Dollar And Yen Fall - Moody’s Warns Of Japan Downgrade & UN Warns of Risk Of “Collapse” Of Dollar 

Submitted by Tyler Durden on 05/31/2011 07:01 -0400

The euro climbed to a three-week high versus the dollar on speculation Germany and other European nations may pledge more funds to bankrupt Greece and favourable German economic data. This is more a reflection of dollar weakness rather than any great confidence in the euro. The euro at €1,068/oz remains under pressure versus gold and is less than 2% from record nominal highs at €1,088/oz. While the focus, has of late, been on the increasingly ‘unsingle’ single currency, news overnight shows how there are also substantial risks posed to the yen. Moody’s have warned that they may have to downgrade Japan and have warned of a “tipping point” which may lead to a government funding crisis for heavily indebted Japan. The United Nations warned on Wednesday of a possible crisis of confidence in, and even a "collapse" of, the U.S. dollar if its value against other currencies continued to decline. The UN’s mid-year review of the world economy did not get covered widely. The UN economic division said that a crisis of confidence in the dollar, stemming from the falling value of foreign dollar holdings, would imperil the global financial system. This trend, it said, had recently been driven in part by interest rate differentials between the U.S. and other major economies (see table above) and growing concern about the sustainability of the U.S. public debt, half of which is held by foreigners including the Chinese government. 

 

 

 

 

More "Change You Can Believe In"...

Time To Celebrate The Recovery: Food Stamp Usage Hits Fresh Record 

That average monthly benefit of $133.24 for 44.199 million people will help with the purchase of one third of a very edible iPad. Food stamp participation chart presented without further commentary. 

 

 

 

 

 

 

April Japanese Car Exports Collapse, Down 68% 

Concurrent with last night's Moody's reminder that it is about to downgrade the Japanese economy, which we have long been claiming is the marginal global economic wildcard, we get an exportindustry update from the Japan Automobile Manufacturers Association. In short: April car exports were an unprecedented disaster, with the average exporter seeing a 68% drop Y/Y, with some, such as Toyota plunging from 150,118 to only 31,025 cars in April 2011. And while this would be the ideal environment for US carmakers to grab market share, the fact that many are missing critial Made in Japan components in their supply chain means that there is a broad based supply drop. Which is why tomorrow's update of GM's recent channel stuffing practice will be observed with such interest: if the firm reports yet another increase in the cars parked with dealers, then something in the US carmaking space is seriously wrong two months after this Japanese car export free fall. 

 

 

 

 

 

Citi On The "Disastrous" USD Implications From A Debt Ceiling Breach 

Submitted by Tyler Durden on 05/31/2011 07:53 -0400

Much has been speculated about what the possible impact on the fixed income market may be if the debt ceiling is breached. Few, however, have wondered about the impact of what the lack of a debt ceiling resolution would be on a market that one could argue is even more important: FX. Citi's chief currency strategist Stephen Englander takes a preliminary look at the implications of what this would look like. Englander admits that "a breach of the credit ceiling is priced in neither fixed income nor FX markets to any significant degree now", and proceeds to speculated that it is foreign exposure (recall that China has over $4 trillion in foreign financial assets) that would be most impacted by such an adverse development. To wit: "Our expectation is that the FX reaction to a debt ceiling breach would be sharper and probably more permanent that the FI reaction, because unhedged foreign investors will see another layer of risk that can not be 'fixed' in the way that cash flows from Treasuries can. The FX market reaction may not be catastrophic, given the limit to the fixed income damage that is likely to be permitted to emerge, but it would legitimately tax foreign investor patience and lead to further USD dumping whenever the opportunity arises." Bottom line: the race to the garbage bottom between the USD, EUR and JPY continues in earnest, with nobody yet a solid favorite to win, er, lose first.

Record Chinese Drought Leads To "Crazy" Food Prices 

Submitted by Tyler Durden on 05/31/2011 08:13 -0400

The PBoC may be guilty of many things, but manipulating the weather is not one of them. Yet it is precisely this that is causing the latest surge in various food prices in the mainland, and which will likely force the Chinese central bank to accelerate its tightening regime even more than before. For once the weather can be blamed, only this time, due to an already redhot inflationary indicator, it will have a far broader impact on both domestic and global monetary policy. China Daily reports: "The impacts of China's worst drought in 50 years have been served up on the nation's dining tables as the price of rice and vegetables from drought-hit provinces have skyrocketed. The average price of staple foods in 50 cities has increased significantly, and the price of some leaf vegetables has jumped 16 percent in one month, according to data from the National Bureau of Statistics....I didn't buy many leaf vegetables in the last week because the price is getting crazy," said Zhang Weirong, a 67-year-old Shanghai resident." We wish the PBoC the best of luck as it now has to use its futile monetary instruments to neutralize the lack of rain. With the Dragon Boat Festival hoiday between June 4 and 6, we now expect another interest rate hike to be announced in less than a week, in keeping with the central bank's practice of intervening monetarily during major domestic and international holidays.

Debt Ceiling Tragicomedy Resumes: On Today's Symbolic, And Doomed, $2.4 Trillion Debt Ceiling Vote 

Submitted by Tyler Durden on 05/31/2011 08:31 -0400

Today at 7:00 pm the House will hold a very symbolic vote on a $2.4 trillion debt ceiling increase. Symbolic because it is doomed from the beginning as every single republican will vote no. So why is it held? Supposedly it is to rekindle popular interest in the debt ceiling drama following several weeks of commercial interruptions (i.e., heavy lobbying), and to remind the public that America is still a "democracy." Below is Goldman's Alec Phillips with more: 

 

 

 

 

 

Irate Germany Summons Iranian Ambassador After Angela Merkel Plane Denied Access Over Iran Airspace For Two Hours 

It appears that even a Stuxnet-crippled Iran can strike back. As the WSJ reports, "Germany summoned the Iranian ambassador in Berlin Tuesday after Iran temporarily blocked a plane carrying German Chancellor Angela Merkel from entering its airspace" in what has the making of a major diplomatic scandal. Merkel, along with a large German delegation was en route to India for an official visit, and had expected to get an uncontested green light to fly in Tehran-controlled skies, when the permission was granted... for over two hours. NDTV has more: "In an incident that could have serious diplomatic consequences, Iran temporarily refused to allow German Chancellor Angela Merkel's plane to enter its airspace on Tuesday. The plane reportedly had to circle over Turkey for two hours before being given permission to enter. The government aircraft was denied overflight rights in the early hours of Tuesday. The exact reason for the denial of overflight rights is unclear. But before the plane left Berlin on Monday evening, it was reportedly given permission by Iranian authorities. Germany along with the US and its other allies in NATO has long been at loggerheads with Iran essentially over its nuclear arms policy and alleged support to terror." Who could have possibly conceived that a country ostracized by the global community can possibly strike back. All we can say is that Air Force One better fly the friendly skies when it travels over the Middle East going forward or else it may be forced to discover just how efficient its flare and chaff Electronic Counter Measures truly are...

Case Shiller Prolapse Hits New Lows As 20 City Composite Plunges Again, Below Consensus Of -0.2%, "New Recession Low" Plumbed 

Submitted by Tyler Durden on 05/31/2011 09:11 -0400

Despite Goldman's expectations of a +0.1% sequential move, and the broader economic lemming consensus of a modest -0.2% drop, the just released March Case Shiller housing data confirmed there is no end in sight for the housing double (or triple, or quadruple, or who cares: take out the Fed's $2.7 trillion and housing really has been in a non-stop plunge for 3 years now), missing expectations and printing at -0.23%. In addition the February data was revised even lower from -0.18% to -0.25% (expect failed career economists at Goldman and elsewhere to disclose this as a huge positive as it is really an increase). The Composite 20 dropped -3.61% on expectations of -3.4%. The press release says it all: "This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels." Cue QE3, 4, and so forth through QE 666, at which point we may see in uptick in worthless Bernankebux. And as we predicted earlier, bizarro day, with futures about to hit 3 year highs, now reigns supreme.

The Tide Turns: SAC Gets Redemption Request From Major Investor 

Submitted by Tyler Durden on 05/31/2011 09:27 -0400

The days of SAC's 3 and 50 fee structure appear to be rapidly coming to a close (as well as possibly the front doors to 72 Cummings Point road). In what is certainly a harbinger of capital flows from (instead of to for the first time in decades) the legendary and now infamous hedge fund, Institution Investor reports that "at least one well known investor in hedge funds has confirmed that he has requested to redeem his investment in SAC in light of recent reports of probes into the Greenwich, Connecticut-based firm. The investor, who requested anonymity, does emphasize that SAC “has the number one compliance department in the industry.” Nonetheless, recent reports swirling around the firm have led him to request to pull out his clients’ money. “We don’t want to be fickle,” says the manager. “We hate doing this. But, the government seems so intent now in getting them and there are additional SAC-related characters tainted. Some dealt with the same stocks at SAC." And so the expert network insider trading ring, first exposed by Zero Hedge nearly 2 years ago (on Part 1, Part 2 and Part 3) may claim its biggest victim, even in the absence of any criminal or civil charges against company executives: the last thing FOFs and LPs hate is uncertainty, and there is nothing like headline uncertainty that today, in one week, or one year, their capital may be permanently frozen courtesy of a few men in gray suits and a search warrant, which not even the best paid Gerson Lehrman consultant could have foreseen.

Chicago PMI Plummets From 67.6 To 56.6, Biggest Monthly Drop Since Lehman Bankruptcy 

The May Chicago PMI is out and contrary to the herd of clueless Wall Street idiots, better known in polite circles as economists, it came at 56.6 on expectations of 62.0, a collapse drop from the 67.6 before. This is the worst monthly drop since the economy imploded back in October 2008, and the second largest two month drop since 1980! A quick look at the New Orders index indicates it was the lowest since September 2009. But the good news: the economy is still in expansion... for about 1 more month.  The release says it all: "NEW ORDERS and PRODUCTION posted their largest declines in several years...but remained positive" and "INVENTORIES accelerated buildup" - thank god for artificial economic expansion. And from the respondents: "Fuel cost are going to have a major impact on business activity in a negative way that will slow recovery to a crawl." Uh, what recovery? Just you wait until QE3 is announced in 3 months. And elsewhere, the May consumer confidence completed the trifecta of bad news, coming at 60.8 on expectations of 65.4, and down from 66.6.

Remember That Greek Bailout Rumor... 

Submitted by Tyler Durden on 05/31/2011 10:20 -0400

GERMAN FDP PARLIAMENT MEMBER SCHAEFFLER TELLS PAPER GREECE SHOULD LEAVE EURO ZONE (RTRS)
Next time, our advice: get confirmation