monday miscellanea

Good morning. It's a short week, with Canada Day on Wednesday, and Independence Day (US) on Friday, but a lot of data is coming out anyway as the week goes on.

Today's Citizensbank Canada daily FX commentary contains two notes of relevance. The first:

The Bank for International Settlement released its annual report in which it states that the various stimulus plans might fail and lead to a prolonged period of economic stagnation because banks are not being pushed hard enough fix the problem of toxic assets on their books. The problem seems to be ignored as long as bank stocks increase in value, the KBW index of the 24 largest US banks has doubled in value since March. The BIS essentially condemns programs such as TARP as failures because it should have been used for its original intended purpose, to remove these assets off banks’ balance sheets rather than for guarantees and capital infusions to bail out the banks. There is no problem as long as the values continue to go up; it’s unthinkable that these assets could possibly depreciate, isn’t it?

Karl Denninger has more commentary on this phenominon here, as well as more on the collapse of the PPIP.

Secondly, from today:

The May National Activity Index, prepared by the Chicago Fed, fell to -2.30 from a downwardly revised -2.27 in April. The index is an extremely comprehensive snapshot of US economic activity comprising of 4 broad categories. The conclusion of the report is that economic activity in the US remains consistent with a continuing severe recession. Those are pretty strong words.

Yes, they are. Key was a faster rate of fall in US industrial production in May, down 1.1% vs. April's slower 0.7% rate of decline.

Mainland China and the Hong Kong SAR have set up a facility to allow companies to settle cross-border transactions in yuan. They want to have it operating next month. This is another indicating of growing dissatisfaction with the US dollar as a trade and reserve currency. Also note Chinese proposals, ongoing, for a new global reserve currency. (The commentary section is worth skimming, for once - normally, they aren't.)

Those interested in the US international debt position may find Brad Setser's analysis of the last decade to be of interest. Again, the commentary section is useful, as it often is in his posts.

Seeking Alpha thinks the hyperinflation trade (or train, given the illustrative photo) is looking awfully crowded, and discusses the ramifications of the collapse of a currency bubble - which is to say, persistent currency and price deflation, which is to say, hello, Japan, but on a larger scale and without savings. Fun times.

Here, have a potpourri of news items:

Oil is approaching US$72/barrel. A variety of people are talking about the US dollar being under pressure, but I don't see it in the charts.

On the plus side, Japanese factory output rose for the third straight month, tho' still dramatically below one year ago. Unfortunately, retail sales were flat month-to-month.

Bank of America and Wells Fargo are hedging about taking California state warrants, or "IOUs," which are expected to be issued starting next week or so. These will be in lieu of actual money.

Bloomberg has an article up, "Bond Dealers Say Worst Over as Demand Soars at Sales." They're referring to this:

Bonds rallied last week as indirect bidders, a class of investors that includes foreign central banks, purchased 67.2 percent of the record $27 billion in seven-year notes sold on June 25, or double the amount of bids than at the last sale in May.

Sounds awesome, right? Except the definition of "indirect bidders" changed to include a lot more buyers, mostly domestic. This statistic is yet another one which has been rendered meaningless for historical comparison purposes. We were talking earlier about changes in definitions being used to pop up fake good news, and I noted that typically the financial press wasn't too bad about doing that - this is a counterexample.

That's all for now; good luck.

oh this is bad

Thanks to cow for pointing out this blog post talking about this Bloomberg story pointing out that 20% of new bank loans made in China from January thought May 2009 went right into the Chinese stock market. That's 1.16T yuan, or about US$170B. And that's how you've got an even-for-China freaky rally in Chinese stocks so far this year.

However, these schemes always end in tears. It's one of those "never do this" things. Ever. Bluntly, you should just assume this will crash and take the Chinese stock markets with it. It might not; I mean, it could work out fine. But it'll take a bloody blinking miracle.

not normally a series of tiny links

I'm sorry, I don't normally post a series of single-link posts like this, but Nathan Martin has a lovely series of Federal Reserve charts grouped together in a way that really tell quite a story. Check it.

incomplete reactions

Mr. Obama gave his address today to the LGBT community. I've read through it once; it sounds okay, but as everyone here should know, I don't give a rat's ass what you say until and unless it actually produces action, which so far, Mr. Obama has not done. Dan Savage is mostly holding off on comment until tomorrow, except for a first-read reaction of, "I'm not sure we should be applauding the president for passing the buck, however eloquently he is while he does so." Pam at Pam's House Blend is not impressed because of the contradictions between his speech tonight and Mr. Gibbs in the press briefing earlier in the afternoon. (For example: in his speech, he claims he's working with the Pentagon on DADT; Mr. Gibbs earlier had said Mr. Obama hadn't been involved in any meetings.)

So that's that, so far. The first link (...and also the second) contains the full text of the address, so read it for yourself.