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Kuroda Leapfrogs Bernanke

Last August, in a CBB titled "Do Whatever it Takes," I drew parallels between the progression of experimental global central bank "money printing" to the escalation of aerial attacks against civilians during WWII.

"As the war commenced, efforts were indeed made by most "belligerents" to limit aerial attacks to military targets away from innocent civilians. It wasn't long, however, before civilian deaths mounted as bombs were unleashed ever closer to population centers. And then not much time elapsed until industrial targets were viewed as fair game, with civilians paying a progressively devastating price. Somehow, an increasingly desperate war mindset saw targeting population centers in much less unacceptable terms. Soon it was perfectly acceptable. War-time justification and rationalization saw conventional bombing of civilian targets regress into direct firebombing and incendiary raids of major cities in Europe and Asia. Less than six years passed between President Roosevelt's "Appeal" and the dropping of nuclear bombs on Hiroshima and Nagasaki."

Thursday, the Bank of Japan (BOJ) announced the Japanese version of "Do Whatever it Takes." What commenced during the Greenspan era as central planning of pegged interest-rate and market liquidity backstops, later evolving to ever-expanding crisis-period bailouts, market interventions and debt monetization, has escalated to an unprecedented global free-for-all of monetary inflation and debt purchases in a non-crisis environment. Amazingly, the Japanese - with 4.3% unemployment and approaching 25 years since the bursting of their Bubble - somehow succeeded in leapfrogging the Bernanke Federal Reserve.

April 4 - Reuters (Leika Kihara and Stanley While) - The Bank of Japan unleashed the world's most intense burst of monetary stimulus on Thursday, promising to inject about $1.4 trillion into the economy in less than two years, a radical gamble that sent the yen reeling and bond yields to record lows. New Governor Haruhiko Kuroda committed the BOJ to open-ended asset buying and said the monetary base would nearly double to 270 trillion yen ($2.9 trillion) by the end of 2014, a dose of shock therapy officials hope will end two decades of stagnation. The policy was viewed as a radical gamble to boost growth and lift inflation expectations and is unmatched in scope even by the U.S. Federal Reserve's own quantitative easing program. The Fed may buy more debt, but since Japan's economy is about one-third the size of the economy, Kuroda's plan looks even bolder. 'This is an unprecedented degree of monetary easing,' a smiling Kuroda told a news conference after his first policy meeting at the helm of the central bank. 'We took all available steps we can think of. I'm confident that all necessary measures to achieve 2% inflation in two years were taken today,' he said."

And a few notable Kuroda quotes courtesy of Dow Jones: "This is an entirely new dimension of monetary easing, both in terms of quantity and quality... I will not use my fighting power in an incremental manner... Our stance is to take all the policy measures imaginable at this point to achieve the 2% target in two years."

Well, this is insanity. Not surprisingly, Kuroda's gambit was cheered by Fed doves (quotes from Reuters): "Watching Japan struggle to beat deflation and revive an ailing economy 'is not a healthy element of the global scene', Atlanta Fed President Dennis Lockhart said... 'So their preparedness to take more aggressive action, if it works, will certainly help everyone.'" "Charles Evans, president of the Chicago Fed, called the move 'pretty aggressive', adding:' 'I certainly hope that every foreign central bank around the world is able to adopt policies that ultimately lead to the most vibrant economies that those economies can have because we need it around the world.'"

A few notable "masters of the universe" (having already profited handsomely shorting yen) warned of a potential yen free-fall. For sure, the Bank of Japan's shock and awe inflation strategy strives to convince Japanese consumers and businesses that prices and business activity is in the process of being inflated higher. The big unknown is to what degree the clearer message "your yen is going to be devalued lower!" will incite Japanese institutions and savers to exit the yen in search of better returns throughout global securities markets. The thought of Japan's savers joining forces with U.S. savers in a quest to protect their "money" from central bank-orchestrated devaluation must be enough to have the global leveraged speculating community salivating all over themselves.

April 5 - Reuters (Leika Kihara and Stanley White): "Bank of Japan Governor Haruhiko Kuroda played down concerns his unprecedented burst of monetary stimulus would create asset-price bubbles even as it delivered an immediate pay-off in global markets, with government bond yields at a record low, the yen hitting a 3-1/2 year trough and stocks surging to multi-year highs... 'We will be vigilant of the risk of a bubble. I don't think there's a bond or stock market bubble now and I don't see one emerging any time soon. But we will be vigilant of the risk,' Kuroda told the lower house of parliament."

I'll have to disagree with Mr. Kuroda. Japanese debt is a historic Bubble - and I'd suggest a rather conspicuous one at that. And Japan's move to follow the Fed down the path of 24/7 monetary inflation is a key facet of the "global government finance Bubble" more generally. Japanese institutions were said to be major buyers of European bonds this week. French 10-year yields dropped 24 bps Thursday and Friday to a record low 1.75%. French yields were down about 50 bps in five weeks. Spain's 10-year yields were down 32 bps points this week to 4.73%, and Italian yields sank 39 bps to 4.37%. Ten-year Treasury yields were down 12 bps in two sessions to end the week 14 bps lower at 1.71%. No Bubble?

In Tokyo, wild Friday trading saw the 10-year "JGB" yield trade as low as 32 bps and as high as 64.5 bps before ending the week at 0.53%. Japanese stocks jumped another 3.5% this week, increasing the Nikkei 225's y-t-d gain to 23.5%. The yen sank 3.4% this week, pushing its 2013 decline to 11.1%.

April 5 - Financial Times (Jonathan Soble and Ben McLannahan): "Use it or lose it. That was the upshot of Haruhiko Kuroda's message to Japanese savers on Thursday as he hurtled the country's central bank into a 'new phase' of super-loose monetary policy. By pledging to degrade the value of hoarded cash through inflation and all but snatching the safe-haven government bond market away from private investors, analysts say the Bank of Japan governor is trying to force citizens, banks and companies to deploy their money in ways that do more to boost the economy. The approach will have far-reaching consequences, some of which were already being felt in financial markets on Friday as bond prices swung wildly and stocks pushed to four-year highs."

Well written, Misters Soble and McLannahan. Yes, absolutely "far-reaching consequences." Monetary inflations and fiascos and their wretched consequences have inspired a great amount of thinking and writing over the centuries. All for not, as a small cadre of like-minded New Age global central bankers push deeper into their untested experiment in electronic "money" inflation. I have a hard time believing anyone with a sound grasp of monetary history can see this as anything other than an unfolding disaster.

It's interesting. The more apparent it becomes that monetary measures are not working as prescribed the greater the impetus to just do a whole lot more. Japan has been down this road before - for too long now. And, already, the global inflationist community is busy laying the groundwork for the next phase of this monetary battle. Calls are turning louder for central banks to just purchase government debt and simply "extinguish" it. The nuclear option.

It seemed like an opportune time to return to a little "History of Monetary and Credit Theory (From John Law to the Present Day)," written by the late French economist and Bank of France official Charles Rist (1938).

"But let us tackle the essential argument, the argument in which [John] Law is a real forerunner, the crushing argument which, since his time, has been used by all the currency cranks and by all plundering states. What is money but a simple exchange voucher conferring the right to a certain quantity of goods? And if that is its function, what is the point of using a costly metal? Here we reach the cardinal point of Law's theory. Money is only a voucher for buying goods. It is a formula which has provided the starting point for all currency cranks, an apparently self-evident axiom on which have been based all systems which deny the citizen the right to a means of storing value. Money is made only to purchase with. Money is not the durable and indestructible good, of stable value and unlimited acceptability, with the help of which man has been able to put by the product of his labor, the instrument for saving by means of which a bridge is built between the present and the future and without which all provisions for the future would become impossible. No!"

"But apart from that, [Law] misunderstood the real character of metallic money, and it is this that makes him so representative of all the currency cranks. He ignored the function of money as a means of storing value in a world where men are so anxious to preserve the product of their labour and their saving from price fluctuations and vicissitudes of all kinds. It is that which ruined [Law's] System. That metallic money is not an ideal instrument of circulation, and that it can be conveniently replaced in this respect by all sorts of circulating credits has been known from the earliest times. But nobody has yet shewn that circulating credits can replace the precious metals in their function as a store of value. None of the monetary systems yet know to us, even the most advanced, has dispensed with the precious metals, that ultima ratio of trade."

And the famous quote from John Law: "Money is not the value for which goods are exchanged, but the value by which they are exchanged: The use of Money is to buy goods, and silver while money is of no other use."

Some years ago, I noted parallels between the unfolding experiment in contemporary managed electronic "money" and Credit and John Law's disastrous experimental introduction of paper money in eighteenth century France. Similar to Law, contemporary central bankers see "money" simply as a medium - an expedient - for spurring spending - throughout the real economy as well as in securities and asset markets. The failure of the Federal Reserve to create a sufficient supply of money is central to Dr. Bernanke's thesis of the causes of The Great Depression. Central banks are now in the process of creating Trillions of additional "money" in order to inflate prices and economic activity. Trillions. They've been busy adding electronic zeros.

I'll be the first to admit that it's a real challenge to explain to the average person (or academic or Wall Street professional) the flaws in current inflationary central bank doctrine. If inflation isn't a problem, why not create some additional "money"? Central bankers can always reverse course and withdraw stimulus if necessary, right? And what's the problem with higher asset prices? With markets at or near record highs, the myriad risks associated with currency devaluation, monetary degradation, mispriced finance, deleterious market incentives, resource misallocation, asset Bubbles, inequitable wealth distribution and economic maladjustment don't resonate all that well. Somehow, even recent social upheaval in Greece, Ireland, Portugal, Spain and Cyprus are viewed as domestic problems and not the consequence of unanchored global finance. And do these central bankers really believe they will be able to exit this policy course?

From Rist: "...The function of money as a means of storing value in a world where men are so anxious to preserve the product of their labour and their saving from price fluctuations and vicissitudes of all kinds."

Rist titled his first chapter, "Confusion between Credit and Money in the Political Economy in the Eighteenth Century." In our 21st Century age of runaway electronic debits and Credits based finance, the distinction between "money" and Credit has completely blurred. I've tried to make the case that there is in reality an exceedingly important difference: Credit is much about confidence, while money is "precious." Credit, as was on full display between 2006 and 2008, can be robust, whimsical, fleeting and frighteningly fragile. "Money" - perceived as a trusted liquid store of nominal value - is the rock foundation for the entire financial system. As such, "money" enjoys almost insatiable demand. And this attribute has ensured repeated episodes of gross over-issuance that has plagued mankind for centuries. These days, "money" is the domain of the government debt and central banking nexus. The monetary black plague is back and it has spread globally like never before. Yet it's virtually invisible and comes with a surprisingly protracted incubation period.

When his "Mississippi Bubble" scheme was faltering in 1720, John Law moved to devalue competing hard currencies. He was desperate to keep investors and, particularly, the manic crowd of speculators in his monetary instruments to stave off Credit collapse. The Fed, BOJ, BOE, ECB and others have been working desperately to keep investors and speculators fully engaged in global debt, equities and risk markets. With near zero interest-rates and Trillions of monetization, "money" is being methodically devalued around the world. Federal Reserve devaluation is forcing savers out of "money" and into risk markets, apparently believing that asset inflation will spur wealth-creation, risk-taking and economic activity. The Bank of Japan is devaluing yen-denominated "money," hoping a weaker yen and expectations for higher inflation will jumpstart the Japanese economy.

These central bankers seem oblivious to the fact they are on a perilous course that risks a crisis of confidence in "money," not to mention global risk markets. The history of monetary fiascos is replete with out of control inflations. Once the money printing gets heated up, there is a strong proclivity for one year of elevated money printing ensuring only more intense pressure for even greater printing the next. This dynamic has been in play for years now. After having carefully studied these types of dynamics, I'll confess it's almost surreal to witness them in real time.


For the Week:

The S&P500 declined 0.4% (up 8.9% y-t-d), and the Dow dipped 0.3% (up 11.2% y-t-d). The Banks fell 2.0% (up 7.5%), while the Broker/Dealers added 0.4% (up 14.8%). The Morgan Stanley Cyclicals sank 3.3% (up 8.2%), and Transports dropped 3.5% (up 13.8%). The Morgan Stanley Consumer index declined 1.0% (up 15.2%), while the Utilities gained 1.3% (up 13.1%). The broader market underperformed. The S&P 400 MidCaps dropped 2.6% (up 10.2%), and the small cap Russell 2000 sank 3.0% (up 8.7%). The Nasdaq100 fell 1.7% (up 4.2%), and the Morgan Stanley High Tech index dropped 2.7% (up 4.5%). The Semiconductors were hit for 4.1% (up 9.1%). The InteractiveWeek Internet index sank 3.0% (up 7.7%). The Biotechs lost 1.0% (up 16.9%). Although bullion declined only $17, the HUI gold index was slammed for 8.1% (down 26.2%).

One-month Treasury bill rates ended the week at 5 bps and 3-month rates closed at 6 bps. Two-year government yields were down a basis point to 0.23%. Five-year T-note yields ended the week 7 bps lower to 0.69%. Ten-year yields dropped 14 bps to 1.71% (low since December). Long bond yields fell 23 bps to 2.88%. Benchmark Fannie MBS yields sank 21bps to 2.41%. The spread between benchmark MBS and 10-year Treasury yields narrowed 7 bps to 70 bps. The implied yield on December 2014 eurodollar futures declined 7 bps to 0.475%. The two-year dollar swap spread declined 3 to 15 bps, while the 10-year swap spread increased one to 17 bps (high since June). Corporate bond spreads narrowed. An index of investment grade bond risk declined 4 to 87 bps. An index of junk bond risk dropped 6 to 426 bps. An index of emerging market debt risk fell 10 to 290 bps.

Debt issuance picked up some. Investment grade issuers included Wal-Mart $5.0bn, Home Depot $2.0bn, Kerry Group Financial Services $750 million, ERP $500 million, Boston Properties $500 million, Colonial Pipeline $350 million, International Flavor & Fragrances $300 million and Avery Dennison $250 million.

Junk bond funds saw inflows of $32 million (from Lipper). Junk issuers included Continental Resources $1.5bn, Dish $1.1bn, Liberty Interactive $850 million, ABC Supply $500 million, Crownrock $400 million and Bonanza Creek $300 million.

Convertible debt issuers included Colony Financial $200 million.

International issuers included Sanofi $1.5bn, Kommunalbanken $1.5bn, Bank of Montreal $1.35bn, Barclays Bank $1.0bn, Banco de Credito $520 million, Turkiye IS BAnkasi $500 million, and BBVA Banco Continental $500 million.

Italian 10-yr yields dropped 39 bps to 4.37% (down 14bps y-t-d). Spain's 10-year yields fell 32 bps to 4.73% (down 54bps). German bund yields declined 8 bps to 1.21% (down 11bps), and French yields sank 27 bps to 1.75% (down 26bps). The French to German 10-year bond spread narrowed a notable 19 to 54 bps. Ten-year Portuguese yields added 2 bps to 6.25% (down 50bps). The Greek 10-year note yield declined 18 bps to 11.90% (up 143bps). U.K. 10-year gilt yields were down 14 bps to 1.63% (down 19bps).

Spain's IBEX 35 equities index was down 1.5% (down 4.5% y-t-d). Italy's FTSE MIB slipped 0.6% (down 6.3%). The German DAX equities index dropped 1.8% for the week (up 0.6%). Japanese 10-year "JGB" yields ended the week down 2 bps to 0.52% (down 26bps). Japan's Nikkei jumped 3.5% (up 23.5%). Emerging markets remained under pressure. Brazil's Bovespa equities index lost 2.3% (down 9.7%), and Mexico's Bolsa fell 1.9% (up %). South Korea's Kospi index sank 3.3% (down 3.5%). India's Sensex equities dropped 2.1% (down 5.0%). China's Shanghai Exchange declined 0.5% (down 1.9%).

Freddie Mac 30-year fixed mortgage rates declined 3 bps to 3.54% (down 44bps y-o-y). Fifteen-year fixed rates were down 2 bps to 2.74% (down 47bps). One-year ARM rates increased a basis point to 2.63% (down 15bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down 6 bps to 4.01% (down 57bps).

Federal Reserve Credit increased $3.3bn to a record $3.191 TN. Fed Credit expanded $405bn over the past 26 weeks. In the past year, Fed Credit expanded $348bn, or 12.2%.

Global central bank "international reserve assets" (excluding gold) - as tallied by Bloomberg - were up $668bn y-o-y, or 6.5%, to $10.954 TN. Over two years, reserves were $1.508 TN higher, for 16% growth.

M2 (narrow) "money" supply expanded $20.7bn to $10.450 TN. "Narrow money" expanded 6.5% ($638bn) over the past year. For the week, Currency increased $0.6bn. Demand and Checkable Deposits jumped $35.5bn, while Savings Deposits declined $12.8bn. Small Denominated Deposits slipped $2.7bn. Retail Money Funds were little changed.

Money market fund assets increased $2.6bn to $2.631 TN. Money Fund assets were up $41bn from a year ago.

Total Commercial Paper outstanding dropped $19.4bn this week to a 20-week low $1.002 TN. CP has declined $63bn y-t-d, while having expanded $71bn, or 7.6%, over the past year.

Currency and 'Currency War' Watch:

April 3 - Bloomberg: "China said a falling yen may cause Asian neighbors to weaken their currencies and intensify trade disputes, reiterating concerns as the Bank of Japan prepares to increase stimulus under new Governor Haruhiko Kuroda. 'A weakening yen may cause a beggar-thy-neighbor effect,' as economies compete in electronics, automobiles and industrial products, China's foreign-exchange regulator said... 'If other Asian economies follow Japan's suit, trade disputes and policy competition may intensify to hinder regional cooperation and economic integration.' China's criticism builds on comments last month by South Korea Finance Minister Hyun Oh Seok that the yen is 'flashing a red light' for his nation's exports... A yen that falls more than expected may also raise 'doubts about the sustainability of Japanese government debt to shake market confidence,' SAFE said. Yi Gang, head of SAFE, said in January that he's concerned about the potential fallout from expanded asset-purchases programs and near-zero interest rates in the world's advanced economies. 'Quantitative easing for developed economies is generating some uncertainties in financial markets in terms of capital flows,' Yi told reporters... 'Competitive devaluation is one aspect of it. If everyone is doing super QE, which currency will depreciate?'"

April 2 - Dow Jones (Todd Buell): "Policies in which countries attempt to benefit their domestic economy at the expense of other states could be 'dangerously alluring' in current times of uncertainty, European Central Bank Executive Board member Benoit Coeure said... Mr. Coeure said that though they are on a 'clear path to recovery' financial markets in advanced economies 'are still fragile and the real economy is at best giving timid signs of improvement.' The executive board member then noted concerns that central banks' non-standard policy prescriptions might not spur domestic demand in such an environment where banks are paying down debt, leaving 'the exchange rate as the residual macro-policy instrument, with forward guidance but especially quantitative easing mainly operating via external channels.' Mr. Coeure said that under such circumstances 'the temptation to divert global demand and foreign capital towards the domestic economy at the expense of other ailing countries could be dangerously alluring.' He added that economic literature shows the dangers of individual countries pursuing 'beggar thy neighbor' policies and that this message 'is well understood by central bankers.'"

The U.S. dollar index declined 0.6% to 82.50 (up 3.4% y-t-d). For the week on the upside, the Norwegian krone increased 2.1%, the Brazilian real 1.8%, the Swiss franc 1.6%, the South African rand 1.5%, the Danish krone 1.3%, the euro 1.3%, the Mexican peso 1.3%, the Swedish krona 1.2%, the British pound 0.9%, and the New Zealand dollar 0.7%. For the week on the downside, the Japanese yen declined 3.4%, the South Korean won 1.8%, the Taiwanese dollar 0.4%, and the Australian dollar 0.4%.

Commodities Watch:

April 2 - Bloomberg (Elizabeth Campbell): "Corn, silver and rubber tumbled into bear markets, joining slumps in commodities such as sugar and wheat, on signs that expanding supplies will outpace demand amid increasing concern that global growth will falter. The price of corn in Chicago plunged the most in 24 years yesterday, leaving futures down 23% from last year's closing high... The Standard & Poor's GSCI Agriculture Index of eight raw materials touched a nine-month low yesterday, falling 21% from its 2012 peak. Silver in New York and rubber in Tokyo were down more than 20% from closing highs."

The CRB index dropped 2.7% this week (down 2.3% y-t-d). The Goldman Sachs Commodities Index sank 4.1% (down 2.8%). Spot Gold fell 1.1% to $1,581 (down 5.6%). Silver sank 3.9% to $27.22 (down 9.9%). May Crude fell $4.53 to $92.70 (up 1%). May Gasoline dropped 7.9% (up 4%), while May Natural Gas rose 2.5% (up 23%). May Copper declined 1.7% (down 8%). May Wheat recovered 1.6% (down 10%), while May Corn was hit 9.5% (down 10%).

U.S. Bubble Economy Watch:

April 5 - Bloomberg (Alex Kowalski): "The U.S. job-creation engine sputtered in March as employers hired fewer workers than forecast and a shrinking labor force helped push the unemployment rate down to the lowest in four years. Payrolls grew by 88,000, the smallest gain in nine months and less than the most-pessimistic forecast in a Bloomberg survey, after a revised 268,000 February increase... The jobless rate fell to 7.6% from 7.7%."

March 31 - Bloomberg (Richard Rubin): "The U.S. economy, fueled by 'phony money' from the Federal Reserve's quantitative easing policies, is headed for an inevitable crash, likely 'within a few years,' warned David Stockman, who was budget director for President Ronald Reagan. In an essay published today in the New York Times, Stockman wrote that Fed policies in the aftermath of the financial crisis have flooded stock markets with cash even while the 'Main Street economy' remains weak. The combination, he wrote, has caused an 'unsustainable bubble.' 'When it bursts, there will be no new round of bailouts like the ones the banks got in 2008,' wrote Stockman... 'Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today's feeble remnants of economic growth."

April 4 - Bloomberg (Kasia Klimasinska): "Former Treasury Secretary Henry Paulson said the U.S. needs to slow the growth of entitlement programs and raise tax revenue by closing loopholes. 'We may need more revenues,' Paulson, who served under Republican President George W. Bush, said... 'This should be part of doing something with entitlements, because I think to just keep postponing entitlement reform is a big mistake.'"

Federal Reserve Watch:

April 5 - Reuters (Alister Bull): "Ultra-easy Federal Reserve policy risks financial instability and future inflation, Kansas City Federal Reserve Bank President Esther George warned on Thursday, as she explained her decision to dissent last month at her second Fed meeting in a row. George also defended her argument that monetary policy risked fanning an asset bubble in farmland prices and the high yield bond market, rejecting recent criticism from a fellow Fed policymaker that this was a matter for regulation... 'To be clear, I support an accommodative stance of monetary policy while the economy recovers and unemployment remains high... But I view the current policies as overly accommodative, causing distortions and posing risks to financial stability and long-term inflation expectations with the potential to compromise future growth,' she said..."

Global Bubble Watch:

April 5 - Bloomberg (Brendan Murray and Scott Lanman): "The world's monetary floodgates are swinging wide open. After watching Ben S. Bernanke take unprecedented steps for four years to rebound from the worst recession since the Great Depression, the Bank of Japan is signaling that the Federal Reserve's full-throttle approach to stimulus is the way to end 15 years of deflation. New BOJ Governor Haruhiko Kuroda's move this week to embark on record easing means the world's four biggest developed-market monetary authorities -- the BOJ, the Fed, the European Central Bank and the Bank of England -- are aligned in their commitments to spur growth and return their economies to full strength."

April 4 - Bloomberg (Toru Fujioka and Masahiro Hidaka): "Bank of Japan Governor Haruhiko Kuroda began his campaign to end 15 years of falling prices by doubling monthly bond purchases in a bid to reach 2 percent inflation in two years. The BOJ will purchase 7.5 trillion yen ($78.6bn) of bonds a month and double the monetary base in two years... The yen fell the most since October 2011 and stocks surged, signaling Kuroda is winning investors' confidence in a campaign to revive the world's third-biggest economy. The BOJ set a two- year horizon for the price goal under a 'new phase of monetary easing,' as the governor won the backing of a board mostly appointed by the previous government. 'It's fast and furious,' said Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo, and formerly of Goldman Sachs Group Inc. 'The specific mention of a two-year time horizon was a positive surprise.'"

April 4 - Bloomberg (Margaret Collins and Devin Banerjee): "Private-equity firms, the exclusive money managers overseeing $3 trillion worldwide for the wealthiest investors, are discovering a new type of client: ordinary people. Carlyle Group LP, Blackstone Group LP and KKR & Co., which usually open their doors only to clients willing to commit at least $5 million, are lowering that threshold or offering investments directly to individuals, an effort to attract fresh cash amid lackluster fundraising. Their ultimate goal: a slice of the $3.57 trillion Americans have accumulated in their 401(k) retirement plans..."

April 3 - Bloomberg (John Detrixhe): "For the first time, central banks are using their reserves to buy about the same amount of currencies from Canada to Australia as they are U.S. dollars in a sign that the pace of diversification is accelerating. Allocations to so-called non-reserve assets rose by $30.1 billion in the last three months of 2012, the most in a year, while those going to the dollar increased by $31.5 billion, according to International Monetary Fund data... The changing makeup of reserve assets reflects the growing clout of second-tier nations as the major developed economies see a shrinking share of worldwide gross domestic product. The U.S., euro region, U.K. and Japan accounted for 52% of global GDP product in 2011, down from 69% a decade earlier, according to World Bank data."

April 2 - Bloomberg (Daniel Kruger and Wes Goodman): "International investors bought more Treasuries last quarter than any other start to a year since 2009, with holdings approaching $3 trillion, as a new crisis in Europe weighs on the euro and Japan debases the yen. The Federal Reserve's holdings of U.S. government debt on behalf of foreign central banks rose $63.5 billion, or 2.4%, to $2.95 trillion as of March 27... China, the largest foreign lender to the U.S., has been buying Treasuries at the fastest pace since 2011."

April 2 - Bloomberg (John Glover): "Convertible bond sales reached a record in Europe in the first quarter as a stock market rally pushed equity prices toward all-time highs, encouraging companies to issue debt that can be handed over for shares. Companies... raised $10.1 billion... It's the biggest first- quarter tally since the first three months of 1999 when Bloomberg began compiling records."

April 4 - Bloomberg (Charles Stein): "Bill Gross, manager of the world's largest mutual fund, said the most renowned investors from Warren Buffett to George Soros may owe their reputations to a favorable era for money management as expanding credit fueled gains in asset prices across markets. The real test of greatness for investors is not how they navigated market cycles during that time, but whether they can adapt to historical changes occurring over half a century or longer, Gross, 67, wrote in an investment outlook... entitled 'A Man in the Mirror,' named after a song by Michael Jackson. 'All of us, even the old guys like Buffett, Soros, Fuss, yeah - me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience... Perhaps it was the epoch that made the man as opposed to the man that made the epoch.'"

Global Credit Watch:

April 5 - Reuters: "Standard & Poor's warned Britain on Friday that worse-than-expected economic growth or slow progress in fixing its budget deficit could cost the country its top-notch credit rating... 'The outlook remains negative, reflecting our view of at least a one-in-three chance that we could lower the ratings if the UK's economic and fiscal performances were to weaken beyond our current expectations,' S&P said..."

April 2 - Bloomberg (Jody Shenn): "Real-estate investment trusts that invest in mortgage debt sold the most stock in two years last quarter, bolstering demand for government-backed home-loan bonds as other investors prepare for the Federal Reserve's retreat. Equity offerings by mortgage REITs jumped to $7.4 billion from $1.7 billion in the three months ended Dec. 31... After JPMorgan Chase & Co. more than doubled its forecast for how much of the debt the companies will buy, Seer Capital Management LP last week joined Cerberus Capital Management LP in saying it's seeking an initial public offering for a new REIT. The firms are enticing investors with dividend yields averaging about 12% and drawing attention from Fed officials seeing signs of excessive risk-taking."

April 1 - Bloomberg (Selcuk Gokoluk): "Turkish lira bonds underperformed all other major emerging markets last month amid skepticism that the central bank's measures to contain loan growth will work. Two-year note yields jumped 66 bps in March... Investors who bought lira bonds incurred the first monthly losses since January 2011, according to a Bank of America Merrill Lynch index."

April 5 - Bloomberg (Liam Vaughan): "Banks are lobbying against international plans to tighten rules on securitization claiming they will tie up capital and starve the economy of credit. Credit Suisse Group AG, BNP Paribas SA and Deutsche Bank AG are among lenders that have written to the Basel Committee on Banking Supervision in Switzerland to voice concern about reforms to be implemented from 2014. In a securitization, banks re-package assets, usually loans, and sell them in slices to outside investors. Regulators are overhauling the rules after the widespread use of the technique in the U.S. mortgage market contributed to the financial crisis by spreading risk from lenders to the so- called shadow banking sector."

Central Bank Watch:

April 5 - Bloomberg (Ben Moshinsky): "The Bank of England said rising equity markets don't reflect the underlying economic situation and warned that investors may be underestimating risks in the financial system. Gains by equities since mid-2012 'in part reflected exceptionally accommodative monetary policies by many central banks,' the BOE's Financial Policy Committee said... 'It was also consistent with a perception among some contacts that the most significant downside risks had attenuated. But market sentiment may be taking too rosy a view of the underlying stresses.'"

April 5 - Bloomberg (Matthew Brockett and Stefan Riecher): "For Mario Draghi, whatever it takes may mean more of the same. The European Central Bank president said yesterday policy makers 'stand ready to act' to bolster the flagging economy. While they discussed lower interest rates and more long-term bank loans, they failed to reach consensus, according to three officials familiar with the talks. The Governing Council didn't consider a plan to boost lending to companies because it isn't ready, the officials said on condition of anonymity."

April 5 - Bloomberg (Jeff Black and Craig Stirling): "European Central Bank policy makers skirted a debate on how to boost lending to small and medium-sized companies at their meeting yesterday because officials haven't yet drawn up a proposal, said three people with knowledge of the deliberations. Five months after ECB President Mario Draghi said he wasn't satisfied with funding conditions for small companies in some countries, officials are only now beginning to examine their option..."

China Bubble Watch:

April 3 - Dow Jones: "China's banking regulator has said it will strengthen its supervision of new financial products, especially those with high leverage and complex structures, in order to rein in risks from lenders. Shang Fulin, chairman of the China Banking Regulatory Commission, said... that China should learn lessons from the global financial crisis and guard against innovative financial products with complex structures, high leverage and lack of transparency... Mr. Shang also warned on potential risks from the country's shadow banking system, which could hide or raise exposure to risky products... The CBRC had over the last few months ordered banks to intensify checks on the underlying assets of their wealth management products to ward off potential risks."

April 1 - Bloomberg (Liam Vaughan): "China's March new home prices posted the biggest gain in more than two years as buyers rushed into the market ahead of property curbs by local governments, driving real estate stocks higher. Prices climbed for the 10th month, rising 1.1% to 9,998 yuan ($1,610) per square meter (10.76 square feet) from February, SouFun Holdings Ltd., the country's biggest real estate website owner, said... 'The earlier property policy uncertainty drove quite a lot of buyers into the market, while supply, usually low in the first quarter, couldn't catch up with the demand,' said Zhao Zhenyi, a Shanghai-based property analyst at Industrial Securities Co."

April 1 - Bloomberg: "China's manufacturing expanded at a faster pace last month, indicating a recovery in the world's second-largest economy is sustaining momentum. The Purchasing Managers' Index was 50.9... an 11-month high and up from 50.1 in February."

April 5 - Bloomberg: "China's death toll from a new strain of bird flu rose to six people as Shanghai began slaughtering birds at a local market and concerns of an outbreak sparked the biggest drop in Hong Kong stocks in more than eight months... Of the 16 confirmed human infections of the H7N9 strain of avian influenza, six are in Shanghai...."

April 1 - Financial Times (Jamil Anderlini): "Extreme air pollution is driving expatriates out of Beijing and making it much harder for companies to recruit international talent, according to anecdotal accounts from diplomats, senior executives and businesses that cater to the expat community. No official figures are available on how many people are planning to leave following three months of the worst air pollution on record... But companies that mainly serve foreign residents are bracing for an exodus around the middle of the year when the school term ends."

April 2 - Bloomberg (Kelvin Wong): "Over the past decade, car-repair shop owner Benny Chan has seen more than 70% of his small-business peers disappear as his Hong Kong neighborhood fills up with high-end Western bars and Japanese restaurants. 'Rents here are going up multiple times,' said Chan, who's been in business since 1985 in the Tai Hang area, just east of the ritzy Causeway Bay shopping district."

Japan Watch:

April 4 - Bloomberg (Anna Mukai and Masatsugu Horie): "Ferrari registrations in Japan surged to the highest in 12 years amid growing optimism Prime Minister Shinzo Abe's push to weaken the yen will help boost the world's third-biggest economy. Registrations of the ultra-luxury brand... jumped 46% versus a year earlier to 558 units in the year ended March 31..."

India Watch:

April 3 - Bloomberg (Unni Krishnan): "India needs a plan to tackle a record current-account deficit and the government will take steps to boost investment flows from abroad, Prime Minister Manmohan Singh said today. The shortfall in the broad gauge of trade flows probably widened to 5% of gross domestic product in the year ended March 31... The latest data from the central bank last month showed the gap was $32.6 billion in the quarter to Dec. 31, or 6.7% of GDP. 'Fiscal expansion has led to an expansion in the current-account deficit,' Singh said. 'This is more than twice the traditional comfort level of, say, 2.5%.'"

April 3 - Bloomberg (Jeanette Rodrigues): "Carry trades in India's rupee, the world's second-highest yielding currency since 2010, are losing their appeal after the cost to hedge against foreign-exchange swings surged to a two-year high. The price of contracts that fix the conversion rate for buying dollars with rupees in a year's time jumped 100 bps this year to an annualized 6.81% over the spot rate yesterday, the most since May 2011..."

Asia Bubble Watch:

April 3 - Bloomberg (Shamim Adam and Sharon Chen): "Koda Ltd. Executive Director Ernie Koh has a message for clients in 50 countries who complain about the Singapore-based furniture maker's first price increase in two years: Take it or leave it. Koda's factories in China, Malaysia and Vietnam are battling rising costs as governments in Asia increase minimum wages to curb discontent over a widening wealth gap. While weak global growth and increased competition limited the ability of producers to raise prices during the past five years, Koh says they can't go on absorbing the additional expenses."

Latin America Watch:

April 1 - Bloomberg (Boris Korby and Julia Leite): "Petroleo Brasileiro SA, which sold a combined $13 billion of bonds in the first quarters of 2011 and 2012, is holding off on issuing new debt as borrowing costs rise to the highest in two years versus investment-grade peers. Declining earnings at the state-controlled company spurred by government-imposed limits on fuel-price increases and waning offshore oil output have helped push yields on its $5.25 billion of bonds due 2021 up 0.55 percentage point this year to 4.16%."

Global Economy Watch:

April 2 - Bloomberg (Scott Rose and Olga Tanas): "Russia's economy grew at the weakest pace in the fourth quarter since a recession in 2009 as Europe's debt crisis prompted companies to cut investment and the government curbed a year-end spending splurge. Gross domestic product rose 2.1% from a year earlier... Consumer demand is waning just as a recession in the European Union, which accounts for about half of Russian trade, chokes corporate investment and curbs demand for commodities, hurting sales at companies from OAO Novolipetsk Steel to carmaker OAO AvtoVAZ."

Europe Watch:

April 3 - Bloomberg (Dorothee Tschampa): "German new car sales fell 17% last month as renewed questions over authorities' handling of the sovereign-debt crisis in Europe discouraged consumers from making large purchases... German unemployment rose and business confidence fell in March as renewed tensions in financial markets prompted by a botched bank bailout in Cyprus increased concerns the euro region's economic recovery will falter."

April 4 - Bloomberg (Svenja O'Donnell): "Euro-area services output contracted more than initially estimated in March as the economy struggled to pull out of the recession."

April 5 - Bloomberg (Patrick Henry): "Euro-area retail sales fell in February as a drop in France offset gains in Germany and Spain. Sales in the 17-nation currency bloc decreased 0.3% from January, when they rose a revised 0.9%... From a year earlier, February sales fell 1.4%... Retail sales in France, the second-biggest euro-area economy, dropped 2.2% in February from the prior month after a 0.2% gain in January..."

April 5 - Bloomberg (Joao Lima and Anabela Reis): "Portuguese Prime Minister Pedro Passos Coelho faces a Constitutional Court ruling on the legality of some elements in this year's budget that may challenge the government's ability to meet deficit targets. President Anibal Cavaco Silva and various political groups asked the court in January to review some points of the budget, including taxes on pensions. On Oct. 3, Finance Minister Vitor Gaspar announced an 'enormous' increase in taxes on wages and other income for 2013. He also plans to cut spending by about 4 billion euros ($5.2bn) in the three years through 2015."

Italy Watch:

April 2 - Bloomberg (Elisa Martinuzzi and Sonia Sirletti): "Banca Monte dei Paschi di Siena SpA, Italy's third-biggest bank, fell as much as 13% in Milan trading after posting a bigger-than-estimated quarterly loss on soaring bad-loan provisions. Monte Paschi declined 6.7%..., bringing the decline this year to 24%. The fourth-quarter net loss was 1.59 billion euros ($2bn)... The loss was more than double the 686.3 million-euro loss estimated by analysts..."

Spain Watch:

April 2 - Bloomberg (Angeline Benoit and Jones Hayden): "Spain is in negotiations with the European Commission to raise its budget deficit goal for 2013 to about 6% of gross domestic product from 4.5% as it prepares to update mid-term budget plans amid a recession. The Spanish government is aiming at a figure of about 6% of GDP..."

April 4 - Bloomberg (Angeline Benoit): "Spain's pension reserve-fund ramped up its holdings of domestic debt last year, profiting from a rally across southern Europe and making it easier for Prime Minister Mariano Rajoy to raid the fund to finance his budget... The fund purchased about 20 billion euros ($26bn) of Spanish debt last year, while it sold 4.6 billion euros of French, Dutch and German bonds. More than 70% of the purchases took place in the second half of the year, after European Central Bank President Mario Draghi pledged to do 'whatever it takes' to defend the euro, boosting Spanish bonds."

Germany Watch:

April 4 - Bloomberg (Zeke Faux): "Germany's Bundesbank is looking into allegations by former Deutsche Bank AG employees that the lender hid losses during the financial crisis... The central bank's investigation isn't at an advanced stage as officials examine the validity of the claims, said the person, who requested anonymity... German investigators are planning to fly to New York next week to conduct interviews with people including former bankers, the Financial Times reported..."


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