The political kaze in Japan is blowing through all the financial houses and if the Japanese cease their fake depression, this will be a dynamic change that will blow down more than one house of cards. China raises the reserve rate for banks yet again. And there is a typical scandal on Wall Street. Seems the analysts who advise investors are in cahoots with the big boys and accept bribes and make sweetheart deals. This is a perennial problem that never gets fixed which is why investors shouldn't be so trusting. The deteriorating quality of American financing coupled with the possibility of a total change of course in Japan means the world's financial future is now in doubt and the great change over is now commencing.
Japan Firms Seize On Court Ruling To Further Cross-Shareholdings
TOKYO (Nikkei)--A number of Japanese companies have started to strengthen cross-shareholding arrangements with other firms after the Tokyo High Court acknowledged U.S. investment fund Steel Partners as "an abusive acquirer" in a case involving Bull-Dog Sauce Co. (2804), seeing the ruling as giving them the green light to pursue such activities.
Nippon Steel, JFE Report Strong April-June Earnings
TOKYO (Dow Jones)--Japan's top two steel makers, Nippon Steel Corp. (5401) and JFE Holdings Inc. (5411), Monday reported strong earnings for the April-June quarter, as robust demand for high-grade steel for automobiles and ships offset higher costs from rising coal and iron ore prices.
Stocks: Rebound, Offsetting Early Losses On Election, Wall St
TOKYO (Kyodo)--Tokyo stocks ended Monday slightly higher as late bargain-hunting helped to erase sharp declines earlier in the day on the massive defeat of Prime Minister Shinzo Abe's ruling coalition in Sunday's upper house election and continued plunges in U.S. shares.
LDP Defeat Mustn't Derail Economic Recovery: Nippon Keidaren
TOKYO (Kyodo)--Japan's most influential business lobby on Monday renewed support for Prime Minister Shinzo Abe, despite a devastating defeat of the governing Liberal Democratic Party in Sunday's upper house election, saying the country's ongoing economic recovery should not be derailed by political uncertainties.
Fortress Japan has fended off foreign funds and all the Japanese industrialists and businesses are now reorganizing themselves into an impossible to assault configuration. This development which I have watched for several months has gotten little or no attention in the mainstream media which doesn't surprise me at all. The phobia driving Japanese finances is remarkable. No other nation is so closed except for North Korea. The curious situation where the #2 economy of the world is so at odds with the rest of the world's financial systems and trade accords still astonishes me. When the US allowed Japan to rebuild after WWII, we launched the Korean war to 'stop communism' and China went communist so we wanted Japan strengthened so we could stop communism. And in Japan, there was a lot of communist activity.
So the US, instead of exploiting Japanese labor and building American-owned factories there, did a most astonishing thing: they allowed the Japanese to build, own and run major industries that were in direct competition with the US industries. Purchases for the war in Korea and then later, in Vietnam, were made in Japan, boosting their industries greatly. During this time frame, from 1948-1970, Japan exported to the US small items, little things like clothing and umbrellas and cheap toys. I bought some of these things and one of the things they exported were silk stockings, for example.
Then they began to move aggressively into the clothing industries and worked harder and harder to dominate various industries. Like cameras. At first, Kodak didn't complain. But as the camera tsunami grew, the battle to sell in Japan was lost almost instantly. With one way trade the norm and with cheap yens at 400 to the dollar, the Japanese rapidly figured out this funky financial scheme whereby they could keep the yen weak as if it were 1950 while selling in American markets and they would be rich!
By 1972, the US was in deep financial trouble and our government demanded all currencies be realigned to reflect real relative values. For example, the German mark doubled in value against the dollar and ditto, the yen. This collapse of the value of our currency was hailed as a magic nostrum for our trade woes which our anti-communism crusade created. The imputus for change also came from a sudden hike in world energy prices which are still nearly universally denominated in dollars. The only tool we have to fixing this is to devalue the dollar and thus, literally cheat oil exporting nations out of their new-found wealth.
During all this time since 1972, Japan's trade doors have been locked shut and nailed to the doorframe. Every attempt at prying it open fails as they construct a new door right behind the one pried open. So every decade, the US has a meeting of all the top industrial nations, the G8, for example, and demands they devalue the dollar and let us out of our own noose. They all always agree, cheerfully. There is a brief respite in the accumulating trade imbalance but this seldom lasts more than three years. Every time it happens, Japan goes into a severe recession. And they climb out every time using the same tools over and over and over again.
This time around, when things got better, they decided to stop this nonsense and to set in cement a status quo that would make Japan's industrialists stronger and stronger while preventing the US from using the devaluation tool against them! This was to enforce a depression on the working class. No longer fearful of communism riling the workers, they cut wages and hours ruthlessly. This dynamic is so out of control now, the utter collapse of the lives of workers there is severe and growing worse and worse. As oil prices rise, wages fall. And now the workers have just begun to fight back.
This disturbs all the ruling elites. First, spreading labor unrest frightens them to death. Secondly, like all systems, they got accustomed to this present dynamic and have figured out how to enrich themselves off it and the last thing they want is to change it. But to keep labor unrest down in the US, they had to go through the motions of the decal 'let's drop the value of the dollar to fix our trade deficit' game. Only this time around, the yen was the currency to get weaker and weaker which made the US trade deficit get worse and worse! We may have to thank the Japanese workers for finally daring to end this destructive system. If they can succeed, of course. There are many powers ranged against them.
China's government curbed bank lending for a sixth time this year to cool the economy after the fastest expansion since 1994.
Lenders must put aside 12 percent of deposits as reserves, starting Aug. 15, up from 11.5 percent, the People's Bank of China said today on its Web site.
The restriction, coupled with three interest-rate increases since March, is aimed at stopping a $112.5 billion first-half trade surplus from fueling inflation and asset bubbles. Consumer prices rose 4.4 percent in June, the fastest pace in 33 months, and the key stock index more than doubled this year to a record.
The US dearly loves to pretend we are responsible for all the permutations and changes in Chinese currency and banking events. We are like a magician going out in the rain and waving a wand, yelling, 'I will now begin to rain!' The Chinese have goals and systems they are introducing one after the other. They are slowly setting up their own system that is based on several other systems, a combination of the Japanese system, the US system before 1970 and of course, the German system. This hybrid is difficult for us to understand because we want everyone to simply do whatever it is we want at any given time. 80% of what China exports to the US is stuff for American and Japanese corporations. China is the cess-pool of our pollution and it is the workhouse of our labor, it wrings out energy inflation.
But it doesn't end there. China knows, easy in, hard out. It is their ultimate game plan. They listened to some interesting people in America explain this process (HAHAHA---yup!) that the US, the world's biggest and most heavily armed empire is so accustomed to moving about the planet, putting things in and hauling things out of countries, they forget that not all countries are helpless. Nuclear armed nations with a strong central government can play possum and pretend to be weak and lure factories and industries inside and then take over. And so this became their plan. To their great joy, the US fell for it despite strong warnings issued via mail or via my dad who, incidentally, thought I was wrong back then.
Well, I am right! And China, as it soaks up the new technologies and as it trains its people in the new methods and as it strengthens the sense of being Chinese and native patriotism, it is preparing the world for a big surprise: if you want to sell inside of China, you have to make the Chinese part of your board of directors, company presidents, and holders of stocks! They want to get their hands on a beast we call 'profits'. And this is sensible, for them.
And it is foolish for us to ignore this. They will sell to us in the future and take a good bite of the profits!
So, why are the Big Boys still reporting record profits? It’s actually easy, with a combination of the following: 1) Taking on unprecedented risk by exploding up the size of the balance sheet; 2) Adding massive amounts of leverage, including hidden leverage through derivatives; 3) Robbing loan loss reserves; and 4) Playing accounting games that allow earnings to be booked today at the expense of losses tomorrow.
Included in the unprecedented risk category is when these same financial firms switch to the foreign carry trade. Big carry trade profits can be achieved by borrowing in a low interest rate foreign currency (such as the Yen). As long as the Yen declines in value, a fortune can be made borrowing below one percent interest, and investing in U.S. financial assets yielding much more. However, this trade is placed and highly leveraged and if the Yen ever goes up against the dollar, the carry trade losses will make the subprime fiasco appear like a minor footnote in history.
There is real fear out there in la-la land. The ability to take the carry trade home and get rich easy is ending. It was doomed in the end since this is, from day one, unsustainable. I cannot see any sane way for the Bank of Japan to raise rates to the level where it makes sense with the rest of the world. So they will do what they have done repeatedly over the last 50 years: violently lurch upwards. Looking at 50 years of Japanese financial statistics, one is impressed at how they do this repeatedly. Lurch, hang on until it is is impossible and then lurch again. I would think the other G8 nations would hold emergency meetings with them over this very issue! The Chinese love gradualism and so do note how they move in a direction steadily!
Someone else has become very prone to lurches: the US. When the world's #1 and #2 economies are run by bankers who have to hold steady until it becomes impossible and then lurch violently into a new status quo, well, we might actually be grateful when the Chinese surplant both the US and Japan in world currency markets! We might get some steadiness!
From Prudent Bear:
For financial institutions, CDSs are a way of making a credit bet (just like making a loan) without the inconvenience of putting any real money up or having to place the loan on the balance sheet, that would require equity. Indeed, there are now about 10 CDSs written for each and every corporate bond that actually exists! That means that 90 percent of the business is pure speculation because it is not hedged by someone who owns a bond or loan. Most of the CDS business is simply a way for the Big Boys to place big bets with no money down. Remember, if you own the stocks of big financial institutions, they are gambling with your money.
This 10X rule works great when going up and works horrible going down. And this is part of the lurch-lurch-lurching of our financial system. The Federal Reseve loves to pretend they tweak interest rates to keep us on an even course but this is a total lie. They change rates to get political power. And it has little to do with anything else. If they want to punish a President, they raise rates. If they want to keep some President in power, they lower rates. But there is a countervailing force: inflation. So even if they want to prop up a President, if inflation caused by them increases, they have to raise rates or the financial system collapses.
Note how the last year, there are rising demands the Fed drop interest rates again. But inflation is raging. I went to Home Depot and noted in horror, 1/2" 4x8 CD plywood was running at $15.75 a sheet! OUCH. I remember just 7 years ago, it was only $4 -5 a sheet! This is inflation. Due to the dropping value of the dollar versus the Canadian loonie.
Conflicts of interest may still be rampant on Wall Street, with a new study showing that nearly two-thirds of investment-firm analysts received favors from executives of companies they cover and suggesting that the companies get favorable ratings in return.
The academic study published Friday outlines a culture of blatant back-scratching on Wall Street as company executives bestow professional and personal favors on analysts — putting them in touch with top executives of other companies, recommending them for a job — and their companies receive positive ratings and evade stock downgrades. At the same time, executives punish analysts for negative reports by refusing to answer their phone calls or questions.
No one gives me any bribes. I am worthless. Heh. But the truth is, the system is corrupted up, down and all around town in a thousand ways. Money is used to bribe politicians via 'campaign donations', lobbyists abound in DC, many times more than the number of politicians waiting to be bribed and Wall Street has enough liquidity to pour into the pockets of anyone they wish to buy. And once they get their paws on all the controls in the system and one of them runs the Treasury, they always do the same damn thing: they get greedy and arrogant and run the system right off the cliff as they seek to loot it and everyone involved.
Reports from the twelve Federal Reserve Banks indicated that economic activity continued to expand in June and early July. New York, Richmond, St. Louis, Minneapolis, and San Francisco described the pace of growth as "moderate" while Cleveland and Chicago saw it as "modest." Philadelphia noted that economic conditions improved. Kansas City said the regional economy continued to grow but at a moderating pace, and Dallas characterized its economy as strong but said it decelerated. Boston and Atlanta described business contacts' reports as "varied" or "mixed."
And at the apex of all this, the unelected, controlled by the very rich, our own Federal Reserve that has few FOREX reserves issues yet another half-baked report that leaves out all mention of federal deficits and all mention of the trade deficit and their reports are nearly uniformly happy reading. But issuing Scrooge McDuck comics may appeal to the infantile sector of the US financial audience but it is foolish for anyone to take any of these reports seriously. What is growing in our economy is inflation. And this is killing us slowly, always starting at the bottom and like gangrene, moving from the outer limbs to the main body.