Mish's Global Economic Trend Analysis

Corporate Bond Rates Go Negative in Japan; No End to Central Bank Madness
Illinois Too Big a Risk: GE Moves Corporate Headquarters to Boston, Bypassing Chicago Citing Litany of Issues
Irate German Politician Busses 31 Refugees to Merkel's Office
Deflationary Pressures Mount: Export Prices Sink 1.1%, Import Prices Sink 1.2%
Terrorists Strike Indonesia Capital; Istanbul Suicide Bomber Entered Turkey as Refugee; Door Still Open

Corporate Bond Rates Go Negative in Japan; No End to Central Bank Madness

Posted: 14 Jan 2016 11:20 PM PST

Companies in Japan now get paid to borrow money.

In what may be the biggest central banks sponsored bond lunacy yet, BOJ's Negative Corporate Bonds Yields Adds to Distortions.

The Bank of Japan's purchase of corporate debt at negative yields for the first time adds to distortions in Japan's bond markets and raises risks for investors and banks, according to Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA.

The central bank bought corporate bonds in market operations at minus 0.03 percent on Wednesday, according to data from the central bank. While the BOJ has purchased company notes at zero interest in the past, it's the first time for it to buy the debt at negative levels, according to data compiled by Bloomberg.

"The BOJ could end up becoming the final arbiter of everyone's creditworthiness by deciding whether or not to buy a bond," said Nakazora, ranked Japan's No. 1 credit analyst in an Nikkei Veritas investor poll in 2015. "Investors will be saddled with risks if credit spreads aren't reflective of a company's creditworthiness."

"The market had looked at the 0.1 percent level as the floor for corporate bonds but if investors can be confident that they can sell the debt to the BOJ at negative levels, that level may come down," said Takayuki Atake, an analyst in Tokyo at SMBC Nikko Securities Inc., a unit of Sumitomo Mitsui Financial Group Inc. "It's a landmark that we've reached negative yields for corporate bonds."

No End to Central Bank Madness

The bank of Japan is currently the only buyer of Japanese government bonds. It may quickly become the only buyer of Japanese corporate debt, assuming of course it isn't already.

Regardless, who other that a central bank would pay corporations to borrow?

Mike "Mish" Shedlock

Illinois Too Big a Risk: GE Moves Corporate Headquarters to Boston, Bypassing Chicago Citing Litany of Issues

Posted: 14 Jan 2016 08:39 PM PST

Chicago was allegedly in the running for GE's corporate headquarters after the company decided to relocate from Fairfield, Connecticut where it had been located since 1974.

The relocation will bring about 800 jobs to Boston. GE blamed a Connecticut budget deal that raised corporate taxes and what company officials described as an inhospitable business climate.

Chicago was supposedly in the top tier of candidates. I fail to see how.

The Chicago Tribune reports State Pension Crisis Hurt Chicago's Chances for GE Headquarters, Sources Say.

Chicago was a finalist to score General Electric's corporate headquarters — and 800 jobs — but the state's pension crisis and the condition of Chicago's public schools helped remove it from the running, sources close to the selection process told the Tribune on Wednesday.

GE's selection of its next headquarters city comes the same week that Chicago received a consolation prize of sorts from the company. GE Healthcare said it would move its corporate headquarters and an unspecified number of jobs to Chicago, from the United Kingdom.

Mayoral spokesman Grant Klinzman said "The $18 billion arm of GE joins the long list of companies that have relocated their headquarters to Chicago in the last six months, including Kraft Heinz, Oscar Mayer, ConAgra and Motorola Solutions."

[Klinzman failed to mention how many businesses have left Illinois or what kind of sweetheart deals the state had to offer to woo those businesses it did attract.]

Decades of underfunding mean the city's four public pension funds have around $20 billion in unfunded obligations, while Chicago Public Schools is in financial meltdown, with a $480 million hole in its budget for the current school year and a rock-bottom credit rating.

Political gridlock in Springfield isn't helping. Nor is the $111 billion of state pension debt.

"It seemed too big of a risk," the source said of the problems. "That played into the decision to take Chicago off the short list and top tier" of around five finalists.

Too Big of a Risk

Typically, these kinds of decisions are made in advance. Corporations go through the motions and pretend various cities and states are in the running, hoping to extract every last ounce of concessions.

GE accurately cited Chicago schools, pensions, corporate tax rates, financial meltdowns, budget holes, and a rock-bottom state debt rating.

Too many risks? You bet. So what is mayor Emmanuel and the Illinois legislature going to do about it?

Mike "Mish" Shedlock

Irate German Politician Busses 31 Refugees to Merkel's Office

Posted: 14 Jan 2016 11:43 AM PST

You Welcomed Them, You Take Them

German politician, Peter Dreier, decided to take matters into his own hand today regarding the refugee crisis.

Dreier took 31 refugees along with their dirty bags and smelly clothes, on a seven hour trip, and dropped them off where they belong: Chancellor Angela Merkel's office.

Reuters reports Angry Local Politician Buses Refugees To Merkel's Office.

An irate local politician in Germany's southern state of Bavaria has dispatched a bus filled with dozens of refugees on a 7-hour journey to Chancellor Angela Merkel's office in Berlin as a protest against her open-door refugee policy.

A spokesman for Peter Dreier from the southeastern town of Landshut confirmed to Reuters that 31 refugees were making the 550 kilometer trip to the capital and were likely arrive in the afternoon.

A video on the online site of German newspaper Die Welt showed police officers shepherding dozens of men and women with bags onto a bus in a sunny country road lined with trees and chalets.

Dreier appeared to be acting on a threat he made to Merkel last year. Critical of her mantra that Germany can cope with the influx of migrants, he reportedly issued a warning to the chancellor in a phone call in October.

"If Germany is taking in 1 million refugees, mathematically that means 1,800 will come to my district. I will take them and if there are any more, I will send them to your office," Die Welt quoted Dreier as saying.

Politician Does What He Promises

Fancy that, a politician actually did what he promised. And under the "You Welcomed Them, You Take Them" theory, his promise not only made perfect sense, it was adequately explained in advance. You don't see that combination often!

Dumping refugees outside Merkel's office (or the office of any other politician who still has an open door policy) may prove to be the best idea of 2016.

Mike "Mish" Shedlock

Deflationary Pressures Mount: Export Prices Sink 1.1%, Import Prices Sink 1.2%

Posted: 14 Jan 2016 10:26 AM PST

Deflationary Pressures Mount

Export and import prices continued the collapse today according to the latest BLS Data. Export prices fell 1.1%, over double the Econoday consensus estimate of -0.5% and also below the lowest economist's forecast of -0.8%. Import prices sank 1.2% less than the consensus estimate of -1.4%.

Cross-border price pressures continue to sink into deep contraction, down a month-to-month 1.2 percent for December import prices and down 1.1 percent for export prices. Falling petroleum prices, down a monthly 10.0 percent on the import side, are responsible for much of the deflationary pressure but not all of it as prices for non-fuel imports, down 0.3 percent in the month, are showing their weakest year-on-year pressure, at minus 3.4 percent, since 2001.

Year-on-year, total import prices for 2015 fell 8.2 percent which is the largest drop since 2008. Export prices, down 6.5 percent in 2015, are at a record low for the entire series which goes back to 1989. Export prices excluding agriculture, down 5.9 percent, is also a record low.

Weakness is spilling into finished goods prices where capital goods imports, down 0.3 percent in the month, are at a year-on-year minus 2.5 percent which is the steepest decline since 2002. Other readings here are also weak including exported consumer goods which are down 0.4 percent in the month and down 2.4 percent on the year.

Import prices from Canada, down 2.8 percent in the month for a year-on-year minus 14.8 percent, are the weakest of all and reflect deflation for oil and commodities. Latin America is next, down 1.5 percent for a year-on-year minus 11.2 percent. China shows the least downward pressure, only 0.1 percent lower in the month and down only 1.7 percent on the year.

The unfortunate records in this report won't make for sound sleeping for Federal Reserve policy makers as it frustrates their goal to raise inflation expectations and move prices to their 2 percent target. Watch tomorrow for producer prices and next Wednesday for consumer prices.

Import Prices M/M and Y/Y

Export Prices M/M and Y/Y

Import Prices Year Over Year 1995-Present

Export Prices Year Over Year 1995-Present

Outside of recessions, and severe ones at that, we have never seen price collapses of this nature.

Mike "Mish" Shedlock

Terrorists Strike Indonesia Capital; Istanbul Suicide Bomber Entered Turkey as Refugee; Door Still Open

Posted: 14 Jan 2016 12:10 AM PST

Terrorists Strike Jakarta Indonesia

Terrorists set off bombs in multiple targets in Jakarta, the capital of Indonesia, killing at least seven in yet another Deadly Suicide Attack.

The gun-and-bomb attacks struck in the heart of the Jakarta's downtown area, popular with shoppers and tourists and located near key government installations. Police said three civilians and four terrorists were killed.

At least six explosions went off, including blasts at a police station and at a security gate next to a Starbucks café and a Burger King near the popular Sarinah shopping mall during the late morning attack, according to witnesses and video. Blasts later exploded near the embassies of Turkey and Pakistan and police cleared the area from the shopping mall to the nearby Presidential Palace, local media reported.

Minister of Domestic Affairs Tjahjo Kumolo said suicide bombers were behind the attacks.

Istanbul Suicide Bomber Entered Turkey as Refugee

It's now confirmed, Istanbul Suicide Bomber Entered Turkey as Syrian Refugee, Officials Say

The Islamic State suicide bomber who killed 10 German tourists in the heart of Istanbul registered here as a Syrian refugee without setting off security alerts—even though his brother had blown himself up in Syria, Turkish officials said. The revelation highlighted concerns that extremists are using the migrant crisis to cross borders and carry out terrorist attacks.

Turkish officials identified the Istanbul bomber as Nabil Fadli, a Syrian born in 1988, who was fingerprinted in Turkey last week while registering as a refugee with immigration officials, but wasn't on any watch list.

Muneef Taaei, a former Syrian opposition activist in the town where Mr. Fadli grew up, said Mr. Fadli was a regular foot soldier in Islamic State whose brother had blown himself up a few months ago in an attack on Syrian regime forces at an airport.

Mr. Fadli's apparent ability to enter Turkey, register with immigration officials and carry out the attack without triggering any international terror alerts is likely to fuel concerns that Islamic State extremists are exploiting the migrant crisis to sneak across borders to stage attacks.

Turkey will step up its intelligence gathering operations, but it will not change its policy toward refugees, an official at Turkey's emergency agency said.

Door Still Open

"Despite all kinds of dangers and risks, we haven't changed our open-door policy for the past five years," said the official. "And we won't do that now, either. Only security precautions will continue to be tightened."

While one cannot stop every terrorist attack, it's another thing indeed to openly invite them as these open door policies do.

These suicide attacks are the best possible ads for the Trump campaign, dropped right in his lap, and he didn't have to pay a dime.

Mike "Mish" Shedlock

Economy News

14.1.16

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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