policy actions in 2001 though, as is often the case with Japan, there is some dispute as to whether the phrase was coined ex post. No matter.
10

Bank of Japan Target Rate 1972-2013

4 Average: 3.15%

2 Q4 Q1 Q4

0 72 - 74

75 - 79

80 - 84

85 - 89

90 - 94

95 - 99

01 - 09

10 - 13

Source: Bloomberg

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Japan's interest rates have been set at essentially zero for the last 13 years in an effort to stimulate its moribund economy, but the ZIRP of the BoJ has been startlingly ineffectual, as can be seen in the charts of Japanese GDP and CPI (below). Since 1997, Japanese GDP has averaged 0.6% whilst CPI has averaged -0.2% hardly the sort of numbers befitting the world's thensecond-largest economy.
6

-2

-4

Japan GDP & CPI 1972-2013

Nationwide CPI (% YoY) GDP (% YoY)

-6

-8

-10

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Bloomberg

To put that performance into context, during the same period, South Korea Japan's nearest and fiercest competitor has seen average CPI growth of 3.3% and GDP growth of 4.1%.
15

12

South Korea GDP & CPI 1972-2013

0 CPI (YoY %) -3 GDP (YoY %)

-6

-9 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Bloomberg 8 APRIL 2013 5

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With its powerful emergence, Korea has cannibalized the industries that formed the twin pillars of the Japanese postwar miracle: consumer electronics and automobiles. The reasons for the ineffectuality of BoJ intervention are debatable, but Kuroda's actions this week seem to prove that the Japanese have come down firmly on the side of Krugmanomics and have decided that their previous easing just wasn't serious enough. The Asian WSJ laid out the two sides of the debate nicely in late 2010: (WSJ): So why didn't quantitative easing work in Japan? Critics say the Japanese central bank wasn't aggressive enough in launching and expanding its bond-buying program then dropped it too soon. In 2006, prices had just started rising, a sign that quantitative easing was beginning to work. But some indicators were already signaling a slowdown in the economy. Others say Japan simply waited too long to resort to the policy. Tomoya Masanao, who oversees the Japanese portfolio for bond fund giant PIMCO, points out it took the BOJ two years after Japan's consumer prices started falling to launch its bondbuying program. "What's important is to do it quickly and aggressively before inflation expectations start to diminish," Mr. Masanao says. "It's very clear other central banks have learned this lesson well" from what happened in Japan.... BOJ officials also seemed half-hearted as they launched the policy, failing to explain it sufficiently or making a strong case for public support. Confidence also eroded as the bank started and stopped various programs over the years. In 2000, for instance, the bank ended a zero-interest-rate program, only to resume it several months later when it became clear they had halted it too soon. Then-BoJ Governor Masaaki Shirakawa (who was unceremoniously bumped aside to make way for Shinzo Abe stooge Kuroda last month) cautioned that maintaining easy monetary policy "for an extended period" would likely yield wholly unintended and unwelcome consequences. So then, to the events of this past week. The most impactful way I can think of to lay out the moves made by Kuroda is to reproduce the experience of watching the headlines scroll across the newswire during his speech, so settle back and enjoy last Thursday in all its glory (thanks RK): *KURODA: LOW PROBABILITY OF SIDE-EFFECTS FOR BOND MARKET *KURODA: LOW YIELDS ON SHORT-TERM BONDS WILL PROBABLY CONTINUE *KURODA: NATURAL FOR YIELDS TO DECLINE WITH BOJ'S EASING *KURODA: BOJ WILL EASE UNTIL PRICE GROWTH IS SUSTAINABLE *KURODA: NOT MUCH ROOM TO BUY MORE REITS AT THE MOMENT *KURODA: BOJ TO BUY EQUIVALENT OF 70% OF MONTHLY BOND ISSUANCES

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*KURODA: NO NEED TO CUT RATE ON EXCESS RESERVES *KURODA: THERE IS MORE ROOM TO PURCHASE ETFS *KURODA: CURRENCY WEAKENS WHEN MONETARY EASING TAKES PLACE *KURODA: NO CONCERN OF ASSET BUBBLE FOR NOW *KURODA: 2% INFLATION IN 2 YEARS IS ACHIEVABLE *KURODA: BOJ TOOK ALL NECESSARY MEASURES FOR NOW TO MEET TARGET *KURODA: BOJ READY TO DO MORE DEPENDING ON ECONOMIC DEVELOPMENT *KURODA: TODAY'S POLICIES TO CHANGE EXPECTATIONS DRASTICALLY *KURODA: WILL ENTER NEW PHASE OF EASING IN QUALITY AND QUANTITY There are several items to address in those headlines and then one more bumper announcement to add, so let's get to it: 1. 'Low probability of side effects for the bond market', eh, Kuroda-san? Well that may be true, but I highly doubt it. Exhibit A is the candlestick chart of Japanese JGB futures:

Source: Bloomberg

Those of you who don't know a candelabra from a candlestick chart from may be insufficiently surprised by this one. See that red bar at the right? Like all the little blue bars, it shows the high and low prices for one day's trading. And yes, something is very much out of whack.
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Essentially, what happened is that on the first full day of trading after Kuroda's announcement and despite the fact that the initial knee-jerk reaction had been for buyers to try to front-run the BoJ's asset purchase program the Japanese government bond future traded in a one-day range wide enough to take out BOTH the 12-month high AND 12-month low. In frenzied trading during which circuit breakers were triggered not just once but twice by selling pressure, JGB futures opened much higher but then sold off. Hard and fast. Eventually they closed back closer to the highs than the lows, but it is indisputable that 'side effects' in the form of extreme volatility are now a clear and present danger. 2. Japan to buy the equivalent of 70% of monthly bond issuance. Can you say 'Bernanke on steroids'? The BoJ is going on a buying spree of epic proportions. 7 TRILLION per month will be the new total gross purchases of JGBs. That is a hard number to really get a feel for, so let's do it graphically. The BoJ's balance sheet will expand by 30% of GDP in less than two years. Think about that for a second. In the last five years of incessant QE, Bernanke & Co. have inflated the Fed's balance sheet by around 15% of GDP. Bernanke currently hoovers up $85bn of treasuries and MBS each and every month (a little over a trillion dollars annually), but when adjusted for currency and the respective sizes of the US and Japanese economies, Kuroda-san's all-in play makes Uncle Ben look like a wimp. Stacked up next to the US QE program, Japan's is seen for what it is: gargantuan (chart, left). 3. More room to buy ETFs (& REITS) The BoJ is to intervene more aggressively and directly in the stock market through purchases of 30bn ($323mn) of Japanese real estate investment trusts (REITS) and 1tn ($10.5bn) of ETFs ... ANNUALLY. Already, as can be seen from the chart on the next page, the era of 'Abenomics' has goosed the Topix Real Estate Index to the tune of 93% since December, when Abe's election became highly probable.
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Of course, as always in these situations, the front-running of the market means that the BoJ (and by that we mean the Japanese taxpayer) will be paying vastly inflated prices for any incremental REIT purchases they make from here. Greater fool, indeed. And people wonder why the whiff of government participation in markets sends them higher?
2000

(March 2012 - April 2013)

1500

Japan Topix Real Estate Index

1000

Abenomics +93%
500 Mar Apr May Jun Jul Aug 2012 Sep Oct Nov Dec Jan Feb Mar 2013 Apr

Source: Bloomberg

This leads us nicely into the next point: 4. No concern about an asset bubble for now. Of COURSE there isn't. There is NEVER concern on the part of governments or central bankers at least not until it's too late. The Japanese twin real estate and equity bubbles were driven to insane levels by interest rates that were far too low for far too long. The bubbles then burst spectacularly when you guessed it the BoJ belatedly realised what was going on and hiked rates out of the blue. Whether it's Kuroda or Greenspan or Bernanke or King or one day soon Draghi there is NEVER any concern about asset bubbles on the part of these people; and yet there has been an asset bubble somewhere in the investment universe pretty much constantly for decades essentially since the effective dismantling of the gold standard in 1971. Each bubble has burst more spectacularly than the last. Now we are giddily inflating the greatest bubble of them all: the government bond market.

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No matter what Paul Krugman says, you cannot print your way to long-term prosperity; and, given the sheer size and scale of this worldwide monetary experimentation, I can assure you it will end very, very badly indeed. And yet ... despite the shock and awe of his move, Kuroda felt it necessary to point out that the BoJ stands 'ready to do more depending on economic developments'. More? MORE?? Holy cow! These clowns just don't seem to understand that hitting the same button harder doesn't mean you'll get the reward you desire. 5. The BoJ is to enter a 'new phase'. Kuroda assured the world that his new phase of easing would be unique as to both quantity and quality; and, in fairness, he was absolutely correct. The quality of the BoJ's assets will deteriorate significantly with each purchase of their own debt as the Ponzi scheme intensifies. As far as quantity is concerned, nobody has ever conducted a monetary experiment on this scale before; but desperate times call for desperate measures, and 'Kaptain Kirkoda' is boldly going where no man has gone before. As Ambrose Evans-Pritchard (for whom I have the greatest respect, even though I disagree with his more Keynesian tendencies) wrote this week: (UK Daily Telegraph): Repeat after me a thousand times: QE REDUCES DEBT, compared to what it would otherwise be. It mitigates debt crises. It does not cause debt crises. The Bank of Japan can overpower any rise in yields for a very long time. It might indeed lose control of rates in the end, but it was certainly going to lose control on the previous limpwristed, do-nothing, fatalist, defeatist course it was on, and in the end Japan faces a colossal crisis whatever it does. The only relevant question is whether Abenomics and incendiary levels of QE by the Bank of Japan make will this crisis better or worse.

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To critics, I can only ask: what is Premier Shinzo Abe supposed to do? Just stand in front of a bullet train and wait for it to hit? The argument that doing something that is certain to end badly is better than doing nothing is spurious, because there is of course always another option; but in this case that would involve the certain pain of default, and that is not a choice ANY politician is ever going to willingly make. Ambrose continues: That said, Japan cannot safely continue on its old course. The great crisis would have come. This year? Next year? In three years? Who knows? But it was coming. Just read the IMF's Article IV Reports. They are terrifying. Mr Abe is doing exactly the right thing by rolling the dice, given the alternative. His policies are a replay of Takahashi Korekiyo's magic cure in the early 1930s, when Japan escaped the Great Depression with a triple-barrelled blast of monetary, fiscal, and exchange stimulus, all three working together in synthesis to break the logjam. Mr Korekiyo effectively financed the deficit with printed money until the boom created such a surge of tax revenue that the budget was balanced within three years (he then tried to tighten fiscal policy, cutting military spending, and was shot by army officers). I suspect that the BoJ's new governor Haruhiko Kuroda will end up financing deficits as well. The BoJ is about to buy 70pc of the government's entire debt issuance each month. It will double the monetary base from 29pc to 56pc of GDP by 2014. 'Mr Abe is doing exactly the right thing by rolling the dice, given the alternative'. There you have it, in a nutshell. Abe & Kuroda's great monetary experiment is nothing more than a last, desperate roll of the dice, but what a roll it is. And that final sentence from the keyboard of Evans-Pritchard brings us nicely to the bumper announcement I referenced earlier: The Japanese monetary base is going to double in 20 months. How big a deal is that? Well, plenty of folks were ready to weigh in, as you'd expect, but pride of place must go to the man most closely associated with the short Japan trade, Kyle Bass: (CNBC): "I think it's really important to appreciate the magnitude of the path they're embarking on," [Bass] said. "The Bank of Japan is buying assets at roughly 75 percent of the rate of the U.S. Fed, on an economy that's one-third the size of the U.S."

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"What they're trying to do is materially devalue the currency, in order to become slightly more trade competitive, while attempting to hold their rates marketplace flat," Bass said. "The economists and central bankers believe they can live in that nirvana, and I believe that's not the case. I believe they will lose control of rates." "There are economic zealots running many of the central banks, (for whom) if something isn't working, more is better because they only know one thing.... Central banks around the world are creating Potemkin villages that are very difficult to invest around." Investors should be wary, he said. "It's really important not to be long yen or Japanese assets." "If you're Japanese, you need to go spend all of the yen that you have, or take it out of your country and put it [where] you're not going to suffer a massive depreciation in your purchasing power," Bass said. "And non-Japanese investors should borrow in yen and go buy productive assets in other countries that aren't as fiscally stretched." Sadly, this isn't the first time this little experiment in doubling a country's monetary base has been conducted. In fact, perhaps surprisingly (perhaps not), the ploy has been rather commonplace in recent times, as this chart from a 2010 St. Louis Fed paper, entitled Doubling Your Monetary Base and Surviving: Some International Experience demonstrates:

Source: St Louis Fed

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The conclusions of this paper highlight the thinking behind the strategy being employed by most of the world's largest central banks: (St. Louis Fed): For monetary policy, our study suggests several findings: (i) A large increase in a nations balance sheet over a short time can be stimulative. (ii) The reasons for the action should be communicated. Inflation expectations do not move if households and firms understand the reason(s) for policy actions so long as the central bank can credibly commit to unwinding the expansion when appropriate. (iii) The type of assets purchased matters less than the balance-sheet expansion. (iv) When the crisis has passed, the balance sheet should be unwound promptly. It's that simple, folks: once the crisis has passed, you just halve your monetary base again promptly, of course by selling the trillions in government bonds you have bought whilst propping up the system. Unfortunately, despite the success that Japan enjoyed in the 1930s when it tried a similar experiment, the world is now fully engaged in a currency war, and so there can be no unilateral weakening of currencies anymore, since a strong currency would be a death knell to any one of a number of heavily indebted countries. Last week, South Koreans looked to the north for signs of actions that could potentially cripple their economy. As Kim Jong-un stamped his pudgy feet and pointed his missiles, Japan took a swipe at South Korea from the flank in a way that could do far more to undermine Korea Inc. than just about anything the Little Dictator Who Couldn't is capable of. Japan's Topix Index has outstripped the Korean Kospi in dramatic fashion since December 1, 2012 (chart, below), and with Kuroda's roadmap firmly laid out for a much weaker yen, Korea is going to be dragged kicking and screaming into this high-stakes poker game whether it wants to be or not.

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150

Japan Topix vs Korea Kospi December 1 2012 - Present

(Dec 1 2012=100)

120 Topix Index Kospi Index

100

90 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Apr 2013

Source: Bloomberg

That just leaves us with the last two planks in Kuroda's manifesto: duration and the breaking of an implicit agreement the Japanese had in place to ensure there would never be more JGBs in circulation than currency. Briefly we need to move on here Kuroda announced that he would be changing the BoJ's strategy to include the purchases of JGBs out to 40 years in order to stabilize long-term rates. This is straight out of the Bernanke Operation Twist playbook. What does that look like? Well, something like this (click HERE to enlarge chart): (FT): These balance sheet figures, however, fail to take into account that the Fed has been buying much longer-dated debt than the BoJ up to now. Therefore the Feds policy has been taking much more bond duration out of the hands of the private sector, and the impact on the economy via the portfolio-balance route (forcing private investors to replace the bond duration risk with other forms of equity and credit risk) has been much larger in the US than in Japan. Up to now, the BoJ has mostly focused its QE policy on short-dated bonds, in the hope that a rise in the monetary base would eventually leak out of the banks into the rest of the economy. This has never happened, so today they have adopted the Feds portfolio-balance approach, greatly extending the duration of the bonds they will remove from the market. In Mr Kurodas language, this is "qualitative easing".

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The impact of adjusting the central banks bond holdings for duration is shown in the second graph (calculated by my colleague Ziad Daoud). This adjusts all of the central banks bond holdings, which vary from 3 months to 30 years in duration, to the equivalent risk which it would have held if it had only bought 10 year bonds: On this basis, which is probably preferable to the simple balance sheet approach, the change in BoJ policy is even more dramatic. Having fallen a long way behind the Fed in the past 5 years, todays programme will more than close the gap before the end of 2014. On a duration-adjusted basis, the BoJ will acquire bonds equivalent to about 15 per cent of GDP over two years, while the Fed will acquire only about one-third of that amount. Staggering. Then finally, and almost as an afterthought, there's the 'temporary suspension' of the selfimposed 'bank note rule' which stipulated that the BoJ must keep the value of its bond holdings below the amount of currency in circulation, thus limiting its ability to buy more bonds. Game on. Whatever happens now in Japan, April 4th, 2013 is going to be remembered as a date when a line was crossed and things changed forever. If that sounds dramatic, then good; it is meant to. Japan has set the wheels turning on the complete debauchery of its currency; and, sadly, with the level of interdependence amongst the world's largest debtor nations as high as it is today, this move will force the other major players to respond. This is not the first blow in the ongoing currency war, but it is the most significant one landed to date. We await the market's considered reaction (though the wild flailing in the JGB market on day one should certainly have made a few people sit up and take notice). Retaliatory measures are bound to follow in due course, and this move by Abe and Kuroda brings nearer the day when the debate over the effects of massive QE programs will be settled once and for all. I suspect a very bad outcome awaits Japan; and, far from pushing it into the future, I suspect this action only hastens its arrival. When it gets here, it is likely to be spectacular. Admiral Yamamoto thought that the employment of shock and awe to quickly and completely destroy his enemy's firepower was the only way to succeed; but, sadly for Kuroda-san, his 'enemies' are far too numerous and their firepower is ultimately limitless. This will not end well, but end it will.

*******

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So what do we have on tap this week? Well obviously there are plenty of references to

Japan, from the likes of Kyle Bass, Ambrose Evans-Pritchard, and Art Cashin; but there's plenty more to sink your teeth into, as well. Egypt's descent into chaos, for example, and North Korea's burgeoning interest in cyberwarfare. How about Putin's positive spin on the Cyprus debacle or the dramatic fall from grace of Franois Hollande in France? If none of those take your fancy, then perhaps you'd like to savor the wisdom of Louis Gave or take a frightening glimpse inside the minds of the Eurocrats, courtesy of Olli Rehn. No? OK, well then, Spanish pension funds' love for their own government's debt, a look at six years of QE, or the curious case of slumping petroleum demand in the USA are just bound to tickle your fancy. If none of that works, then all we're left with are global car sales and a first (but by no means last) look at the Bitcoin phenomenon, followed by David Kotok's brilliant commentary on Cyprus and how economic contagion begins. Surely there's something there to pique your curiousity. No? Then just head straight to page 30 for a funny video.

Until Next Time. ******* Putin: Russia may profit from Cyprus crisis
Russian President Vladimir Putin has said the banking crisis in Cyprus showed up what he said was the unreliability of Western financial institutions, saying it would encourage Russian depositors to invest at home. "The more you 'pinch' foreign depositors in the financial institutions of your countries the better for us," Putin said in an interview ahead of his trips to Germany and the Netherlands on Sunday and Monday. "Because all the affected, offended and frightened (not all but many) should - we hope - come to our financial institutions. And they will keep their money in our banks," Putin told Germany's ARD television. The Cyprus banking crisis is expected to hit hard Russians who are believed to have more than $30 billion in corporate and private deposits parked on the debt-hit island. Asked by his German interviewer whether he was offended that the European states had not consulted him on the bailout proposals, Putin replied: "Of course not. On the contrary, to a certain degree I am even glad because this exposed all the inefficiency and all the unreliability of placing deposits in Western financial institutions."

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Putin also said that European states should fully accept blame for the Cyprus crisis because they allowed the offshore zones to blossom in the first place. "Did we create this offshore zone? It was the European Union that created it. Or Cyprus authorities created it and EU authorities allowed it," Putin said. "Is it what, the only such zone created by EU countries? Don't we know about Britain's island 'eurozones' or some other zones?" he said referring to havens like the British Virgin Islands. "If you believe this is bad then shut them down. Why have you held accountable for all the problems which in this case appeared in this country depositors of whatever nationality they may be the British, Russian citizens, the French or anyone else?"
*** UK DAILY TELEGRAPH / LINK

97% of Spain's Social Security Pensions Are Invested in Spanish Government Debt
Looking for a disaster waiting to blow sky high? I have one right at hand. El Economista reports 97% of pensions are invested in Spanish government debt in 2012. The Reserve Fund of Social Security in 2012 increased their holdings of Spanish debt to 97% of total assets, up from 90% who had in late 2011. Over 70% of purchases are recorded in the second half of 2012, according to Bloomberg points, after the critical moment when ECB President Mario Draghi, undertook to do "whatever it takes" to defend the euro. A message that helped ease the constraints and helped drive Spanish debt. In 2007, the money invested in financial assets were divided fairly (50%) between Spanish debt and foreign debt, but this proportion began to change in 2008. In September 2012, for the first time in history the government had to dip into the reserve fund to pay the payroll to pensioners. A total of 3,063 million euros were drawn from this instrument, to which were added to the 3,530 million in November Moncloa needed to fund the pension increases. This exactly reminds me of the stupidity of GM investing its assets in GM bonds. Expect similar results in Spain.
*** MISH / LINK

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Down and Out in Paris

The French are not known for their optimism, but recently their morosit has been plumbing new depths. The popularity rating of the Socialist president, Franois Hollande, has tumbled faster and further than that of any other president since the Fifth Republic began in 1958. The decline in his fortunes is a rebuke for his failure to honour his breezy campaign promises last year to scrap austerity and cut unemployment. A television appearance on March 28th that was supposed to relaunch his presidency did not go well. Now a scandal over his former budget minister, Jrme Cahuzac, is likely to damage him further. Mr Cahuzac has admitted lying about an illicit Swiss bank account. Mr Hollande hung on to him for too long, and many claim that he should have known sooner about his dodgy finances. The president had promised that, unlike his right-wing predecessor, Nicolas Sarkozy, he would run an exemplary government with squeaky-clean ministers. It is in both Frances and Europes interest that Mr Hollande recovers some of his political flair. Frances economy is teetering on the brink of yet another recession. The budget deficit for this year will be far above the previously agreed euro-zone target of 3% of GDP. Unemployment is nearing 11%. Frances problems are becoming Europes too. The sharp rise in French joblessness is one of the main reasons why euro-zone unemployment has hit its highest level since the single currency was introduced in 1999. The fiscal failings and lack of growth of the euro zones second-biggest economy are helping to drag down an entire continent. The European project has always been led jointly by France and Germany. For all his faults, Mr Sarkozy was careful to work closely with the German chancellor, Angela Merkel, throughout the euro crisis. Now the partnership has crumbled. Mrs Merkel regards Mr Hollandes reforms as pitifully inadequate, while he has been making common cause with southern Mediterranean countries against her excessive austerity. His growing weakness reduces his usefulness still further. With a diminished France and a reluctant Germany struggling to steer Europe on its own, the euro zone seems to be drifting apart. Even a banking union, which is essential for the euros survival, looks increasingly doubtful. It is not too late for Mr Hollande to recover. Although criticism of him within his party is growingthe left is no longer impressed by his flashy promise to soak the rich through the notorious 75% top income-tax rate come what may he faces no internal challenge. The opposition is divided, Mr Sarkozy has legal problems of his own and France has no nationwide polls until local elections in March 2014.

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If Mr Hollande is to use this time to strengthen his position, he urgently needs to persuade his party and the voters of the case for change. His attempts to make France more competitive by reforming the labour market and cutting red tape are welcome, but he needs to do more. He has begun to reverse his foolish campaign message stressing a reduction in the retirement age, but has yet to sell the idea that the French need to work longer and harder to pay for their benefits and their old age. Frances state eats up 57% of GDP, the highest in the euro zone; but although Mr Hollande has admitted that public spending must be cut, he has yet to spell out how and where. The presidents great failing is that he has never tried to convince his countrymen of the need for reform. His election campaign largely ignored the subject, giving voters the impression that more taxes on the rich and an end to austerity would be enough to cure Frances ills. So his belated conversion to the need for spending cuts, welfare savings and pension reforms has left the electorate unconvinced.
*** ECONOMIST / LINK

North Korea readies missile launch as fears of a covert cyberwar grow

The prospect of a North Korean missile test is causing concern in Japan, which is easily within range. In Tokyo, Yoshihide Suga, a government spokesman, said that Japan was preparing for a "worst-case" scenario, and urged China and Russia to play "significant roles" in defusing tensions. Experts and officials have dismissed Pyongyang's threats to launch nuclear strikes against the US, given the rudimentary state of its weapons capability. But it could cause widespread disruption with a cyberattack, according to a defector who worked for the regime's 3,000-member cyberwarfare unit. The regime's next move could be to break into US computer networks to steal information and spread viruses, Jang Se-yul, who defected to the South in 2008, told the Observer. North Korea's hackers are suspected of being behind recent cyberattacks that paralysed computer networks at several South Korean banks and broadcasters. "It would demonstrate that North Korea is a strong cyberpower," Jang said. "Their prime target is the US, and they've been preparing for something like this for years, including when I was there in the 1990s. I can't say how successful they would be, but it's a possibility." The barrage of threats have failed to unnerve people in Seoul, just 54km from the demilitarised zone the strip of heavily guarded land that has separated the two states since they agreed on a ceasefire, but not a peace treaty, at the end of the 1950-53 Korean war. Streets were packed with cars and shoppers as usual on Saturday, despite rain and chilly weather.

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The South Korean media have also been measured in their coverage. When North Korea vowed last week to restart its nuclear reactor at Yongbyon, South Korean newspapers devoted more space to government plans to grant tax breaks to home buyers. On Naver, the country's most popular web portal, the most read news item last week was about Ryu Hyun-jin, a South Korean baseball pitcher who made his debut for the LA Dodgers. The relaxed mood would quickly change in the event of a localised attack on a South Korean military asset or one of the frontline islands near the disputed maritime border. Last week the South's new president, Park Geun-hye, said that the military would hit back hard if provoked. Her predecessor, Lee Myung-bak, was criticised for his slow response to attacks in 2010 on a naval ship and island, in which 50 people died. An editorial in the Korea Times said those living in both the North and South had reason to be vigilant. "Not a single expert can say for sure what will be the unpredictable regime's next move," the newspaper said. "One thing seems certain, however: it will be Koreans, especially South Koreans, who will have to shoulder the risks of any misjudgment or miscalculation to be made by either Koreas." There was consternation, too, that the North had disrupted operations at Kaesong for four days, although it has not closed the facility. Last week it prevented South Korean workers from crossing the border into the complex, located just inside North Korea. About 100 South Koreans who had stayed at Kaesong last week were due to return yesterday, with 500 more remaining.
*** UK GUARDIAN / LINK

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, stupid" that helped Bill Clinton win the presidential election. At this stage the Egyptian government is not hiding the fact that the nation is on the brink of a crisis. Reuters: After two years of political turmoil, Egypt is struggling with an economic crisis and a high budget deficit. Foreign currency reserves are critically low, limiting its ability to import wheat and fuel. An International Monetary Fund (IMF) delegation resumed long delayed talks with the government on Wednesday on a loan, which would throw Egypt a financial lifeline and potentially unlock a much larger amount in foreign aid and investment.

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"The economic situation has become worrisome and quick measures are needed to restore (economic) activity," Planning Minister Ashraf al-Araby said, according to MENA. As the government runs out of foreign reserves, diesel shortages are becoming acute. FT: Egypt imports up to 70 per cent of its diesel, which it uses to fuel cars, farm equipment and power plants. In addition, it subsidises diesel to the tune of at least $1.5bn a month, draining the countrys already perilously low hard currency reserves. A spate of shortages in recent weeks has raised questions about Egypts ability to keep the lights on, feed its people and prop up its moribund economy in the coming months. Economic data out Egypt is difficult to come by but two indicators point to grim conditions. 1. The nation's currency continues to deteriorate in value in spite of tight capital controls. Dollars and euros trade in the black market at a premium as businesses and wealthy families convert what they can into hard currency.

2. Business surveys indicate an ongoing contraction. Markit: Egyptian non-oil producing private sector companies faced further declines in output and new orders during March. The rates of contraction were sharp, and picked up from the previous survey period. ... vendor performance continued to worsen. According to anecdotal evidence, the rise in average lead times was driven by increasing instability in the country, shortages of fuel and an increased desire amongst suppliers to be paid in cash. March data signalled further job shedding at non-oil producing private sector firms in Egypt, and companies commonly linked this to lower business [activity]. Workforce numbers have now decreased for eleven months in a row. Signs of inflation propagating through the economy have been particularly troublesome....
*** SOBER LOOK / LINK

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Six years of low interest rates in search of some growth

Never in recent economic history have interest rates been so low for so many for so long. It is a safe bet that central banks in America, Britain, the euro zone, Japan and Switzerland will not be increasing short-term interest rates this year. Haruhiko Kuroda began his tenure at the Bank of Japan with a dramatic easing of policy on April 4th. Mark Carney, the new boss at the Bank of England, has licence to ease, too. It would be hardly surprising if rates stayed at the low levels of the past four years throughout 2014 (see chart 1). When rates were first cut to their current levels in 2008-2009, it looked like a temporary expedient; now it looks like normality.

Source: Economist

Businesses and investors are still adjusting to this new world. Big companies have taken the opportunity to borrow in the bond markets, locking in cheap financing for years to come. But the cheap money has not led to the growth-igniting investment spree the monetary policy was designed to encourage. There are some signs of an economic revival in America. But the prospects elsewhere are bleak; Europes purchasing managers index for March showed a further fall in manufacturing activity while unemployment reached 12%, the highest since euro-area data were first compiled in 1995. In such a world monetary policies are likely to stay looseeven though, in their desperate search for yield, investors are rediscovering a worrying appetite for the kind of structured debt products that many thought had disappeared for good after 2008. Low rates have some clear positive economic effects. The Federal Reserve has been buying mortgage-backed bonds as a way of forcing down yields and thus reducing the cost of home ownership. On March 29th the average rate on a 30-year mortgage was just 3.57%, not far above the 3.31% reached in November, the lowest since data started to be compiled in 1971. A lower mortgage rate puts money into homeowners pockets when they refinance their loans (mortgage origination jumped by 39% to $1.75 trillion last year). It also encourages people to move. Existing-home sales were 4.66m last year, according to the National Association of Realtors, below the 5.04m recorded in 2007 but still 9% ahead of the total in 2011.

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In addition, 366,000 new American homes were bought last year, the first annual sales increase since 2005. Higher sales prompted homebuilders to get busy: in February, permits for future construction reached an annualised 946,000, the most since June 2008. More construction means more jobs for builders and more sales for timber yards and brick factories. Houses are not the only things people spend more on when borrowing is cheaper. According to Equifax, Americans took out 19.9m car loans worth $388 billion in the first 11 months of 2012; both figures were six-year highs. Total American car sales rose by 13.4% to 14.8m last year, the highest total since 2007. The number of people employed making cars remains well below the 1.1m of 2005, but it has risen from the 624,700 of 2009 to 788,100. The number of people employed processing credit transactions is the highest for almost four years.
*** ECONOMIST / LINK

Rehn: big bank depositors could bear cost of bank failure

People with big deposits could suffer a haircut under planned European Union law if a bank fails, the EU's economic affairs chief Olli Rehn said. Plans from Brussels put the onus on bank depositors, rather than the taxpayer, to bear the costs of bank failures. "Cyprus was a special case ... but the upcoming directive assumes that investor and depositor liability will be carried out in case of a bank restructuring or a wind-down," Mr Rehn, the European Economic and Monetary Affairs Commissioner. "But there is a very clear hierarchy, at first the shareholders, then possibly the unprotected investments and deposits. However, the limit of 100,000 (85,000) is sacred, deposits smaller than that are always safe." Mr Rehn was referring to a directive being drafted by the European Commission on bank safety which would set out investor liability in the law of member states. He was speaking in an interview with Finnish TV after Cyprus last month forced richer depositors to suffer heavy losses in order to secure a 10bn bail-out from the EU and the International Monetary Fund. Cyprus had initially planned to make people with deposits under the crucial 100,000 mark to take a cut also, before backtracking in the face of an outcry. Smaller deposits are supposed to be protected by state guarantees. Mats Persson, director of think-tank Open Europe said: "Rehn was only re-stating what's in an EU proposal tabled in 2012, which quite sensibly suggests a mechanism whereby first, investors and secondly, large depositors - rather than taxpayers - foot the bill when a bank goes bust.

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"However, there's so much uncertainty around the precedent set by the Cyprus bail-out that his comments may still cause some jitters." Mr Rehn also said that the European Central Bank should launch fresh action to help boost the recession-hit euro zone economy.
*** UK DAILY TELEGRAPH / LINK

Is Divorcing An Abusive Spouse Ever Too Expensive?

An old joke asks "why does a divorce cost you half your money?" with the answer being "because its worth it". After all, there is little worse than being stuck in a loveless, tense, or even downright hostile relationship. Which, of course, is what the eurozone has become, without even the excuse of keeping the show on the road for the kids benefit. In the eurozones loveless marriage, no-one dares to move out because the potential costs of that action are so unclear. However, with the news that French unemployment continues to scale record heights, that the Bank of Spain has just downgraded Spains growth forecasts from -0.5% to -1.5% and that Spanish unemployment will consequently rise for a sixth year in a row to a likely record high of 27%, that European car sales continue to plummet, etc... the question remains open as to how much abuse the various spouses are willing to take? For now Cyprus clearly wins in the battered wife stakes: daily cash withdrawals from banks are limited to 300, time-deposits (even those below 100,000) are frozen until further notice, etc. And needless to say, like every abusive husband, the Troika offered up the usual contradictory messages of "Cyprus was looking for its beating" and "it will never happen again". And so the question now faced by Europes other, battered wives (i.e., investors in "fiscally-challenged" countries and other European Monetary Union bank depositors) is whether this abusive husband has seen the light? Or whether the next time the pressure boils, the Troikas punches will again fly, thereby extinguishing any notion of European solidarity, any dream of banking union, and any hopes that eurozone nations will stop sleeping in separate rooms and instead jump in the same bed of a common fiscal union needed to live harmoniously under a common monetary roof? The "good news" is that Europes battered wives may not have to wait that long to find out whether the Troika has turned a new leaf.

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Indeed, recent declarations by the International Monetary Fund (IMF) that Slovenian banks have some 7bn of bad assets to write off, along with the news two days ago that NOVA KBM, Slovenias second largest bank, was downgraded by Moodys from B3 to Caa2, should, against the backdrop of Cyprus large bank deposit losses, make it challenging for Slovenian banks to keep deposits. Now, we fully understand that Slovenia is not Cyprus, and that Malta is not Slovenia (just like Portugal was not Greece, and Italy was not Spain, and Spain was not Uganda...). But having said that, Europeans are not that different from one another (after all, wasnt this the premise on which the European Union was built!) and bank depositors in Slovenia or Malta must now be confronting a simple question: believe the Dutch finance minister that the treatment of bank depositors in Cyprus is a new template to deal with bust banks? Or trust the European Central Banks (ECB) recent declarations that Cyprus was a "one-time deal"? Needless to say, the risk is that Slovenian, Maltese and others around Europe conclude that, like most abusive husbands caught in the act, the Troika is probably speaking from both sides of its mouth and can no longer be trusted. If so, a possible jog on the banks in Slovenia (the most likely next victim) will place the Troika in an odd predicament. For if Slovenia turns for help to deal with its challenged banks so soon after Cypriot depositors were left reeling, surely the Troika must apply the same tough love. Yet if Slovenia ends up getting softer treatment than Cyprus, can Nicosia really stick with a marriage where it is so obviously despised and mistreated? And how could Russia not take its dress-down as an extremely hostile act? On the other hand, if Slovenia also gets the full Dieselbum treatment, the markets faith in the ECBs ability to keep the show on the road will be properly shattered and a pan-European bank run might ensue. Hence, in Slovenia, the EU may soon face a Pyrrhic choice....
*** EVERGREEN GAVEKAL / FULL COMMENTARY (EMAIL)

Helicopter QE will never be reversed

Columbia Professor Michael Woodford, the world's most closely followed monetary theorist, says it is time to come clean and state openly that bond purchases are forever, and the sooner people understand this the better. "All this talk of exit strategies is deeply negative," he told a London Business School seminar on the merits of Helicopter money, or "overt monetary financing". He said the Bank of Japan made the mistake of reversing all its money creation from 2001 to 2006 once it thought the economy was safely out of the woods. But Japan crashed back into deeper deflation as soon the Lehman crisis hit. "If we are going to scare the horses, let's scare them properly. Let's go further and eliminate government debt on the bloated balance sheet of central banks," he said. This could done with a flick of the fingers. The debt would vanish.

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Lord Turner, head of the now defunct Financial Services Authority, made the point more delicately. "We must tell people that if necessary, QE will turn out to be permanent." The write-off should cover "previous fiscal deficits", the stock of public debt. It should be "postfacto monetary finance". The policy is elastic, for Lord Turner went on to argue that central banks in the US, Japan and Europe should stand ready to finance current spending as well, if push comes to shove. At least the money would go straight into the veins of the economy, rather than leaking out into asset bubbles. Today's QE relies on pushing down borrowing costs. It is "creditism". That is a very blunt tool in a deleveraging bust when nobody wants to borrow. Lord Turner says the current policy has become dangerous, yielding ever less returns, with ever worsening side-effects. It would be better for central banks to put the money into railways, bridges, clean energy, smart grids, or whatever does most to regenerate the economy. The policy can be "wrapped" in such a way as to preserve central bank independence. The Fed or the Bank of England would decide when enough is enough, or what the proper pace should be, just as they calibrate every tool. That at least is the argument. I merely report it. Lord Turner knows this breaks the ultimate taboo, and that taboos evolve for sound anthropological reasons, but he invokes the doctrine of the lesser evil. "The danger in this environment is that if we deny ourselves this option, people will find other ways of dealing with deflation, and that would be worse."
*** AMBROSE EVANS-PRITCHARD / LINK

Contagion Starts Small

History indicates that contagions start small. What is worrisome about Cyprus is the complacency that markets are showing, based on the assumption that it is a little, one-off, insignificant event. Here is a little refresher on contagion, and then we will go back to Cyprus. 1. Russian ruble collapse. Remember 1997 and 1998. The sequential problems in worldwide currency-trading exchanges ended with the collapse of the Russian ruble and the demise of the Long Term Capital Management (LTCM) hedge fund. It did not start with the LTCM collapse; that was the final market shock, which triggered a large government intervention. That brought in Alan Greenspan and the US Federal Reserve. The collapse actually started with a singlecurrency failure in Thailand. Panicked trading in the Thai baht started as what looked like a small, one-off, insignificant event. The contagion from that event took about 18 months to play out.

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2. Zimbabwe inflation. The earliest signs of inflation, confiscation of wealth and appropriation of property, and oppression of the populace in Zimbabwe appeared many years before hyperinflation, full destruction of the currency, and suppression of the productive facilities of the country. The collapse was in the incipient stage long before it became evident that the governments policies were going to accelerate, rather than prevent it. I saw this one coming firsthand. As chair of the Global Interdependence Centers central banking series, I recall meeting with representatives of Zimbabwe and its central bank. We discussed the risks they were taking in the early stages of aggressive monetary expansion as an attempted solution to their problems. We warned them about appropriation of wealth. They were emphatic that they were controlling capital and monitoring the inflationary effects of what was then a very early-stage policy. Those of us who sat in that meeting listened to the representatives for an hour and a half and then spent the next hour and a half attempting to persuade them that their policy would lead to the demise of wealth and investment in their country. A few years later, the outcome became apparent to the world. 3. Weimar Republic hyperinflation. When the Weimar Republic attempted to meet international flow requirements under the Treaty of Versailles, it did not immediately cause hyperinflation. The process started with currency expansion and banking manipulation in an attempt to manage foreign-exchange flows. It ended with hyperinflation, the demise of the government, and the rise of Nazism in Europe. Thus, the European contagion did not begin with the fall of the government and rise of Hitler in the 1930s; it started years earlier. In a marvelous piece of research, economist Madeline Schnapp documented this history in monetary terms. When Germany went to war in 1914, an egg cost 2 pfennigs and a loaf of bread was 10 pfennigs. In 1919, after the war ended and at the birth of Weimar, the egg was 20 pfennigs and the loaf was 1 mark. By April 1922, the egg was 4 marks, by September 9 marks, and by November 22 marks. In February 1923, the egg cost 45 marks, by May it was 800 marks, in July 1923 it cost 20,000 marks, and by August it was ten times that much: 200,000 marks. At the end of 1923 one needed billions of marks to purchase an egg, and a 1 trillion marks to buy a loaf of bread. 4. The US financial crisis of 2007-09. Thinking back on the recent crisis in the US, we saw the first signs of weakness in the financial sector in mid-2007. There were some pricing anomalies in May that were visible but not explained. Clearly some money movement was taking place, but it was not apparent why. By summer 2007 Bear Stearns had indicated a problem with some mortgage-backed securities. They said it was just a couple billion not very significant. In 2007, the first signs of the contagion were minor.

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Now let us put this perspective to work with regard to Cyprus. We now know that some bank accounts in Cyprus will lose up to 60 percent of their balances. Think about that as if you were a business operating in Cyprus with an active 1 million balance. You need the funds to handle payrolls and trade relationships and to pursue the ongoing operational activities of your enterprise. Suddenly, 600,000 of your 1 million is impounded. About two-thirds of it is exchanged for shares in a new banking facility. Those shares may be worthless, and at best you will not know for a long time how much, if any, value can be obtained from them. The other one-third of your impounded balance is held in reserve and kept from you. Your access to the remaining 40% of your account is limited to small transfers and withdrawals. Can the multiplier effects of that businesss problem be contained within Cyprus? Perhaps, if that business is a local retail enterprise. It may fail, and many others like it may fail, and the country may suffer an economic decline of large proportions. But can the effects really be limited to Cyprus? Retail enterprises in that small island nation must purchase many imported goods, and they must somehow fund their business activities Those transactions, when they are restrained or defeated by a punitive Eurogroup policy directed at Cypriot banks, trigger negative multiplier effects that may blossom into serious Eurozone-wide contagion. We do not yet know the impact of Cyprus. We will not have a sense of its full depth for months.... So what does all this mean for investors? Contagions start small. They expand, or not, depending on subsequent events. Actions of governments can mitigate damage or enlarge it. A second bank failure that is resolved with large depositor losses in Europe will have a much greater systemic impact than the first one in Cyprus. The increasing use of Emergency Liquidity Assistance (ELA) in any Eurozone country will be seen as a warning sign that the Cyprus events may be repeated. Attempts to veil ELA data will exacerbate the problem. Transparency reduces damage. It is hard for governments to grasp that concept, so it is not likely to prevail. Investors have choices. They can seek higher returns and will often take risks to get them. Or they can follow the advice often attributed, though perhaps erroneously, to a great economist by the name of Will Rogers: I am not so much concerned with the return on my money as I am with the return of my money. We are in a day and age in which the short-term interest rate in every major currency of the world is near zero. Compensation for risking wealth in a deposit structure is small. Safety is obtainable at low opportunity cost. Investors are wise to seek it....
*** DAVID R. KOTOK / LINK

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Charts That Make You Go Hmmm...

So what is the US equivalent of Chinese electricity consumption data? We believe it
may be the little-tracked, and thus not nearly as "adjusted" weekly updates from the Energy Information Administration, whose data on barrels of US product supplied of both total petroleum products and just gasoline are as indicative of the true state of the energy-hungry beating heart of the US economy as any other data set, and is likely a far more accurate representation of what is really going on between the lines. Sadly, if that is indeed the case, then the disconnect between propaganda myth and reality is about as big as can be, since on a blended 52-week average basis, the total product supplied of motor gasoline is back to 2003 levels (black line on chart below). However, where it gets really scary is looking at the total product supplied category, which includes gasoline and all other product such as heating oil, propane, and kerosene. The same disturbing story is revealed when looking at various other EIA charts of sales, and thus demand, such as ... 52 week average sales and deliveries of gasoline by prime supplier in the US [which] has also tumbled to levels last seen in the late 90's....
*** ZEROHEDGE / LINK

Source: Zerohedge

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As US macro data rolls over, ZeroHedge takes a look at the charts:

Source: ZeroHedge

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This map from

Matt Gasnier is actually a little out of date, but it's a good representation of where the big automakers sell their cars. I'm willing to bet there haven't been any seismic shifts in the last 12 months, but thanks to the BoJ, Canada and Chile are in play.

Click to enlarge

With Japan front and centre, what better

time to take a look back at all the rises and falls of the Nikkei through the last three decades, courtesy of Doug Short. Click HERE to enlarge the chart (left) and find a bunch of others that give great historical perspective on Japan's bonds, equity markets, and interest rates over that extended period.

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I intend to write about the Bitcoin phenomenon once I get a clear week without any

monetary madness or deposit confiscation, but in the meantime here's a superb graphic that helps explain just what the heck it's all about, courtesy of Visual Capitalist.

Source: Visual Capitalist 8 APRIL 2013 32

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Words That Make You Go Hmmm...

Following the events of this week,

Addogram has produced a six-minute video that beautifully outlines the situation in which Japan finds itself.

CLICK TO WATCH

This edition

of Things That Make You Go Hmmm... wouldn't be complete without the thoughts of Kyle Bass on the latest moves in Japan, and fortunately he was on hand to give them to David Faber at CNBC.

CLICK TO WATCH

Art Cashin is a true legend on the floor

of the NYSE and a great student of history. Art can always be relied upon for a considered reaction to any market gyrations, and his opinions are widely respected. In this interview he gives his thoughts on recent developments in Europe and the US, and the disconnect between market action and the seeming reality behind it. Art is 'very, very concerned' about Cyprus, explains how Dijsselbloem's comments could lead to a major bank run, and of course weighs in on Japan. CLICK TO LISTEN

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and finally...
Familiar characters but when you hear people say, 'It was different back in my
day', chances are they're referring to stuff like this... Amazing.

CLICK HERE TO WATCH

Hmmm...

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Grant Williams
Grant Williams is a portfolio and strategy advisor to Vulpes Investment Management in Singaporea hedge fund running over $250 million of largely partners capital across multiple strategies. The high level of capital committed by the Vulpes partners ensures the strongest possible alignment between us and our investors. Grant has 26 years of experience in finance on the Asian, Australian, European and US markets and has held senior positions at several international investment houses. Grant has been writing Things That Make You Go Hmmm... since 2009. For more information on Vulpes, please visit www.vulpesinvest.com

*******
Follow me on Twitter: @TTMYGH YouTube Video Channel: http://www.youtube.com/user/GWTTMYGH Mines & Money, Hong Kong 2013 Presentation: 'Risk: It's Not Just A Board Game': Fall 2012 Presentation: 'Extraordinary Popular Delusions & the Madness of Markets': California Investment Conference 2012 Presentation: 'Simplicity': Part I : Part II As a result of my role at Vulpes Investment Management, it falls upon me to disclose that, from time to time, the views I express and/or the commentary I write in the pages of Things That Make You Go Hmmm... may reflect the positioning of one or all of the Vulpes fundsthough I will not be making any specific recommendations in this publication.

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