Category Archives: Economy and Meltdown

The 8 United States Of A New Monetary America

Do we need 50 states? With the corporatocracy increasingly looking to cut costs, wouldn’t it make more sense to right-size the number of ‘regional’ centers of democracy? With an increasingly Federally dominated US, perhaps 50 disparate decision-makers is too many. It turns out, that based on some wonderfully complex math (spatially embedded multi-scale interaction networks) and data from, the United States Of America is more ‘optimal’ from a monetary and mobility-sense if it were managed around these 8 regions. Theoretical physicist Dirk Brockmann says the borders of the United States are out of date, and as Fast Company notes, “no longer correlate with our behavior.” By combining network theory with the travels of our dollar bills, the ‘real’ effective boundaries in a new USA are far simpler, reflecting where money ‘stays’ as opposed to more arbitrary state boundaries.


Tracking the dollars and network theory does the rest…


Where’s George? Anywhere, but mostly within the confines of the “blue borders”

Finally, George-to-George tracking can be seen best in his chart of “multi-scale human mobility” showing the short and long-range connectivity patterns when it comes to the physical distance travelled by actual US Federal Reserve notes, which according to Brockmann represents “proxy for human mobility.”

and the full paper behind the creation of the new 8 super-states



Nikkei 63,000,000 And Other Flashbacks: The Complete Dylan Grice Japan Series

Confused by the day to day happenings in the land of the rising sun, and liquidity tsunami? Don’t be, instead read the following series of papers (pdf) by former SocGen strategist Dylan Grice who predicted everything that is currently happening nearly three years ago. The titles of the enclsed five pieces are self-explanatory especially in light of recent events: “A global fiasco is brewing in Japan”, “More on Japan’s brewing fiasco, and some musings on recent pushback”, “Fooled by anecdotes: Japan’s coming inflation, JGB toxicity and what to do”, “Nikkei 63,000,000? A cheap way to buy Japanese inflation risk” and finally “Buy Japan, and prepare to buy with both hands.” Oh, and spoiler alert…

…Grice doesn’t see a “Hollywood ending” to what is about to happen in Japan.


European Commission 'Threatens' Portugal – Get Your Constitutional Court In Line

It seems, despite the constant “it’s all fixed” banter, that Portugal’s Constitutional Court decision that the Troika-imposed austerity is unconstitutional (as we discussed in detail here and here) has a few of the ‘elites’ nervous. And so, late on a Sunday night European time, they launch a press release that is about as passively aggressive as they come, any departure from the program’s objectives, or their re-negotiation, would in fact neutralize the efforts already made and achieved by the Portuguese citizens, namely the growing investor confidence in Portugal, and prolong the difficulties from the adjustment… it is a precondition for a decision on the lengthening of the maturities of the financial assistance to Portugal.” In other words, get your constitutional court in line or the OMT ‘promise’ get’s it! Perhaps that explains why, unlike Spain and Italy who rallied in the last few days, Portugal’s bond spreads are at the widest of 2013 (70bps off the tights of the year).



Statement by the European Commission on Portugal

The European Commission welcomes that, following the decision of the Portuguese Constitutional Court on the 2013 state budget, the Portuguese Government has confirmed its commitment to the adjustment programme, including its fiscal targets and timeline. Any departure from the programme’s objectives, or their re-negotiation, would in fact neutralise the efforts already made and achieved by the Portuguese citizens, namely the growing investor confidence in Portugal, and prolong the difficulties from the adjustment.


The Commission therefore trusts that the Portuguese Government will swiftly identify the measures necessary to adapt the 2013 budget in a way that respects the revised fiscal target as requested by the Portuguese Government and supported by the Troika in the 7th review of the programme.


Continued and determined implementation of the programme offers the best way to restore sustainable economic growth and to improve employment opportunities in Portugal. At the same time, it is a precondition for a decision on the lengthening of the maturities of the financial assistance to Portugal, which would facilitate Portugal’s return to the financial markets and the attainment of the programme’s objectives. The Commission supports that such a decision be taken soon.


The Commission will continue to work constructively with the Portuguese authorities within the parameters agreed to alleviate the social consequences of the crisis.


The Commission reiterates that a strong consensus around the programme will contribute to its successful implementation. In this respect, it is essential that Portugal’s key political institutions are united in their support.


30,000 Greek Households Lose Electricity Each Month

Since the Greek government enacted the remarkable law that property taxes will be enforced via the electricity providers in the beleaguered country, an incredible 30,000 households per month have seen their power supply cut off. Ekathimerini reports that some 700,000 customers have now had their debts restructured (with payment plans) as part of the billing process; but what is perhaps incredible is that while the State has specifically banned ‘disconnection’ for not paying the property charges, the utility’s computer system is unable to distinguish if payment is for electricity or property tax. There are apparently workarounds involving deposits for tax debts but the situation is set to deteriorate further this year due to the increase in electricity rates and expected further reductions in household incomes.


Via ekathimerini,

About 1,000 electricity connections are cut every day in Greece as Public Power Corporation customers are increasingly unable to pay their power bills on time, while accumulated debts to the country’s electricity giant stood at more than 1.3 billion euros at the end of 2012. This is not only due to the economic crisis that has eaten into household incomes, but also to the special property tax paid via power bills.


PPC data show that some 700,000 customers had had their debts rearranged with new payment plans by the end of last year, up from 400,000 at the end of 2011. The situation is set to deteriorate this year due to the increase in PPC rates and expected further reductions in household incomes.



There is, however, a particular problem with the special property tax. While the Council of State has banned the disconnection of houses for not paying the property charge through the PPC bill, if customers do pay for their electricity, PPC’s software cannot distinguish between payment for the property tax and that for electricity. As a result, the corporation cannot tell whether consumers have paid toward their power bill or just a part of their property tax unless they have paid the full amount.



PPC says that this problem can be overcome by the taxpayers visiting the tax offices, where they can apply to have their property levy paid separately to the tax authority, which involves the payment of a 50-euro deposit. Afterward, any payment delay will only concern the customer and the tax office, and not PPC.



Japanese Finance Ministry Warns Surge In JGB Volatility May Lead To A Sharp Bond Selloff

If Friday’s session is any indication of what to expect in a few minutes when JGB trading resumes, we are about to have a doozy of a session on our hands (especially with Interactive Brokers already announcing all intraday margins on all Japanese products for Monday trading have been lifted). As a reminder, the 10Y JGB suffered only its second most volatile trading day ever this past Friday when the yield plunged by half (!) to 0.30%, then doubled in a matter of minutes to 0.60% – a 13 sigma move – and the bond trading session was interrupted by two trading halts when it seemed for a minute that the BOJ may lose all control of the bond market. Well, judging by the absolutely ridiculous moves in the USDJPY as of this moment, with the pair soaring 70 pips in a matter of seconds, we are about to have precisely the kind of insanely volatile session that the Japanese Finance Ministry itself warned may lead to a wholesale selloff in JGBs, offsetting even the New Normal Mrs Watanabe kneejerk which is to merely frontrun the BOJ in buying JGBs. Why? Because with implied vol exploding, VaR-driven models will tell banks to just dump bonds as they have become too volatile to hold on their books. The problem is that with trillions and trillions of JGBs held by banks, insurance companies and pension firms, there just not may be anyone out there to buy them.

This is from the October 26, 2012 minutes of the Meeting of JGB market special participants, just as the insanity known as Abenomics was being first revealed to the world.

Another thing to be noted here is the fact that as a risk management method, many domestic financial institutions adopt the VaR approach, which is designed to calculate the amount at risk on the basis of volatility. Under the present circumstances, we can determine the amount at risk to be small because of not great volatility. But if the volatility moves up or down in the order of 0.5% to 1.5%, it will increase the amount at risk, forcing domestic financial institutions to reduce their JGB holdings.

0.5% or 1.5%? Try ten times that. The chart below shows the implied vol of the 10Y JGB in recent days. If any financial institution still adhering to a VaR approach hasn’t puked its bond holdings, it will shortly.

Perhaps it is not, then surprising, that the one rhetorical question the MOF had was the following:

Here, we have one question. What will happen to interest rates payable on 15-Year Floating-Rate Bonds or Nonmarketable JGBs for Retail Investors in case the 10-Year Bond auctions are suspended?

Yes, what will happen if the BOJ has managed to literally break the bond market?


Away from the dramtic shifts in JGBs, the last 3 days have seen the 2nd largest weakening in JPY in 25 years…


…and most notably the relationship between JPY (as a funding currency for every and any risk trade around the world) has experienced a rather interesting transition change in the last month…

Green Oval = Normal: JPY weakness funds FX carry to buy stocks and thus bond yields rise.

Orange Oval = Transition: unwinding of those trades led to JPY strength…

Red = New correlation: the BoJ drops the shock-and-awe hand grenade and confirms JPY investors’ concerns that their wealth is being destroyed – the Treasury buying begins and stocks get sold.

…or perhaps the ‘strength’ in JPY relative to EUR in recent weeks (the ultimate JPY carry trade) is now being squeezed back to reconnect with the US equity market


Perhaps the post-Lehman decoupling between USDJPY and the long-end of the JGB curve is back… which means JGBs imply 110 USDJPY is coming. Interestingly the collapse in the JGB curve took it back to the same time when USDJPY was here last – mid 2009…



Charts: Bloomberg