The
boom in fixed-income derivatives trading is exposing a hidden risk in
debt markets around the world: the inability of investors to buy and
sell bonds.
While
futures trading of 10-year Treasuries is close to an all-time high,
bond-market volume for some maturities has fallen a third in the past
year. In Japan’s $9.6 trillion debt market, the benchmark note didn’t
trade until midday on two days last week. As a lack of liquidity in
Italy caused transaction costs in the world’s third-largest sovereign
bond market to jump last month, Lombard Odier Asset Management helped
propel an eightfold surge in Italian futures by relying more on
derivatives.
The
shift reflects an unintended consequence wrought by central banks, which
have dropped interest rates close to zero and implemented policies such
as buying debt to
restore demand in economies crippled by the financial crisis.
Inefficiencies in the $100 trillion market for bonds may make investors
more vulnerable to losses when yields rise from historical lows.
“Liquidity
is becoming a serious issue,” Grant Peterkin, a money manager at
Lombard Odier, which oversees $48 billion, said in a June 11 telephone
interview from Geneva. The worry is that when investors try to exit
their positions, “there may be some kind of squeeze.”
That
concern has caused investors to pour into derivatives, which are
contracts based on underlying assets that can provide the same exposure
without tying up as much capital.
(NaturalNews)
Food prices are now skyrocketing across the USA, says the Bureau of
Labor Statistics (BLS). Their most recent report (1) reveals that prices
of meat, poultry, fish and eggs leaped 7.7 percent over the last year. That’s nearly 367% higher than the official 2.1% inflation rate claimed by the federal government. (2)
Prices on these food items have risen 664% in the last five decades, according to the BLS, but much of the price acceleration has happened in just the last few years… and there’s no end in sight.
While the federal government tries to blame rising food prices on global warming — because seemingly everything is now attributed to climate change, including depression and divorces — the far more sobering truth is that conventional agriculture is reaching a point of systemic, catastrophic failure.
Prices on these food items have risen 664% in the last five decades, according to the BLS, but much of the price acceleration has happened in just the last few years… and there’s no end in sight.
While the federal government tries to blame rising food prices on global warming — because seemingly everything is now attributed to climate change, including depression and divorces — the far more sobering truth is that conventional agriculture is reaching a point of systemic, catastrophic failure.
One of
the more insidious lies spread by the recently flipflopping cadre of
“suddenly” permabullish millionaire sellers of newsletters has been that
wages – that most important component of any real, durable,
self-sustaining economic recovery – are rising. Maybe they are rising
for said millionaires, but not for the US population. Of course, this
propaganda is perfectly explainable: if there are expectations of, and confidence
in rising wages, Keynes 101 says that sooner or later employers will
have no choice but to match expectations with reality. And sure enough,
in nominal terms, after plunging to just a 1% increase in Y/Y terms,
absolute wages paid to US workers have staged a tiny, if observable
rebound, still well below historical levels.
Of
course, what said newsletter sellers always fail to mention is that
nominal wages are meaningless in a world in which food and energy prices
are soaring, and where, as even the BLS admitted earlier, food prices
have surged the most since 2011. In other words, what matters are real, not nominal wages.
Luckily, there is propaganda (“ignore the present focus on the future”… for 6 years now), and there are facts.
The chart below shows that, as reported moments ago by the BLS, real average hourly earnings just posted their third sequential decline in a row, dropping from $10.33 in February, to $10.32 in March, to $10.30 in April, to $10.28 in May. Furthermore, this was the first year over year decline since October 2012.
And to
put today’s $10.28 real average hourly earnings number in context, this
is the same real wage seen last in July 2013, July 2012, March 2011 and
then, if one goes further back…the month after Lehman failed!
Inflation Rises as CPI Gains, Housing Stars Decline
This morning we learned inflation climbed at the fastest rate since 2011, and that housing starts fell 6.5% from April.
As a result, analysts’ models are now showing lower Q2 GDP.
First
up is Barclays’ Cooper Howes, who said the declines in housing were
broad based, and that what few gains there have been this year have
mostly come from multi-family. As a result, his growth forecast came
down 1/10th to 2.9%
“After
unusually severe winter weather weighed on housing activity in the first
quarter, housing starts have been slow to recover,” he writes.
A Moment Of Truth From JPM: “It’s Hard To See The Recent Growth-Inflation Mix As Anything Other Than Discouraging” No comment necessary. Highlights in the latest comment from JPM’s Michael Feroli ours:
Both the headline and core Consumer Price Index (CPI) came in firmer than expected in May. The CPI increased 0.35% (2.1% over year-ago), and the ex-food and energy core CPI rose 0.26% (2.0% over year-ago), the largest one-month increase for this measure since October 2009. Over the past three months the core CPI is now up 2.8% annualized. By our estimate this implies a 0.16% increase for May in the Fed’s preferred core PCE measure of inflation, which would take the year-ago increase up to 1.5%. The recent move higher in inflation makes the Fed outlook more interesting. As for tomorrow, the current statement language on inflation is so generic that it doesn’t have to be modified, though the recent news could increase the odds that an amendment could me made to mention inflation moving back towards the Committee’s longer-run objective. The dots are submitted at the beginning of the two-day meeting, which starts at 10am today, so today’s print shouldn’t have a material impact on the dot plot (recall that the midpoint of the core PCE projection for 4Q14 at the March meeting was 1.5% — which should be achieved in May — we have already been expecting a modest move higher in tomorrow’s projection). At the margin, today’s inflation print further tilts the odds toward an earlier first rate hike relative to our current 4Q15 call….The higher-than-anticipated headline PCE inflation implication (our reading is +0.22%), implies lower real consumption spending growth in May, we think only up 0.1% now. Through the first five months of the year the headline CPI is up at a 2.6% annual rate, even though first half GDP growth may come in around 0.5% annualized…. While some may cheer an earlier Fed rate hike, its hard to see the recent growth-inflation mix as anything other than discouraging.
Fear not: we are confident many will try because, clearly, it’s the blamy(sic) spring’s fault. U.S. Banks Seen Falling Short of New Debt Funding Rule
Wells
Fargo, State Street and JPMorgan Chase & Co are below or almost at
minimum capital thresholds expected to be included in a rule still being
hammered out by U.S. regulators that’s meant to mitigate taxpayer
losses in another financial crisis…
German investor confidenceunexpectedly
fell for a sixth month in June even after the European Central Bank
announced a new round of stimulus aimed at preventing deflation and
rekindling growth in the euro area.
The ZEW
Center for European Economic Research in Mannheim said its index of
investor and analyst expectations, which aims to predict economic
developments six months in advance, slid to 29.8 from 33.1 in May.
Economists forecast an increase to 35, according to the median of 35
estimates in a Bloomberg News survey. The gauge has dropped every month since reaching a seven-year high in December and is now at the weakest since December 2012.
German
economic growth has slowed this quarter after output was buoyed at the
start of the year by a mild winter, according to the Bundesbank. While
the prospects for Europe’s largest economy remain sound, the 18-nation
euro area is struggling with subdued growth and low inflation, prompting
the ECB to unveil a package of measures including a negative deposit
rate and targeted long-term loans to banks.
“The
German economy is currently in a very good shape but further increases
are becoming more difficult,” said ZEW President Clemens Fuest. “We had a
strong first quarter in 2014 due to favorable weather conditions but
signs are that the second quarter will be weaker.”
A month
ago, using the latest UK housing data from Rightmove, we asked a simple
question: whose housing bubble is bigger: China’s, or the place where
increasingly more of China’s $25 trillion in bank assets are being
parked: the UK (specifically London). Using then available data, the
answer was still a toss-up, even if the divergence in directions was
quite clear.
Earlier today, we finally got the official data from the UK’s Office for National Statistics,
and we politely retract our question, as rhetorical as it may have
been. The reason: there is no contest – the UK’s housing bubble has
officially slammed China’s, and the result is nothing short of a knock
out.
SHANGHAI–Average new home
prices in 70 Chinese cities declined in May from April, marking the
first monthly decline in two years as property developers rolled out
further price cuts amid sluggish demand from home buyers and rising
inventory of homes.
Average new home prices
in 70 cities slid 0.15% month-on-month in May, according to calculations
by The Wall Street Journal based on data released Wednesday by the
National Bureau of Statistics.
This marks the first
month-on-month decline since May 2012. Prices rose 0.06%
month-over-month in April. On a year-over-year basis, average prices
rose 5.35% in May compared with 6.42% in April and 7.32% in February.
Many home buyers have
retreated to the sidelines since the start of the year amid concerns
about stagnant or falling housing prices due to the excessive supply of
homes, as well as difficulties in getting loans.
Average home prices in
Shanghai also recorded a 0.3% month-on-month fall, indicating that the
weakness in the market is spreading to larger cities. In Beijing, home
prices rose 0.2% in May from April.
TOKYO–Japan’s export
recovery stalled in May amid subdued global economic growth, raising the
possibility that the country’s trade picture may not improve any time
soon, while weaker imports suggest the domestic economy may be slowing.
The trade deficit came to
Yen909.0 billion ($8.9 billion), extending the run of monthly
shortfalls to a record 23rd month, according to data released Wednesday
by the Ministry of Finance.
Economists expected a deficit of Yen1.15 trillion, according to a survey by The Wall Street Journal and the Nikkei.
The International Monetary Fund cut its growth forecast for the U.S. economy this year and said the Federal Reserve may have scope to keep interest rates at zero for longer than investors expect.
The
Washington-based IMF now sees the world’s largest economy growing 2
percent this year, down from an April estimate of 2.8 percent. The IMF
left a 2015 prediction unchanged at 3 percent, and said it doesn’t
expect the U.S. to see full employment until the end of 2017, amid low
inflation.
“We see
prospects looking up for the U.S. but we also believe that attention
must now turn to the kinds of policies needed to lay the foundation for
growth that will be sustainable,” IMF Managing Director Christine Lagarde said at a press conference in Washington today.
Canada’s
banks weathered the financial crisis of 2008 better than many of their
international peers which required expensive taxpayer-funded bailouts to
stay afloat. Since the crisis, governments and regulators around the
world have been laying the groundwork for bail-ins. In some of these
scenarios, creditors holding instruments such as a new breed of
convertible bonds bear at least some of the burden of stabilizing a bank
in crisis.
Headlines:
- Argentina: Won’t submit to ‘extortion’ on debt
- Japan Mulls De-linking Pensions from Prices to Allow Payout Cuts
- Offshore Cash of $2 Trillion Sparks Hunt for Tax-Friendly Deals
- Total US debt soars to nearly $60 trn, foreshadows new recession
- Russia Adds Extra $58 Billion to Ease Bank Funding Shortage
- China lowers US debt for third straight month
- Fort Worth pension unfunded liability hits $1.12 billion
- Local govts face massive debt repayment pressure (China)
- French budget deficit to ‘exceed target’
- Record numbers of expatriates renounce U.S. citizenship
- Fed looks at exit fees on bond funds
- Recovery hasn’t paid off yet for American workers
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