Author: Vincent Fernando, CFA

  • Traders Dive Into The Dollar Bunker

    Bunker

    The Dollar Index (DXY) is in the green at 86.45, near a 52-week high, as the dollar seems to be gaining from the market riot.

    The ten-year treasury has rallied and yields just 3.2%. Interestingly, the spread between inflation protected bonds (TIPS) and plain-vanilla ones is now just 1.93%, which shows timid inflation expectations. Gold is falling, down to $1,183.

    The market continues to expose its bluff against the USD. At least with the USD you know who ultimately is backing it, unlike the euro.

    Most importantly, it’s going to be hard for your boss to blame you for being in this ‘safe haven’. If you get killed in here, everyone will be.

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  • FLASH CRASH IN OIL

    It broke through $65, now is trying to make back some of the lost ground, but check out the dive:

    Chart

    (Chart via Finviz)

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  • Wild Facts That Scream Canadian Real Estate Bubble

    house cliff

    Which ends first, the Canadian housing bubble, the Australian one, or the Chinese one? Here are some key stress-points in the Chinese housing economy:

    The Street:

    • Canada’s real estate prices have increased on average 40% [questionable, see below] in the last year while incomes have dropped.
    • Canadian residential real estate is now worth more today than it was pre-Lehman. There are now more dwellings built in Canada (assuming, as the Canadian government does, that an average of 2.3 people live in each dwelling) than the population of Canada.
    • Canadian consumers have racked up enormous debts while interest rates have been low over the past 20 months.
    • Personal bankruptcies are at record levels now in Canada when interest rates are still at historical lows. # In Vancouver, people now spend 68% of their disposable income on housing. In Toronto, people spend 44% of their disposable income on housing. (Keep in mind that the China bears were complaining that it was unsustainable that some Chinese in Beijing and Shanghai were spending more than 30% of their disposable income on housing.)

    The first and fourth points seem the most ominous, in our view.

    UPDATE: Not sure how The Street calculated their average price change. Here’s the latest change in average price via CREA:

    Chart

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  • Japanese GDP Growth Tearing Past The U.S.

    We like to imagine Japan as a stagnant, long-term dying economy, but for the time being at least have to point out that the nation is currently growing faster than the U.S..

    1Q GDP growth missed analyst expectations, coming in at +4.9% on an annualized basis vs. 5.5% expected, but it was higher than America’s 1Q GDP growth of 3.2%.

    One reason for Japan’s faster current rebound is that the Japanese economy fell much harder than that of the U.S., at one point dropping at a 13.7% annualized rate as shown below.

    Chart

    The other reason is that Japan has become a play on Asian economic development, rather than a play on its own economy.

    New York Times:

    Private consumption, which makes up about 60 percent of the economy, grew 0.3 percent in the quarter, while exports rose 6.9 percent. Economic recovery in Japan has been bolstered by a rebound in Tokyo’s mainstay exports of cars and electronics, which posted the fourth year-on-year rise in March. The rebound finally appears to be filtering through to domestic production and wages.

    While this was the first quarter since 2004 that all domestic demand components of the GDP data grew, growth was still anemic. Japan’s economy is still dying at home, it’s just that international demand is providing life support.

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  • Volcker: What You’re Seeing In Europe Is The Future Of America

    paul volcker barack obama

    Europe’s current problems should be a huge wake-up call for America, says former federal reserve chairman Paul Volcker.

    Reuters:

    “If we need any further illustration of the potential threats to our own economy from uncontrolled borrowing, we have only to look to the struggle to maintain the common European currency, to rebalance the European economy, and to sustain political cohesion of Europe,” Volcker said.

    “There are serious questions, most immediately about the sustainability of our commitment to growing entitlement programs,” said Volcker, who heads an outside panel of experts advising Obama on the economy.

    Europe shows government hand-out spending has its limits, even if it can look sustainable for a long time. The same goes for budget deficits and growing government debt. America’s not quite there yet, but Europe is a nice peek at one potential future best avoided.

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  • U.K. Inflation Targets Helpless After Soaring April Inflation

    britishteenagers

    U.K. inflation just blew past expectations, and is well above the inflation target of 2%.

    The government once again tried to say that this was a temporary situation, but not all are sold.

    Telegraph’s Jeremy Warner:

    Excuses, excuses. The fact of the matter is that as Simon Ward, chief economist at Henderson Global Investors, points out in his always excellent blog, at 5.3 per cent, RPI inflation is now higher than at any stage since the Lawson boom. Savers are in effect being milked to subsidise the profligate and allow them to escape their debts. If this is called rebalancing the economy way from debt fueled consumption towards saving and investment, then I’m a banana.

    Rewind to the Bank of England’s Inflation Report of May last year and you will see that the central forecast for CPI inflation by now was less than 1 per cent. The 2.7 per cent discrepancy cannot be wholly explained by energy prices and VAT. Nor does the weakness of sterling provide an adequate explanation. Sterling is in fact slightly stronger against the euro than it was a year ago.

    Basically, don’t write-off a U.K. inflation problem in the works as we speak. The latest April data showed an acceleration vs. March after all.

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  • Roubini: Japan Could Easily Be Next

    Nouriel Roubini

    While Europe receives an inordinate amount of attention for its current financial problems, and the U.S. has long been a pariah, we feel that recently markets and investors may have forgotten about Japan.

    Sydney Morning Herald:

    “What’s happening in Greece is just the tip of an iceberg of a broader range of sovereign debt issues, of deficit, in many advanced economies,” said Roubini, one of the few experts who predicted the financial crisis.

    The new crisis could occur “not just in the eurozone but UK, US, or Japan,” he said.

    Roubini, speaking at a London School of Economics conference, said there was an “economic recovery, but in many ways countries have not answered the real problem.

    Is Japan better off than the Eurozone? Financially? Demographically? We doubt it.

    More: How Japanese hyperinflation could unfold >

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    See Also:

  • All Hell Breaking Loose In Thailand, Stock Exchange On Fire

    ThaiDeveloping… my twitter has a play by play of today’s events so far @vincefernando

    All hell is breaking loose in Thailand now. The army moved to clear protesters out of their main Ratchprasong encampment this morning, moving slowly inwards towards the main protest stage while encountering sporadic resistance in the outer area of the protest site. There were some limited casualties, including foreign journalists, though we’ll wait for official confirmation of the exact counts.

    Thai

    Yet even after the key Thai protest leaders surrendered themselves to police and told their followers that the protest was over, riots spontaneously broke out across Bangkok and in upcountry provinces.

    There are now multiple locations in Bangkok where protesters are angry and burning tires, burning buildings, and clashing with security forces. Even upcountry, Thai television has shown mobs of protesters storming some town halls and lighting them on fire. Symbols of the Thai establishment appear to have been targeted. For example, protesters immediately tried to burn down the luxury Central World shopping mall next to their main protest stage. One Thai TV station, Channel 3, is also reportedly besieged by people.

    One odd occurrence in our view has involved the Thai stock exchange. It actually ended in the green today, despite Asia being generally down. Apparently investors under-estimated the implications of the army crackdown today. It’s not as easy as forcing a few people into submission. Well it’s been now made pretty clear, especially because the stock market building itself is now on fire:

    Thai

    UPDATE: Things continue to get dicey, it appears that protest/riot points are appearing in new areas of the city. Via twitter I have received reports of banks being set ablaze (banks who have been seen as sympathetic ot the establishment perhaps), and a large electricity building burnt down. A huge luxury shopping mall called Central World is also reported to have a massive fire and could burn down. Moreover the mobile phone network is going down in some places probably as cell towers burn.

    Here it is, Central World pic via reporter Micheal Yon’s twitter:

    Central World On Fire

    See our take on the situation from just a few days ago >

    Here’s a video of an upcountry riot, as an example.

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  • Credit Default Risk Soaring In Europe

    angela merkel

    Credit default spreads are soaring after Germany’s threat to ban naked short selling and restrict CDS transactions.

    Bloomberg:

    The Markit iTraxx Crossover index of swaps on 50 European companies jumped 37 basis points to 569, according to Markit Group Ltd. The index typically rises as investor confidence deteriorates.

    Merkel’s coalition stopped traders buying default protection on government bonds they don’t own, so-called naked swaps, as German lawmakers prepare to debate a bill authorizing a $1 trillion bailout to backstop the euro. The unexpected ban, done independently of the European Union, came after the rescue package failed to stop the 16-nation common currency from weakening to a four-year low and as banks became increasingly reluctant to lend to one another.

    Read more here >

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  • There’s One Big Patch Of Green In This Blood Bath (WMT)

    The market’s tanking, yet there’s one major stock that just isn’t budging so far. Walmart beat analyst estimates, with 1Q profit rising 10%. Despite the market’s dip, WMT shares have held up extremely well so far today despite other early gainers falling into the red.

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    WMT holding all day…

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    Despite the market just dropping.

    Chart

    (Charts via Yahoo and Finviz, if you can’t see them visit here)

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  • JP Morgan Still Shorting The Euro As It Crashes Through $1.23 Mid-Day

    euro burning

    Earlier this morning the Euro failed to retake $1.24, now it’s broken through $1.23.

    JP Morgan perhaps took some profits too soon, but they’re still shorting the euro:

    JP Morgan’s Sophia Drossos:

    We have decided to take partial profit on the core short EUR/USD position in our model portfolio, paring down the position to 15% from a 25% allocation and tightening our trailing stop-loss to 1.34. This trade was initiated originally on December 17, at an average entry level of 1.4085, and we are exiting at 1.2365, locking in a gain of 12.6%. Year-to-date, our model portfolio has generated an unlevered return of 4.81%, with the short EUR/USD position accounting for a large portion of this performance.

    While we retain a negative medium-term view on EUR/USD, we believe that short positioning and bearish sentiment have reached extreme levels, raising the potential for a bounce.

    That bounce they were worrying about? Looks dead as of this afternoon.

    Chart

    Chart

    (Via JP Morgan, Take partial profit on EUR/USD short, Sophia Drossos, 18 May 2010)

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  • The New American Consumer Is Terrified Of Debt Even As The Economy Grows

    Chart

    Carpe Diem highlights how credit card delinquencies are falling nicely, down four months in a row.

    “With fewer consumers late on their bills, the outlook for credit losses over the summer may be improving,” says Reuters.

    Moreover, credit card debt fell to a 45-month low, as shown by Carpe Diem’s graphic the right.

    Overall, as we’ve highlighted before, U.S. households reduced their total debt (inclusive of everything, mortgages, credit cards, etc) by $239 billion in 2009. Yes much of this is due to people defaulting on their obligations, but much needed financial adjustments are being made in the U.S., even if painfully.

    Moreover, given the latest credit card data shown above, we’re confident that the overall deleveraging trend of 2009 is continuing in 2010 even though the larger, total household debt number isn’t out yet from the Federal Reserve.

    Despite an economic recovery post-crisis, hard times are still driving Americans to reduce their financial leverage. The new American consumer will likely be more conservative than we’ve been used to over the last decade, even as the economy gets better. Which is a good thing in the long-term given how extreme things got.

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  • Welcome To OPEC’s Nightmare Scenario: The Euro At Parity With The U.S. Dollar

    opec tbi

    Here’s another major loser from the eurozone crisis.

    With oil prices in dollars, and Europe a significant source of oil demand, the plummeting euro is making oil more expensive for Eurozone nations.

    OPEC’s scared that this will reduce demand, thus pressuring global oil prices to fall in U.S. dollar terms, as Makis Theodoratos highlights:

    Hellenic Shipping News:

    OPEC members are monitoring closely the situation in Eurozone, and seem to be a little bit annoyed by the late reaction of European Union leaders to the Greek crisis. For the moment cartel members are not considering any urgent measures, such as a new cut on their daily production, and officially insist that better compliance on official exploring quotas can support oil prices to fair levers for consumers and exporters. But if euro’s appreciation against dollar continues, then OPEC will have to face a very serious problem.

    It’s another reason for OPEC to be jawboning oil prices right now.

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  • How Germany Could Force Other Countries Into Austerity With Its Debt Brake Law

    German Tank

    Germany might be able to handle the current Eurozone bailout, but it’s longer-term problem is how to prevent recurrences.

    That’s why Germany’s finance ministry is reportedly preparing new potential rules for the Eurozone, whereby nations would be requires to pass ‘debt brake’ laws similar to what Germany already has.

    A debt brake is simply a law that caps a country’s budget deficit to a certain percentage of GDP. For Germany, a debt brake was enacted during the financial crisis whereby the nation is limited to budget deficits of no more than 0.35% by 2016.

    The hope is that debt breaks could replace the timid budget restrictions existing currently under the Eurozone’s ‘Stability and Growth Pact’, which has of course proven completely ineffectual.

    Reuters:

    “Behind this is our belief that we cannot have a repeat of the Greece crisis. We think the Stability and Growth Pact (on fiscal standards) has been insufficient,” spokesman Michael Offer told a regular news conference.

    “Firstly, we want to prevent budget crises, we want better supervision of economic policy and thirdly the introduction of a group to fight euro zone crises,” said Offer, declining to give details on individual proposals.

    Chancellor Angela Merkel sang the praises of Germany’s debt rules in a speech on Sunday but stopped short of proposing that the euro zone should adopt a similar model.

    “I believe that a brake on debt is the right thing,” Merkel said, adding Europe’s high debts were an “alarm signal.”

    Obviously the hard part is getting other nations to enact debt brakes, and then follow them.

    Thus perhaps Germany could use debt brakes as a stipulation for the financial support it provides. In a sense, it could its bailout money to strengthen the Eurozone not just through raw financial support, but through tough regulatory reform at the same time. Kind of like a mini IMF within Europe, providing money, but with austerity strings attached. It’s a long shot, but perhaps there’s a way Germany can enforce austerity measures within other countries whose governments are too weak to do so. Even if they’re half successful, ie. only half of Eurozone countries accept German-style restrictions, it could be a major improvement from the current situation.

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  • China’s Back To Financing America’s Debt And It’s Already Been A Great Trade

    Geithner China

    For a few months it seemed as if China’s willingness to keep financing U.S. debt was waning.

    Markets worried that U.S. borrowing costs would spike if America’s number one creditor stopped playing ball. Remember talk about China potentially diversifying its reserves into the euro?

    Obviously the euro-as-reserve-currency meme has been dying over the last few weeks, but it’s time to stick a fork in it. There’s only one primary contender left, and China’s coming back to it:

    WSJ:

    China became a net buyer of Treasurys for the first time since last September, with its holdings increasing $17.7 billion to $895.2 billion, following net sales of $11.5 billion in February, according to the monthly Treasury International Capital report, known as TIC.

    A Treasury sell off by China at the end of last year caused concern at first that the largest creditor nation to the U.S. was shifting out of U.S. assets. But major upward revisions to the December data in late February showed that China hadn’t actually lost its position as top Treasury holder to Japan, as initially thought.

    Looks like they made a decent trade so far, on their new March money. March was right before Treasuries rallied, sending yields down from 4% to 3.44% now.

    Chart

    Why treasuries might still be a good deal even at 3.44% >

    10 Reasons Fixed Income Is The Place To Be >

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  • Why The Euro Still Isn’t Cheap And The Aussie Dollar Will Crash

    Perhaps the euro and british pound’s comeuppance vs. the dollar was well overdue. Calafia Beach Pundit (CBP) explains how the reversal and weakening of both currencies against the dollar actually fits the notion that currencies should hug their relative value based on ‘purchasing power parity’ (PPP) over the long-term. (PPP is based on ‘the idea that in absence of transaction costs, identical goods will have the same price in different markets.‘)

    We love to trash economic theory, but admit that much of it is valid over the long-term. (if not the short-term). PPP at its core makes sense after all.

    On this note, CBP shows how the euro is now merely approaching fair value vs. the dollar based on PPP, it has ways to go before being deeply undervalued based on this metric.

    Chart

    The British pound is in a similar boat, you can find CBP’s chart here.

    So the EUR/USD appears to have eventually fallen in line with PPP. This makes us wonder what’s coming next for the Australian dollar:

    Chart

    CBP highlights that the Canadian dollar and Brazilian real have similar looking charts to the AUD/USD chart above.

    CBP:

    But they do seem to be pushing their limits. When a currency is stretched relative to its PPP, the news has to continue to be awfully good (or awfully bad, as the case may be), in order to sustain those valuation extremes. So that means AUD and CAD are very vulnerable to any signs of a) weaker growth, b) tighter monetary policy in the developed world, or c) weaker commodity prices. Being long these currencies at these levels requires courageous conviction.

    This doesn’t mean their currency values are necessarily ‘bad deals’, but rather that they are similar to stocks with high price-to-earnings ratios — they require substantial and continued good news just to maintain their current valuation level.

    Thing is, given risk of a China slow-down hitting Australian commodities demand, risk of Australia’s new super profits tax stifling its mining industry, signs of economic duress among Australians themselves, and now CBP’s chart above, going long the Aussie dollar seems tenuous. A crashing AUD/USD seems like the path of least resistance going forward.

    Not sold? Check out Morgan Stanley’s recent short call vs. the AUD here >

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  • How New Rumored Chinese Tax Hikes Will Expose Cities’ Gross Over Reliance On Property

    Beijing

    This is the bind of Beijing, and other major Chinese cities affected by China’s property boom — they need to kill off any potential bubble, but at the same time their economy has grown massively dependent on property.

    For the Americans out there, this problem might sound familiar.

    Yet to grasp just how dependent cities are on economic activity from property, note how, so far this year, over 50% of fixed investment in Beijing has been property-related:

    China Daily:

    China’s capital [Beijing] reported 110.37 billion yuan ($16.18 billion) in fixed-assets investment in the first four months, a growth of 32.5 percent on the same period of last year.

    The total included in 55.59 billion yuan in real estate development, up 64.4 percent. Of the investment in the property sector, 25.93 billion yuan went to commercial housing projects, up 58.8 percent.

    Yet they can’t let things continue forever either. Even the city’s real estate association has admitted to a property bubble and it’s also become dead obvious to others that speculation is driving prices, rather than underlying demand for living spaces.

    For example, via Capital Vue, wealthy Chinese accounting for just 10% of the country’s population account for 50% of property transaction volume according to Wang Xiaoguang at the Chinese Academy of Governance. In some cities such as Shenzen, near Hong Kong, Wang Xiaoguang attributes 80-90% of activity to speculation.

    Now there are fresh rumors of a property tax hike:

    Capital Vue:

    The State Administration of Taxation (SAT) is rumored to be enlarging the scope of property taxes, with details expected to be released by May 20, reports 21st Century Business Herald, citing sources close to the SAT.

    If this happens and works too well, watch for economic activity in major Chinese cities to nose-dive. If it doesn’t work, prices will keep rising rapidly. No speculator-driven market sky-rockets and then simply stops.

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  • U.S. Futures Already Bleeding Post Shanghai Collapse

    The pain is in Asia. The TOPIX is down by 1.71%, Hong Kong’s Hang Seng by 2.14% and China’s CSI by a whopping 5.35%.

    Yet the Euro is hurting too, down against the dollar and currently at $1.23 after dropping by -0.45%. Gold is at $1,234.

    Mixed results in Europe with the London FTSE up by 0.16% but the German DAXand French CAC down by 0.01% and 0.79% respectively. U.S. futures in the red as are commodities ex-gold as per Finviz below. We expect particular weakness in non-gold commodities today based on China weakness.

    Chart

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  • Thailand At Risk Of Long-Term Guerrilla-Style Civil War, Just Look At The New Protest Fortress That Spontaneously Emerged

    Thai Soldiers Thailand

    The Thai protest-backing general, ‘Seh Daeng’, died today, from a sniper shot to the head he suffered while being interview by the New York Times. Street battles continue to rage, with a firefight last night at the Dusit Thani hotel remarkably described in quite detail via twitter by the war reporter Michael Yon.

    From what I read of his last night, Mr. Yon must be an amazing war correspondent when in Afghanistan.

    Chart

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    Monday and Tuesday have been declared holidays and the Thai government has warned protesters that any remaining within their main ‘Ratchprasong’ central bangkok base after 3pm today will be subject to 2 years in prison. NGOs and other organizations are also trying get women protesters and their children out of the protest area. Problem is, many don’t want to leave and have instead set up a refuge in a temple within the protesters’ zone.

    Unfortunately, he’ll probably have a lot more to report

    It’s been a horrific situation so far, but unfortunately I expect the crackdown to intensify within the next two days. In response, the retaliation from the red shirt protesters could easily intensify as well as increasing numbers of protesters are pushed into radical violent behavior after seeing their fellows shot and killed.

    There are only a few ways for the country to avoid a complete bloodbath. One involves the current government accepting the latest offer from the protesters for a ceasefire and UN involvement, which the government has unfortunately rejected. This probably seems like the simplest and most logical solution to most outside observers. In a perfect world it would be possible. The unfortunate thing is that the current established military and political forces in Thailand probably see themselves losing power under any internationally-observed political arrangement. Thus they’d rather keep this a ‘domestic issue’ and have incited sovereignty fears in order to deflect the Thai public from what would most likely be the most peaceful solution.

    Another solution of course is for the protest leaders to simply give up immediately and tell their supporters to stand-down. Problem is, the chance of them doing this is slim since they would likely be immediately imprisoned for what could be a very long time due to extremely serious charges already laid against them. Their lives would also be in grave danger, for they’d be exposed to assassination attempts once separated from their crowds of supporters. Backers of the redshirts, which include hidden sympathetic military leaders and most visibly the ex-prime minister Thaksin Shinawatra, might also want to continue the struggle since they’ll also all face punishment at the hands of a victorious government. Nobody trusts the legal system to be transparent anymore. New hard-line red shirts may also simply emerge and take over from those who quit.

    Thirdly, is for some sort of back-room deal to be struck between the established powers and opposition leaders including the Thaksin Shinawatra (who was ousted in a 2006 coup, and who while not an official leader of the movement, still has substantial influence over the protesters and is at the very least a major backer), whereby both sides accommodate some of the others demands and promise not to come after each others throats in future years. I believe this is the most likely potential peaceful exit from the crisis, but still think it is highly unlikely.

    The most likely path is for little dialogue, the barring of foreign oversight, and an extremely hard crackdown on the protesters which most middle and upper class Bangkok residents will welcome as necessary.

    Why shooting protesters won’t ‘work’ this time for Thailand

    Without getting into what or what isn’t necessary or who’s ‘right’, my fear is that this hard crackdown won’t ‘work’ like it has in the past for Thailand (1992, 1976). The current protest movement is huge, passionate, and sophisticated. This has been shown by their logistics capability whereby the central protest zone has built its own infrastructure including television and radio broadcast facilities plus power generation, defense, and food supplies. Also, technology these days is such that you can’t blind people and hide things as you could in the past. Any crackdown will be very visible no matter what censorship is involved. Already there has been coordinated insurrection in the provinces, blocking army convoys, reportedly blocking the entrance to Thailand’s main port, plus sympathy rallies in many places outside Bangkok. It’s widely know that there is substantial ‘red shirt’ support in Thailand’s large North and Northeast regions. Red shirts in these regions have pledged retaliation for any major crackdown.

    Yet, to me, the most striking development in the last two days has been the erection of a second protest base, near the ‘Klong Toey’ slums right after the government sealed the main ‘Ratchprasong’ rally point from direct outside access.

    This second staging point has been reported by some as having at least 2,000 people, plus substantial water, food, and power generation supplies set up. All within about two days.

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    This to me speaks to the widespread strength of the ‘red shirts’ and casts serious doubts as to whether a crackdown will succeed in destroying their will. If anything, the worry is that it will cause them to revolt even harder, with even harder methods than they’ve already used. It’s in nobody’s interests to have random bombs detonating in Bangkok over the next five years. Thus negotiation, not a crackdown, is the only successful long-term solution, for both sides.

    Learn more about what’s behind Thailand’s ‘T-shirt wars’ >>

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  • It’s As If The More Japan’s Ancient Printing Press Keeps Churning, The More Prices Keep Deflating

    Japan Old

    Japanese unemployment has continued to rise, while prices continued to fall according to latest monthly data.

    The nation is also maintaining the same old policy near-zero interest rate policy. The Bank of Japan said they would keep their key policy rate unchanged at 0.1%.

    We probably shouldn’t expect a change from this for a long, long time. Japan has kept the printing press churning for quite some time now, yet prices keep falling, even after the modest economic rebound.

    AP:

    Japan’s seasonally adjusted jobless rate rose to 5 percent in the first increase in five months. The figure is up from 4.9 percent in February and missed Kyodo News agency’s forecast for the rate to be unchanged.

    The number of jobless totaled 3.5 million during the month, up 4.5 percent from a year earlier. Those with jobs fell 0.6 percent to 62.1 million.

    The numbers underscore a patchy recovery facing the world’s second biggest economy — but the slowest growing one in Asia. Robust growth in China and elsewhere in the region is fueling demand for Japanese cars and gadgets. Corporate profits are up, and business confidence is recovering.

    Companies, however, remain cautious about spending. Workers have yet to see a major turnaround in jobs or wages, which managed a small rise in March.

    Japan’s core consumer price index, which excludes prices of fresh food, declined 1.2 percent in March from a year earlier. The result marked the 13th straight month of decline. Prices fell for a swathe of goods from fuel to furniture.

    Lower prices may seem like a good thing, but deflation plagued Japan during its “Lost Decade” in the 1990s. It can hamper economic growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases. It also can increase debt burdens.

    Core CPI for the Tokyo area, seen as a barometer of future price trends nationwide, retreated 1.9 percent in April.

    Just don’t forget, there’s still potential for Japan to spark hyperinflation out of nowhere. See how a Japanese hyperinflationary scenario would unfold here >

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