#signofthetimes

Cheers

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Honouring a hero  – Lt. Norman Martin Peterson was born this day in 1914. Larrakin, ladies man, comedian who enjoyed his long necks. Here is a poem he wrote during his time on Crete during his service in the Field Ambulance. He’d  probably be court-martialed in today’s Aussie Defence Force for his prose.

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Ban on WiFi and smartphones for the under 24s in Japan a must

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I had lunch with an executive of a major auto manufacturer the other day and he was lamenting the future. It wasn’t so much product issues but people. It wasn’t a lack of intelligence or qualifications either. He asked some new grads who had joined what the three most important things in their life were. Most of them replied:

1) WiFi

2) battery life

3) online related software/apps

When he asked me – after seeing my stunned face- what I thought we almost said in unison – motorBikes, Beer and Babes (the three Bs). How the younger generations are not interested in the analog but the digital. Where the idea of using a rotary dial phone, adjusting the float in a two-stroke carburettor or changing a flat tyre seems more complicated than translating Mein Kampf into Swahili. They seem much happier doing “virtually”nothing. That is a huge headache for a carmaker. The DNA developed over decades by artisans and craftsmen.

No sooner had I had this lunch that the Japan Times highlighted today:

Sexlessness among married couples in Japan was more pervasive than ever in 2016, with nearly half not making love for an extended period of time, a survey released Friday showed.

The biennial interview survey, conducted by the Japan Family Planning Association, a Tokyo-based public interest organization, covered 3,000 people aged from 16 to 49 nationwide…Of the 655 married respondents, a record 47.2 percent confessed to not having sex for more than a month, compared with 44.6 percent in 2014. The ratios were 47.3 percent for married men and 47.1 percent for married women.

The result underlines that sexlessness — where spouses engage in no sexual activity for more than a month and show no sign of resuming in the foreseeable future — is growing unabated, Dr. Kunio Kitamura, director of JFPA, said.

For men, the biggest reason cited for their disinclination toward sex was “exhaustion from work,” at a record 35.2 percent, spiking from 21.3 percent in 2014…The survey, however, could not confirm any correlation between number of hours worked and reluctance to have sex, Kitamura said.

Next cited was loss of romance at 12.8 percent, with respondents saying they now viewed their spouses as mere family members rather than romantic partners…For women, 22.3 percent snubbed lovemaking as a “hassle,” the top contributing factor to sexlessess.

Youth sexlessness also seemed common. The survey found that 47.9 percent of unmarried men between 18 and 24 and 52.9 percent of women in the same bracket had never had sex.”

Perhaps the government needs to restrict the sale of smartphones and ban WiFi for those under 24 to get the youth to value more analog experiences. Perhaps they should only have internet access to analog related websites. It doesn’t have to be about pro-creation but at the very least recreation. Is it any wonder 80% of millennial live at home. It seems the Yu aspire to very little.

Would you trust a Tsukiji fish trader or the government to forecast the tuna market?

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Believe all the propaganda from governments and central banks you want. This letter from Perry Capital tells us all we need to know. The fish smells off. This fish trader has had enough. They’re essentially saying the amount of manipulation in markets is too high and they can’t conscionably manage people’s money within that environment. Essentially they’re not prepared to advertise fresh deep ocean tuna to clients when it’s fished from a farm located downstream from a sewage plant and an oil tanker spill. At the same time we see Deutsche Bank shares make new lows and more clients ask for their money back. The run has started.

Dear Investors

Over 28 years ago, Paul Leff and I started a money management firm. Our catalyst oriented value approach combined financial analysis and active engagement with management teams to create attractive opportunities with asymmetric risk/reward. During this time, we provided capital to many companies and countries facing stress and distress. Our style worked well for many years and we had the pleasure of hiring, training, and working alongside some of the best people in this business who have significantly contributed to the success of Perry Capital. Although I continue to believe very strongly in our investments, process and team, the industry and market headwinds against us have been strong, and the timing for success in our positions too unpredictable.

As a result, we have decided to wind down Perry Partners LP. We will manage the Fund’s wind down in the most effective way possible. We have been raising cash and plan to return a substantial amount of the fund’s capital in the beginning of October. The rest of the portfolio will be monetized in an orderly fashion and will be categorized by expected liquidation horizon: short term (2-3 months), medium term (6-12 months) and longer term (greater than I year).

We will prudently manage the remaining investments down over time. The short and medium term investments will be sold opportunistically but efficiently so as not to move markets or harm investment value. The longer term investments, for example the GSEs and some of the RMBS putback securities, will take time and energy to successfully realize an appropriate result. Our core team remains in place so that no effort or diligence will be compromised. We are committed to these investments and to you, our partners.

Going forward, we intend to return your capital quarterly. I am completely dedicated to making sure this process goes as smoothly as possible and have no other plans. Our interests are aligned — the Perry funds represent almost all of my liquid capital.

Over the next few weeks, I hope to speak with many of you. I want to personally tell you how much I have valued your support and trust. Thank you for your partnership over the years.

All my best,

Richard Perry

Gov Kuroda how do you intend to control the yield curve?

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The BoJ intends to keep much of the same game in play with the addition of ‘yield curve control’ QE measures which almost sounds like an automotive active safety system. One of my astute former colleagues correctly pointed out that “if we have surrendered the yield curve to the complete control of the BoJ and the BoJ wants to steepen the curve, how can they do this without tightening money supply, given liquidity at the short end of the curve? How is this good for a weak yen? Who is the willing counter party to a manipulator now looking top SELL not BUY to manipulate prices downward? Does this mean the end of fixed income departments?

Once again, market manipulation as being conducted on the scale done by the BoJ would result in the multi-decade sentencing of anyone in the private sector. Although perhaps given Japan’s woeful prosecution of market manipulators (i.e. fines of $500 (yes five hundred dollars only) for insider trading) then perhaps the BoJ does not see its actions as anti-capitalist. My bigger concern remains yet again the refusal to allow the market to function properly. Ploughing more into equity ETFs might seem a helping hand to Mrs Watanabe but she is not out there spending any gains she might get. At the rates the BoJ is buying if this strategy doesn’t work the BoJ will end up part-nationalising listed companies which in turn will fly in the face of PM Abe trying to attract foreign capital to invest in Japan when liquidity is being sucked out of the market.

I did find the comment in the opening remarks of Kuroda’s assessment somewhat overly optimistic for the real economic impacts to reflect it – “More than three years have passed since the Bank introduced QQE in April 2013. In this period, Japan’s economic activity and prices have improved significantly, and Japan’s economy is no longer in deflation.

He goes further to highlight the ‘vision’ which for the most part is theoretical gibber.

“The main transmission channel of QQE would be the reduction in real interest rates. Namely, (1) people’s deflationary mindset would be dispelled and inflation expectations would be raised [this is not happening!] through the Bank’s large-scale monetary easing under its strong and clear commitment to achieving the price stability target of 2 percent. At the same time, (2)downward pressure would be put on nominal interest rates across the entire yield curve through the Bank’s purchases of JGBs. (3) Together, these developments would reduce real interest rates. (4) The decline in real interest rates would lead to an improvement in the output gap. (5) The improvement in the output gap, together with rising inflation expectations, would push up the observed inflation rate. (6) Once people experienced an actual rise in the inflation rate [Japan has coped with near as makes no difference zero inflation for 20 years], they would adapt their inflation expectations, resulting in higher inflation expectations and further reinforcing this process…In addition, it was envisaged that as a result of the Bank’s monetary easing, (7) asset prices such as stock prices [fuelled by artificial ETF buying] as well as the foreign exchange rate [FX is back to the same levels of April 2013 and since NIRP has strengthened 10%] would reflect actual or anticipated improvements in economic activity and prices, thereby improving financial conditions and having a positive impact on economic activity and prices. Finally, it was envisaged that (8) it would work through the portfolio re-balancing effect by increasing investors’ appetite for risky assets [Japanese are traditionally very conservative investors and this is pushing them out of their comfort zone, so much so they’re buying home safes], thereby exerting a positive effect on prices of risky assets and leading to an increase in lending [Japanese banks are hesitant to lend – lending sideways since April 2013].

Toward the end the BoJ acknowledges:

“Given that the decline in deposit rates has been smaller than the decline in lending rates, the decline in lending rates, however, has come at the expense of financial institutions’ lending margins. Therefore, the extent to which a further decline in interest rates translates into a reduction in lending rates will also depend on financial institutions’ lending stance going forward.”

Although I interpret the “Moreover, reflecting financial institutions’ search for positive yield, new developments have been observed in the field of corporate finance such as an increase in the issuance of super-long-term corporate bonds and in funding through long-term subordinated loans” comment to suggest that gullible investors that get sucked into buying super LT corp bonds to get a morsel of yield may get completely thumped if weakening credit conditions for such enterprises (e.g. a Sharp or Toshiba) down the line crater their asset worth given the extended duration.

“In addition, it should be noted that financial institutions can boost their profits by selling assets they hold to realize valuation gains, which tend to increase when interest rates fall and the yield curve flattens.”  I’m sorry but the BoJ promoting this activity as a virtuous circle just shows how Mickey Mouse the amateur levels of desperation at the BoJ are. This is kindergarten level commentary although at least their translators haven’t mastered the Fed’s use of comical language.

Finally

“Another issue is that an excessive decline in interest rates — especially at the long and super-long end — lowers the rates of return on insurance and pension products, and increases firms’ pension benefit obligations. The direct impact of this on economic activity as a whole is unlikely to be substantial. However, attention needs to be paid to the possibility that it can cause uncertainty regarding the sustainability of financial functioning in a broader sense, with a negative impact on economic activity through a deterioration in people’s sentiment.”

Perhaps I should ask why the Japanese government will explicitly withdraw ‘public pension’ money from individual bank accounts of those who earn Y3mn from Y3.5mn but are not contributing, largely because they have no faith in the pension system. Some 270,000 people are supposedly guilty of this crime but Although the return profile of Japanese pensions is far more realistic than US public pension funds, the unfunded risks going forward remain.

So what looked promising on the announcement is now being seen for what it is. Poorly thought out strategy. Trying to manipulate a curve where the BoJ might be both seller and buyer…hmmmm