Belarus Hyperinflation Prompts Government To Freeze Food Prices 

So we move from one probably hyperinflation to another, quite factual one. As we disclosed last week, following its massive and surprising currency devaluation, Belarus has promptly plunged into hyperinflationary hell. The government, scrambling to avoid public unrest, which would likely promptly devolve into revolution and civil war, has just now decided to take reactive price freezing "measures" which will do absolutely nothing but accelerate the immediate destocking of anything and everything still available for purchase. From The Moscow Times: "Belarus on Tuesday froze prices on a number of foodstuffs as analysts warned that the former Soviet republic could descend into economic chaos and an IMF mission headed to Minsk to assess the situation." Ah, good old price controls. Failure is imminent, following which Belarus will introduce a mandatory coupon-based purchasing system now that the currency is for all intents and purposes worthless. Incidentally, those who still hold precious metals have the upper hand in determining what these are exchanged for and at what conversion ratios.

Charting The Non-Linearity Of Hyperinflation, And Predicting America's Future Courtesy Of Ancient History

Submitted by Tyler Durden on 05/31/2011 11:11 -0400

A few weeks ago we presented a chart from SocGen's Dylan Grice, which promptly went viral, indicating the ongoing dilution in the Roman silver denarius over the span of two centuries. The comparisons to the purchasing power of the dollar since the inception of the Fed were missed by precisely nobody. Yet one thing that was missing was charting the corresponding reaction in price levels for a key prevailing staple commodity, namely wheat, which was to antiquity what oil is to the world today. Well, courtesy of Paul Mylchreest's latest must read Thunderroad report, prepare to be stunned by another "comparative" chart which does an admirable job at predicting the future courtesy of the past, and which is about to go viral all over again...

An Anti-Correlated Take On Corporate Profits And Dollar Destruction 

Submitted by Tyler Durden on 05/31/2011 14:51 -0400

One of the more interesting correlations (not causations) to have emerged following the surge in corporate profit margins is that of the inverse relationship between now record corporate profit margins, and net exports & services originating from the US. While we certainly will not imply one is a cause of the other or vice versa, we would be remiss to not point out the irony of what would happen should this correlation preserve itself in an environment in which US exports end up being curbed due to a surge in the US dollar once the frailty of the Eurozone no longer allows the EUR to appreciate on desperate one-time (if recurring) rescue measures. And with China largely ignoring US demands to revalue its currency and import more US goods and services (no laughing), is it safe to say that this chart is the one most direct confirmation that the weak dollar policy adopted by the Fed has had it most proximal impact nowhere else than on surging corporate profit levels (and Wall Street bonuses of course). 

 

 

 

 

 

JP Morgan On QE 3: "No Way, Jose" 

Submitted by Tyler Durden on 05/31/2011 13:41 -0400

Just out from the only economist at JP Morgan who is even remotely credible, Michael Ferolli, responding to the question if QE 3 is coming. "Our answer is: no. We think it is very, very unlikely. In a nutshell, we don't think the inflation or inflation expectations data are near the point where the Fed would consider further large-scale asset purchases, and even if the inflation data were to start to move in that direction the potential political fall-out is so great that the Fed would be extremely reluctant to purchase more assets....The recent economic activity data has been decidedly disappointing. By some broad measures such as GDP, it could well be the case that the first half of this year will look even worse than the second and third quarters of last year -- the quarters leading up to the FOMC's decision to purchases another $600 billion of assets. While the growth data may look similar, a crucial difference thus far has been inflation...Even if we are wrong on a second half rebound, we still believe the political hurdle for further asset purchases is tremendously high. The backlash from Capitol Hill after last Fall's decision probably took the Fed off-guard, and the political impact was not a prominent factor debated in the lead-up to the November decision....As such, it appears that without taking significant political risks there is little the Fed is able to do to support the recovery if growth fails to rebound as anticipated next quarter." So... everyone feel convinced now? 

 

 

 

 

Jim Grant And James Turk Discuss The Endgame Of The Keynesian Experiment 

Two of our preferred commentators, Jim Grant, of Grant's Interest Rate Observer, and James Turk, of the GoldMoney Foundation, sat down earlier today to discuss the history and mission of the Fed, how mission creep has taken it wildly beyond its initial purpose into the territory of QE, ZIRP and other fiat currency experiments. While not breaking ground on any notably new concepts, they talk about "who benefit from zero interest rates and how savers are penalized by this easy money policy. They explain that the US have been off the gold standard since 1913, Bretton Woods being only a shadow of the classical gold standard." The two also discuss the fiscal profligacy of the US government. Alas, they conclude that every paper currency in history has eventually gone to zero (see earlier piece on Roman hyperinflation). James and Jim also talk about ZIRP and the absence of the bond vigilantes after over 30 years of bull market in bonds. How traders no longer care about fundamentals, like balance sheets, but rather focus on very short time horizons and the spreads between funding costs and yields. How this situation is unsustainable. They see gold still as a very under-owned, misunderstood and marginal asset still shunned by institutional investors, with a few notable exceptions which indicate that the tide could be turning. They see a gold standard in the future, although timing is always uncertain. At the end they talk about the history of US post civil war specie resumption and parallels to a return to the gold standard in the future. 

 

 

 

 

In Preparation Of The Fed's Last Doubling Down: David Rosenberg Believes QE3 Will Be Nothing Short Of "Operation Twist 2" 

It is no secret that to a deflationist like David Rosenberg bond yields have to go lower... Much lower. With the 10 Year flirting with a 2 handle one would think he would be content. Alas no. In fact, as he suggests in his piece from today, Rosie is convinced that the next iteration of QE will be nothing short of a redux of the 1961 initiative to kill the then gold exodus known as "Operation Twist" (recently dissected by the San Fran Fed). Incidentally it was the same Fed that compared QE2 to Operation Twist. It is only logical that Rosie would then suggest that QE3 would be nothing short of a complete clearing of the 10 Year bond in the market via the Fed in order to anchor expectations that the 10 Year rate would never go up (or reasonably "never") in the biggest gamble of all: that the Fed will attempt to both control its balance sheet and target Long-Term interest rates, a mission doomed to fail...But not like that will prevent the Fed from setting off on such a mission, especially following today's official confirmation of the Housing Double Dip (someone page Jim Cramer). As Rosie says: "Now it is doubtful that the Fed would ever target the long bond. In fact, the Fed may even want it to be higher in yield to ease the pressure on radically underfunded pension funds. While the Fed can either target its balance sheet, which it has been doing with these QE measures, or target interest rates, it cannot do both at the same time. So the next 'QE' will not be called 'QE' but rather something else — maybe Operation Twist 2 (OT2 — you heard it here first). The Fed would buy up all the 10-year notes needed to clear the market at the target "price" (yield). So depending on supply conditions and demand from the private sector, the Fed would basically lose control of its balance sheet, but if in return this policy is the one that blazes the trail for a turnaround in the housing sector and a durable revival in the economy, so be it." And keeping in mind that the true unspoken reason for Operation Twist 1 was to terminate the outflow of gold from the US to foreign bank vaults, we find ourselves agreeing with Rosie that an insane idea such as OT2 is precisely what the Fed would do to avoid a recurrence of the 1961 gold exodus (and attempt to give housing one last failed boost). As many birds would be killed with one stone, the only downside, that of a complete balance sheet implosion following OT2, certainly seems quite acceptable to a central bank now officially run by sociopaths.

Oil Is Now Leaking In Sea Near Fukushima 

Submitted by Tyler Durden on 05/31/2011 12:53 -0400

Just because mega-radioactive water leakage was not enough. From Xinhua: "Operator of the troubled Fukushima No. 1 nuclear power plant found that oil has been leaking into the sea close to the facility, the Kyodo News reported Tuesday. The operator Tokyo Electric Power Co. (TEPCO) said the oil leaks were possibly from nearby oil tanks that may have been damaged in the March earthquake and tsunami, and it would set up oil fences to prevent the liquid from pouring into the Pacific Ocean." Oh, but they only discovered this now? Odd how it took nearly 3 months for those oil tanks to rupture and start spilling into the water. So in other words, not only is Godzilla coming, he will be more greased up than the Situation.