All posts by admin46x

Russia Is Next In Line To Restrict Cash Transactions

The Russians are taking a page from the Europeans book (and not a positive one for libertarians). Given the substantial criminal activity and illegal entrepreneurship in Russia – the grey and black economies account for 50–65 percent of GDP and estimates that about $50 billion was taken out of Russia illegally in 2012 alone – the great and glorious leaders have decided to impose restrictions on cash transactions. As Russia Beyond The Headlines reports, Russia may ban cash payments for purchases of more than 300,000 rubles (around $10,000) starting in 2015 – starting with a higher ($19,500) restriction in 2014. They will also enforce mandatory cash-free salary payments (cash compensation accounts for 15% of GDP currently) in an effort to both bring some of the population’s ‘grey’ income out of the shadow; and increase the volume of cash reserves in the banks. It would appear that wherever we look now, leadership are realizing that the limits of fiscal and monetary policy have been reached and now changing rules, limiting freedom, and outright confiscation are the only way to maintain a status quo. Ironic really, when the enforcement of said rules may just be the catalyst for the end of the status quo as the middle class suffers.

 

Via Russia, Beyond The Headlines,

Russia may ban cash payments for purchases of more than 300,000 rubles (around $10,000) starting in 2015. The move is expected to boost banks’ cash reserves and put a damper on Russia’s shadow economy. However, the middle class will most likely end up having to pay the price for the scheme.

 

Moscow is looking to kill two birds with one stone: Firstly, it wants to bring some of the population’s “grey” income out of the shadow; secondly, it wants to increase the volume of cash reserves in the banks. The government’s bill will introduce the new rule to the State Duma. The document was prepared by the Ministry of Finance and approved by the government.

 

The restrictions on cash transactions will develop in two phases. In 2014, a ban on cash payments for purchases worth more than 600,000 rubles (about $19,500) will be introduced; the limit will then be halved to 300,000 rubles in 2015. Furthermore, the document introduces mandatory, cash-free, salary payments.

 

 

Even now, cash withdrawals on payday account for around 85 percent of all ATM transactions. Moreover, in 2005–2011, cash flows more than quadrupled. According to Bank of Russia estimates, more than 90 percent of all commodity purchases in Russia are paid for in cash.

 

The government is now trying to bring the shadow economy into the light and increase money flows into the treasury, according to Investcafe analyst Yekaterina Kondrashova. In her words, as soon as the new rules come into effect, those using unofficial wage payment schemes will encounter certain difficulties, although there could be some ways to circumvent the law.

 

The Ministry of Internal Affairs and the National Anticorruption Committee estimate the market for money laundering and cash conversions at somewhere between 3.5 and 7 trillion rubles ($113–230 billion) — about 60 percent of the Russian federal budget.

 

Rosstat reports that the volume of the shadow economy (“grey” money from tax evasion, compensations paid as “cash in envelopes” and violations of currency and foreign trade regulations) is at least 15 percent of the GDP, according to Ricom-Trust senior analyst Vladislav Zhukovsky.

 

Given the substantial criminal activity and illegal entrepreneurship, the grey and black economies account for 50–65 percent of GDP. Even former Central Bank Chief Sergey Ignatyev had to admit that about $50 billion was taken out of Russia illegally in 2012 alone.

 

There is another side to the move toward plastic, however. Cash-free payments will result in higher prices for some goods and services. The middle class will suffer the most, because the “risk group” includes property and automobile transactions. The luxury segment will also be affected, including customized tours.

 

The Abenomics Farce Continues

It’s not been a great evening so far for the leadership in Japan. We are now six months into the greatest monetary policy bluff of all time and thanks to the sound and fury from Abe (and now his henchmen) the JPY has devalued by an impressive 25%. The goal, of course, to target inflation and combat the dreaded deflation – that Abe himself today said “can take a long time.” So how are we doing? Not so great it seems. Just as the US went 4-for-4 today in dismal data so Japan is 3.5-for-4 as the much-watched ‘inflation’ missed expectations once again with a -1% print (that would be deflation) – the worst level since August 2010; Japanese Industrial Production slumped 11% year-over-year, far in excess of the consensus 5.8% drop (biggest miss since Feb 2009) and the biggest collapse (ex-Fukushima) since October 2009; and to top it all off, Japanese unemployment ticked up higher than expectations to 4.3% – equal worst in 7 months. The one saving grace was a PMI above 50 (but driven by an 18-month high print in input costs and accompanied by a drop in backlogs and slump in employment sub-indices – so not exactly bursting with euphoria). Need moar Abenomics…

 

The Bold Strategy…

 

The Results…

 

Of course, living by the Keynesian easy money credo of “If at first you don’t succeed, devalue moarer…” we can look forward to more bold easing down the road.

Perhaps this?

 

Charts: Bloomberg

Transparent Push To Record High

3-28-2013 4-20-32 PM sp high

Jobless Claims rose sharply even after upward adjustments (357K vs 340K & prior 341K revised higher from 336K). The Chicago PMI fell sharply (52.4 vs 56.1 & prior 56.8), which should distress the economic growth meme.

GDP report shows the economy almost in a dead stall (0.4% vs 0.6% expected & prior estimate 0.1%) Consumer Metrics provided an in-depth report from which we cherry-picked a summary comment as follows: 

“As we have mentioned before, 4Q-2012 may be the quarter that in retrospect will be viewed as the last gasp of the ‘Great Recovery’ — before there were significant economic headwinds created by reductions in consumer take-home pay, rising gas prices and accelerating contractions in global trade.” 

Lastly, the Fed launched a large POMO Thursday providing trading desks with plenty of liquidity to ramp equities.

The takeaway from these reports is the “bad-news-is-good” mantra remains fixed on QE, which bullishly steamrolls most other news and data.

Many people don’t understand or respect this market, and for good reason, since veterans have never seen these kinds of policies previously. Emails received from old hands particularly are angry with QE/ZIRP and the bullish result thinking the entire exercise leads to phony results. This also prompted PIMCO’s CEO, Mohamed El Erian, to state Thursday, “Markets are at artificial levels because of the Fed.” The tape doesn’t lie frankly, but in the end may merely seduce and deceive. We’re with PIMCO, but our job is to follow the trend so we’re long generally.

Meanwhile, overseas in the UK, the Bank of England eased bank balance sheet capitalization issues giving “da boyz” there a pass on issues other central banks wouldn’t. Funny how that works, eh? German Retail Sales(EWG) wasunexpectedly higher at 0.4% vs -0.4% consensus. In South Korea (EWY) the government is preparing a stimulus package which may include lower interest rates as economic growth is forecast to slip.  In China there is a shake-up occurring in a top economic planning agency which may lead to new pro-growth policies some believe.

As the holiday weekend starts and quarter ends, what better time is there to go out on a new S&P 500 Index high? The new high was in the cards.

One thing bulls should worry about is a report that pension plans may rebalance as much as $29-35 billion out of stocks to bonds and other assets with the quarter end. We’ll see how that works this coming week.

Thedollar (UUP) fell slightly as did gold (GLD). Commodities (DBC) were much weaker despite oil prices (USO) as grains (JJG) and base metals (DBB) took a beating. Stocks were higher across the board with high priced stocks in the DJIA(IBM, MCD, MMM, TRV, and UTX) leading the market higher. Underperforming sectors included banks (KBE), miners (XME) and gold stocks (GDX). With the stock rally bonds (TLT) sold off.

Volume on this pre-holiday ramp higher was quite light which made conditions easy for window dressing. Breadth per the WSJ was positive. 

3-28-2013 6-54-34 PM diary

You can follow our pithy comments on twitter and become a fan of ETF Digest on facebook.

SPY 5 MINUTE

SPY 5 MINUTE

.SPX WEEKLY

.SPX WEEKLY

INDU WEEKLY

INDU WEEKLY

RUT WEEKLY

RUT WEEKLY

QQQ WEEKLY

QQQ WEEKLY

XLB WEEKLY

XLB WEEKLY

XLF WEEKLY

XLF WEEKLY

KBE WEEKLY

KBE WEEKLY

IGV WEEKLY

IGV WEEKLY

SOXX WEEKLY

SOXX WEEKLY

IBB WEEKLY

IBB WEEKLY

IYR WEEKLY

IYR WEEKLY

ITB WEEKLY

ITB WEEKLY

IYT WEEKLY

IYT WEEKLY

XLV WEEKLY

XLV WEEKLY

XLY WEEKLY

XLY WEEKLY

XLP WEEKLY

XLP WEEKLY

XLU WEEKLY

XLU WEEKLY

TLT WEEKLY

TLT WEEKLY

UUP WEEKLY

UUP WEEKLY

FXE WEEKLY

FXE WEEKLY

GLD WEEKLY

GLD WEEKLY

GDX WEEKLY

GDX WEEKLY

SLV WEEKLY

SLV WEEKLY

DBB WEEKLY

DBB WEEKLY

XME WEEKLY

XME WEEKLY

USO WEEKLY

USO WEEKLY

XLE WEEKLY

XLE WEEKLY

JJG WEEKLY

JJG WEEKLY

EFA WEEKLY

EFA WEEKLY

EEM WEEKLY

EEM WEEKLY

EWI WEEKLY

EWI WEEKLY

EWJ WEEKLY

EWJ WEEKLY

EWA WEEKLY

EWA WEEKLY

EWZ WEEKLY

EWZ WEEKLY

EPI WEEKLY

EPI WEEKLY

GXC WEEKLY

GXC WEEKLY

 

The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

 

The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge”. Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.

Okay, so the S&P 500 Index set a historical record high. This seemed like a done deal when markets rallied on dreadful data early in the week.
 
So we’re long, but not liking it much since we know what the deal is as do most. But if you’re paid to make people money, that’s what you have to do even with one eye on the exit.
 
The government is releasing Consumer Sentiment and Personal Income and Spending data on Friday with equity markets closed. This doesn’t seem right but must be some PC thing.
 
Now I hope everyone likes the many charts (LOL!). I loved the comment, “Even Magellan didn’t have this many charts!” That made my day.
 
Let’s see what happens.

Dead Pigs, Ducks And Now Black Swans: China's Animal Apocalypse Crosses Into The Twilight Zone

First it was thousands of dead pigs floating in the Shanghai water supply (at last estimate over 16,000), then a thousand dead ducks were pulled from a river in the Sichuan province, and now, pushing the meme beyond even its most grotesque boundaries, we learn that five black swans were found floating lifeless on the pond of Anhui University’s old campus in Hefei, traditionally inhabited by a bevy of black swans. From Danwei: “The latest instance of floating dead animals in China – first pigs, then ducks, and now black swans – these mere five black swans became an object of heated discussion on the Internet right after the announcement was made. How did they die? Was it a natural disaster or another man-made one? As Star News tells us today, upon hearing of the news yesterday it immediately sent a journalist to the scene to find out exactly what happened. What he found was just one more filthy pond filled with oily water and garbage.”

Ok, maybe there is no deep symbolism mystery to this latest black aflocalypse, which may be explained simply by unprecedented local pollution, unless of course many more “fat tails” continue keeling over in a very literal sense.

However, just when it appeared safe to discard the latest media reports of mass animal aquatic burials, an odd wrinkle appears, one which may tie the proverbial animal apocalypse room together.

Recall that as we have discussed repeatedly, the biggest bogeyman facing China is the importation of blistering hot money sourced by Bernanke and his printing brethren. While China may (or may not) be able to temper real estate inflation which has been the preferred target of inbound capital, the one place the Politburo certainly can not afford a price surge is in the cost of its most popular food product: pork. Should this key diet staple become unaffordable to the hundreds of millions of domestic consumers, the Arab Spring would seem like a balmy walk in the park inside a gated community. Which means that no matter what, the price of pork (and to a smaller extent soy) has to be kept as low as possible, especially with the upcoming delayed aftereffects of last summer’s US corn drought which led to a mass liquidation of animals, especially pigs. Recall from last September that “The “mass liquidation” of animals – which Rabobank said will pick up pace in the beginning of 2013 – will contribute to food prices hitting new highs. The cost of pork is expected to rise at the fastest pace – by 31% by the end of June next year.” Algos may have forgotten about this very key fact, but China sure hasn’t.

So what are the Chinese behind the scenes powers doing about this potentially massive problem? Ironically, they may just be those responsible for the mass pig slayings witnessed in recent weeks. From Wantchinatimes:

The recent incident in which thousands of dead pigs were found floating in Shanghai’s main river has further hit pork prices in China, with the sector already experiencing falling demand, according to local media reports.

 

Weekly data from the country’s Ministry of Commerce released on March 20 showed that wholesale prices of pork has fallen for four consecutive weeks as of March 17, with the accumulated decline over the period touching 8%.

 

Pork prices in the country were undergoing a seasonal decline after Chinese New Year, but the recent scandal has rotted demand, Chinese business news site Caixin said.

 

Even United States Treasury secretary Jacob Lew ordered vegetarian dumplings instead of dumplings stuffed with pork when he dined out during his recent visit to China.

 

The Chinese government’s guidelines on official conduct, including the restrictions imposed on holding official banquets, is another factor affecting pork demand, driving down prices to levels resembling a crash, Caixin said.

 

Figures posted by industry information website Soozhu showed that average hog prices dropped to 12.5 yuan (US$2) a kilogram on March 19, and the pace of its decline touched a near-decade high.

 

The National Development and Reform Commission, China’s economic planner, said it is closely monitoring pork prices and would intervene if the market downturn persists.

 

E-commerce giant Alibaba’s website covering the agricultural sector said pork has seen three market cycles during the past decade, with each cycle becoming shorter and price fluctuations becoming steeper.

 

Pig farmers began expanding capacity two years ago when pork prices surged, leading to the current situation of excess supply, local reports said.

Crush prices through revulsion about potentially spoiled meat? Not a bad plan, and one which so far may have worked. However, how long before the mean reversion wave sets in, and the deferred consumption of pork comes back with a vengeance? What happens when the artificial reduction of pig supply leads to a surge in prices once demand goes back to normal as the locals forget all about the recent floating pigs?

How much longer will the Politburo then be able to pretend there is no inflation in the one country where the food component as a percentage of overall CPI is a whopping 30%, compared to under 8% in the US?

And what happens to those key inflationary offsets once the rampant inflation wave strikes back with a vengeance? Recall that is was soaring Chinese inflation in early 2011 that set off the great scramble for gold as the local population was buying the shiny metal hand over fist, in the process pushing the price of gold from $1300 to $1900 in nine months.

The question then is: will the fading of the floating pig scandal from the collective memory be the inflection point when Chinese food inflation finally explodes, and takes the price of gold with it, and concurrently is the gating factor that forces the PBOC to demand at the next G20 meeting that the liquidity spigots in the “developed nations” be promptly shut or else.

It is surprising how much may depend on the fate of a few floating dead pigs: so much so that the concurrent death of black swans makes so much more sense, both literally and figuratively.