Sunday, 29 December 2013

Abe Ends Year on Flagging Support, Needs Unified Cabinet

Japanese Prime Minister Shinzo Abe this month completed a year in office with public support falling to the lowest yet. Abe’s fortunes next year will ride in part on the ability of his top spokesman to keep the cabinet unified as the government pushes economic and military reform.
Yoshihide Suga, 65, who describes himself as “stubborn” and serves as Abe’s chief cabinet secretary, says “it’s all right to have various debates. But once we’ve had the debates and reached a conclusion, we have everyone go in the same direction.” The lawmaker, who defied his father’s wishes by moving toTokyo from the family farm in northern Japan as a teen, said in an interview that the ruling party is now taking account of the cabinet’s views in deciding policy priorities.
Suga’s skills at imposing discipline will be tested as the administration contends with a backlash from China against Abe’s visit last week to a shrine that memorializes wartime leaders, and plans to take on vested interests with business deregulation. Cabinet scandals and gaffes helped torpedo Abe’s first administration in 2006-2007 and contributed to a revolving door of Liberal Democratic Party leaders in the subsequent five years.

“The fortunes of this administration depend on Suga,” said Hiroyuki Kishi, a professor at Keio University in Yokohama who was a Trade Ministry bureaucrat working under Suga when he was vice internal affairs minister in 2005-2006. Kishi called Suga “the most reformist person in either the ruling or opposition parties.”

Top Spokesman

The chief cabinet secretary serves as the public face of the government, with a daily schedule that typically includes two press briefings. Suga runs the Cabinet Secretariat, in charge of coordination between the various ministries and agencies, and serves on panels such as the newly formed National Security Council.
Suga’s post could become more powerful next year if he succeeds in shepherding through legislation bringing top bureaucratic appointments under his secretariat. The role has been a stepping stone for future prime ministers, including Abe and Yasuo Fukuda.
“If I decide something’s right, I tend to push ahead with it -- I think I’m a bit stubborn,” Suga said in a Sept. 19 interview at the prime minister’s residence in Tokyo. The teetotal lawmaker is also known for keeping a hectic schedule.
“He eats way too fast,” said Kazuo Tanoi, a Yokohama City assemblyman who served alongside Suga in the 1980s and 1990s and continues to campaign for him in the constituency. “If his aides are eating ramen with him, he wants to leave before they’ve eaten half. So they order cold noodles if they’re eating with him” to finish quicker, he said.

Secrets Bill

Suga has played the role of enforcer. When Finance Minister Taro Aso declared in July that the government could learn from the Nazis on ways to execute constitutional changes, he got a call from Suga and issued a retraction the next day.
“Suga has been an excellent manager of the second Abe administration, kept his boss mostly on message and ensured discipline in the cabinet,” said Jeff Kingston, director of Asian Studies atTemple University in Tokyo. At the same time, “it looks like Abe’s long honeymoon has ended and he is facing much tougher scrutiny from the press and public.”
Abe’s public support took a hit this month when the ruling coalition passed a bill to boost penalties for divulging state secrets, against the objection of thousands of protesters outside the Diet.

Mainichi Poll

A poll published by the Mainichi newspaper on Dec. 24 found 49 percent of respondents supported Abe’s administration, down five percentage points from November and the first Mainichi poll below 50 percent since his election win. The paper surveyed 1,014 people between Dec. 21-22 and didn’t give a margin of error.
Abe’s government is also challenged by diplomatic criticism over his visit to the Yasukuni shrine Dec. 26. China and South Korea protested soon after the visit was announced, and the U.S., Japan’s top ally, expressed disappointment. The European Union’s foreign policy chief, Catherine Ashton, said the move wasn’t “conducive to lowering tensions in the region.”
A Kyodo News poll conducted after the shrine visit found 47 percent of respondents disagreed with Abe’s decision to pay his respects and 43 percent were in favor. His overall support was almost unchanged on a similar poll a week earlier at 55 percent. The agency surveyed 1,013 people on Dec. 28 and 29 and didn’t give a margin of error.

Sales Tax

A government decision to increase the sales tax to 8 percent from 5 percent will go into effect in April, testing Abe’s support as households absorb the impact of the bump.
While the prime minister has said the economy is his top priority, he’s also set to push for a further broadening of Japan’s security policy. He wants to reinterpret the pacifist constitution to allow Japan to defend its allies, a move that opinion polls show is opposed by a majority of the electorate.
Losing touch with voters in a rush to pass legislation undermined Abe’s first administration, said Suga, who served as internal affairs minister in that government.
“Rather than breathing in time with the public, we just did what we decided to do,” he said. “We didn’t have enough time to gain the understanding of the electorate each time.”

Political Dynasty

Unlike Abe, who is the scion of a wealthy political dynasty, Suga is the son of a farmer from Akita prefecture 500 kilometers (310 miles) northeast of Tokyo, where per capita incomes are just over half those in the capital, according to Cabinet Office figures for 2010. He moved to Tokyo after high school to take up a job in a cardboard factory, which his childhood friend and local assemblyman Masashi Yuri said met with his father’s disapproval.
Suga worked a series of jobs to pay for tuition at night school, gaining a law degree. He got his start in politics as secretary to an LDP lawmaker in Kanagawa prefecture, close to Tokyo, in 1975, then overcame a local LDP preference for another candidate to run for the Yokohama assembly, saying he won because he worked “harder than anyone else.”
Suga said in an interview broadcast by NHK on Dec. 22 that he helped persuade Abe to take a second shot at the party leadership last year. He hasn’t given any indication that he has ambitions to succeed his boss.
“Mr Abe is the pitcher and Mr Suga is the catcher and they make a great team,” said assemblyman Tanoi, comparing Suga’s role to that of a catcher in baseball.

Thursday, 23 May 2013

Japan scares me

Japan has the highest Debt-to-GDP ratio in the world.   According to IMF its predicted to top 245%.  Rates have been dropping for 25years! Yet, interest payments have risen for the last 25years.  Recently inflation expectations have bumped up rates.  The 10-year is up 28bps relative to last month April.  As yields move higher Japan becomes a ticking time bomb and will not be able to service its debt. 

At their current level, if rates hit 2.8% then 100% of tax revenues to go towards interest payments only!

Japan is the 3rd largest economy in the world. 

This scares me.

Herman Venegas

Monday, 11 March 2013

New party Anti Euro Party in Germany

Opponents of the euro in Germany have founded a new party in favor of abolishing Europe's common currency. But critics question whether the rather academic group can pack the populist punch it needs to enter parliament.
"The Alternative for Germany" - Germany's new party opposing the eurozone - is unlikely to impress Angela Merkel. The German chancellor takes pride in her policy aimed at saving Europe's monetary union. "The end of the euro would also be the end of the European Union," she has said - justification in her view for why the monetary union must be sustained.
But there is a substantial group within Germany that disagrees. In a survey conducted by the Germany weekly news magazine "Der Spiegel" in July 2012, 54 percent of interviewees said they don't believe investing vast sums of money to keep the common European currency is really worth it.
Opposition to the common currency in not reflected in the German parliament at all, says Konrad Adam. For years, he was a journalist at the center-right German daily "Frankfurter Allgemeine Zeitung," and has decided to start the new political party together with a handful of business experts who have worked in media and research.
The group, which calls itself Alternative for Germany, demands the dissolution of the eurozone and an open discussion of bailout strategies.
The euro is ‘destroying Europe'
Adam is frustrated about the lack of representation for euro opponents in parliament.
Konrad Adam
(c) picture-alliance/Markus C. Hurek Konrad Adam, founder of Alternative for Germany
“All of the parties in the Bundestag have effectively the same opinion when it comes to rescuing the euro,” he told DW. “The only distinction between them is how much money should be invested and when. The euro is seen as holy, and anyone with a differing opinion is either dismissed as a populist or is shamed. That is not right.”
That's what led Adam to band together with like-minded journalists and scholars, such as Bernd Lucke, who teaches economics at the University of Hamburg, to start their own party.
“When I go to vote, I want a choice, which is why we wanted to create an alternative,” Adam said.
The issue isn't exactly minor in the German political arena. Germany must contribute 21.7 billion euros ($28.2 billion) to the euro rescue fund, which is meant to prevent EU countries with financial problems from slipping into bankruptcy by providing such countries with favorable lending conditions. So far, Greece, Ireland, Portugal, Spain and Cyprus have tapped into the fund.
According to the founders of Alternative for Germany, the possibility of getting rid of the euro and stopping the payments is being ignored by German politicians. They believe the end to the common currency to be the best thing that could happen to Europe.
“We are afraid that Europe isn't benefitting from the euro, but is actually being subtly destroyed by it,” Lucke told DW.
Dissolving the eurozone, not the EU
A syrgine with a euro note in it
(c) imago Germany has pumped over 20 billion euros into rescue funds
Lucke clarifies however that while the party is against the euro, it is not against European unity. The party focuses on getting rid of the eurozone. They call for the countries to either choose between national currencies, such as the deutschmark, the franc, or the drachma, or to create smaller currency unions. Adam could envision a northern euro and a southern euro, for example
The founders of Alternative for Germany don't want to get too specific with such proposals at the moment. While they support the principle of adherence to EU treaties, the group's members also hope to see changes to EU treaties that would allow Germany and other countries legal means of exiting the eurozone. Further, the new party is calling for binding referendums that would give EU citizens more power to make decisions.
A decision on whether the party fulfils the criteria to take part in Germany's federal elections this September is expected in April. At the very latest, the party's leaders hope to take part in the European elections in 2014.
A 'dangerous' position?
Rudolf Hickel, an economist and former head of the Institute of Labor and Economics (IAW) at the University of Bremen, considers Alternative for Germany's chances for success in September's elections to be slim.
Rudolf Hickel
(c) Universit├Ąt Bremen Rudolf Hickel believes calls to dissolvr the eurozone are 'dangerous'
“Normally, I'd certainly give a party like this a chance to reach five percent,” Hickel told DW, referring to the law in Germany that a political party must win at least five percent of the vote to gain parliamentary representation. “But the people behind Alternative for Germany are the best guarantee that the party won't make it into the Bundestag. They are professors and frustrated economists. If the party were headed by a populist, I'd consider them dangerous.”
Hickel does welcome an open debate about the euro rescue mechanisms, but he considers abandoning the currency bloc to be very dangerous.
“If Greece, for example, was out of the euro, it would be a permanently poor country, but would remain in the European Union,” Hickel explains. “And I can say now that, in that case, the EU would have to help with payments, or pressure would mount on Greece until it left the European Union. Then other EU countries would have to pay more. That would be an extreme burden on the European project."
That's where the founders of Alternative for Germany disagree. The party believes Germany's political elite must stop clinging to the joint currency without paying more attention to the sacrifices being made to keep the currency bloc afloat along the way.


Thursday, 28 February 2013

Bankia in deep trouble

Hey guys.
Remember in May 2008 when all the CEO's came out publicly and stated that everything was fine.   Then a few months after Lehman went bust.  I see the same thing happening in Spain.

After taking a huge loss of 19.2B Euros Bankia CEO stated they are completely liquid and solvent and they are the only bank that can pay back their rescue funds



 Leverage: Has a leverage ratio of 25-to-1.  Is this bad? Lehman was 30-to-1 when it collapsed.  (note these are using 2011 numbers. I will update this when they publish 2012 financials.)

Interest Coverage1.0

The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable.  

Monday, 29 October 2012

Weekly Review 10.30.2012


This was a record setting week! Literally 

Eurozone hit a record high debt of 90% from all 17 countries that use the single euro currency.  This is the highest level since 1999 when the EU currency was first implemented.
"The euro area economy remains stuck in a rut" said James Ashley, Sr. European economicst at RBC Capital Markets.
According to the Eurostat, five countries are in recession Greece, Spain, Italy, Portugal and Cyprus.  Many analyst expect the Eurozone to slip back into a recession next month when the official numbers are released. (recession is defined as two downward quarters of negative growth in a row)
Furthermore, PMI remains lowest in three years at 45.8  We can see this with BMW and VW, their exports have taken a hit on YoY basis. 

PMI- HSBC report showed Wednesday rising new orders.  3 month upward trend shows that the economy is slowly picking up.  However, this is not sustainable given US potentially falling off the cliff and the meltdown in Europe.  Nonetheless, PMI was 47.9(August)  49.2(September) and 49.8 in October.  This is still below 50 but indicates slow improvement and a moderate rebound of the worlds second largest economy.  Weak external demand and a slack job market are key factors, therefore one should expect more easing policies to secure recovery.

China's yuan reached a 19 year high against the US dollar.  Currency hit 6.2417 yuan per dollar, it has been appreciating since QE3 and the ECB bond buying plan.   HK monetary authority has injected more than $14B to stabilize Curreny.  Could this be the start of a currency war? Last weeks review we talked about Brazil's finance minister publicly scolding the US selfish actions at the IMF conference in Tokyo.   Chinese exports are sure to take a beating. 

Japan adds $9.4B to stimulus program to bump up growth as bond investors told government they were worried about delays and more spending.  Finance minister said this was necessary because Japan would run out of money if the bill was not passed.  This is only estimated to boost GDP by .1%.  Japan has the highest debt level among developed nations and has experienced 2 lost decades.  According to world renowned economists Rogoff and Reinhart  a Country with debt-to-gdp in excess of 90% is unsustainable.  Japan is at over 200%. (see book "This time is Different")

United States
Fiscal Cliff can be much worst than it is.  Many economist think every dollar of deficit reduction will subtract nearly the same amount from economic growth.  The IMF suggest 1$ could drain as much as $1.70.  With interest rates at near zero the pain will be much worse. Bernanke has acknowledged he would not be able to fully offset the pain if the economy runs into the fiscal cliff.  

The “fiscal cliff” and long-term government deficit issues are weighing heavily on the minds of finance professionals, and they do not expect business conditions to improve regardless of the results of the Nov. 6 presidential election.
Three-fourths of 949 executives who responded to a survey at the annual conference of the Association for Financial Professionals (AFP) this month reported that they believe overall economic conditions will weaken if various tax law provisions expire and mandated government spending cuts go into effect as scheduled in January 2013.
Respondents rated implementing changes to avoid the fiscal cliff as the second-most important issue for federal elected representatives to focus on after the election. The most important issue to respondents was resolving long-term government fiscal and deficit issues, identified by 63% of finance professionals in the survey.

Herman Venegas

Monday, 22 October 2012

Weekly Review 10.22.2012

All eyes were on the Second Presidential Debate.
Both Romney and Obama delivered strong punches tackling issues such as unemployment, oil and energy.  All said and done, Mitt Romney is in the lead in the gallop polls 52% to 45%.

Central Bankers and Government officials met up in Tokyo for the annual IMF conference.  ( The IMF lowered its GDP outlook on the global world economy.  The major theme talked about was fiscal unity among political leaders hinting towards the EU leaders.

Also, Bernanke addressed critics abroad saying stronger growth in the United States bolsters global prospects as well, countering the likes of Brazil's Finance Minister Guido Mantega who has labeled the Fed's latest stimulus effort "selfish".
Critics say the Fed's unorthodox policies weaken the U.S. dollar and boost the currencies of developing countries, hurting their ability to export.

Canada has blocked Malaysian state oil firm Petronas’ C$5.17 billion bid for gas producer Progress Energy Resources in a surprise move that could signal problems for a much larger Chinese deal in the country’s energy sector.
Canada’s announcement late on Friday, minutes before a deadline, was a blow to Petronas whose domestic oil supplies are shrinking and which has been seeking to boost its resources beyond Malaysia and volatile areas such as Sudan.
It also raises doubts over Chinese oil group CNOOC’s C$15.1 billion offer for oil producer Nexen and could weigh on other Canadian firms hoping for foreign investment to tap their vast energy reserves.
Any rejection of the CNOOC bid would likely damage trade ties Canada has been trying to build with China, underlining political sensitivity to Chinese corporate expansion in North America.

Google's earnings were released ahead of schedule.  The stock plummeted -$3.12.  Why? according to experts mobile has been a mixed blessing. Smartphones and tablets are bringing in new users — and the advertisers that follow them — but it makes less money on mobile ads than on desktop ads.

For a  list of companies who released earnings this week click here.

Commodity Investing

Investing in the commodity market has never been easy or safe. As a matter of fact, it is unlike to speculate the trend in the market without having in-depth knowledge and insights. So, we are here to help you better understand the broad commodity market where we are faced with a wide range of choices. 

Before we actually go into the details of methodologies to invest in the commodity market, let’s make sure that we have a proper understanding of how to read the trend. As we have kept our eyes carefully on the market, we have noticed that in general, commodity prices increase considerably during the recession or expansionary economic development. On the other hand, the commodity market gets steadily still or slightly fluctuates at the end of recession or during the moderate economic growth. Furthermore, pricing some of the commodities is heavily reflected on the speculations of the global macroeconomic outlook. However, we have to admit that our argument is based only on our observation and knowledge and exposed to the risks of unexpected or unprecedented events.

Having said that, let’s move on to the strategies of how to read and invest in the commodity market. 


First off, we need to make sure of the different types of internationally traded crude oil. Typically, there are 2 types of oil: Brent and WTI (West Texas Intermediate)

  • Brent: It is a combination of crude oil from 15 different oil fields in the Brent and Ninian systems located in the North Sea. It is also ideal for making gasoline and middle distillate fuels - diesel and heating oil - , both of which are consumed in large quantities in Northwest Europe. 

  • WTI: West Texas Intermediate crude oil is considered very high quality and excellent for refining a large portion of gasoline. Because of the combination of distinct characteristics, WTI is the ideal crude oil to be refined in the U.S. – the largest gasoline consuming country, where most WTI crude oil gets refined in the Midwest region of the country and Gulf Coast region. Despite the decline on the production of WTI, it is still the major benchmark of crude oil in the Americas. 

  • NYMEX Futures: The NYMEX Futures price for crude oils, which we see on the news every day, represents the market-determined value of a futures contract to either buy or sell 1,000 barrels of WTI or other crude oils. 
Now, let’s turn our head to the real deal: How to make profits out of the massively traded crude oils!!

Investment Tip No.1: Brent is more sensitive to geopolitical risk than WTI, which means that the returns on Brent when tension in Middle East, for example, gets the heat would be greater than WTI. According to Bloomberg, “the market is hypersensitive to anything coming out of the Middle East”. In the recent example of increasing tension between Turkey and Syria, Brent oil actually increased by 1.5 percent whereas WTI decreased by 0.7 percent only!! 

Investment Tip No. 2: The price of crude oils has a great tendency of increase reflected on the currency moves, especially Euro V.S. U.S. For example, after the European Central Bank announced to buy the Spain’s debts in attempt to contain Europe’s debt crisis on Oct. 1st, the Euro advanced as much as 0.9 percent to $1.3021 on Oct 4th, the highest level since Sept. 21. That currency move triggered oil price to go up relatively higher than the average high for the previous weeks. Therefore, it is most likely that a strong euro against U.S. currency helps to push oil prices higher!!

Investment Tip No. 3: Global economic growth outlook affects oil prices. We have witnessed that when the economic growth in the U.S. or China is reported on daily basis, the oil prices fluctuate. For instance, oil fell below $90 a barrel on Sept 26th for the first time since early August this year on lower oil demand – triggered by the slow economic growth in China and increasing jobless claims in the U.S. – and concern that the worsening European crisis will reduce consumption. 


Investing in gold has always been in favor for those who want steady long-term returns on the investment that shields against financial crisis or economic downturns. As a matter of fact, gold price has skyrocketed since the U.S. financial crisis in 2008, and the concerns about overall economic health around the world affected by the crisis have encouraged people even more to invest in gold. As we anticipate the worsening global economy, the developed countries in 2013 are going to have to deal with their massive debt problems and policies that have spent the last few years devaluing local currencies. As this happens, gold will be the one of few havens available to investors looking to protect their wealth. Furthermore, the anticipation and realization of QE3 by the Fed has predominantly contributed to the consistent rise in assets price. Consequently, with countries around the world printing money and devaluing their currencies, investors are likely to continue investing in gold. 

Investment Tip: Follow the ETF – Direxion Daily Gold Miners Bull 3X shares (NUGT)
                                    It generated 45 percent increase on returns just for the past month. This is also used as an effective tool to play the spread between the gold and the gold miners. Since the gold has widely outperformed the gold miners in the past years, we expect the reversion of the mean, which  indicates that gold minors will be closing that spread and the ETF is considered a good player on the matter. 

As for further investment tip on the subject, please refer to one of our blogs:


Since the news and reports about the worst drought in the U.S. came out in early July this year, the corn price has surged to the record high of $8.10 per bushel.

According to Bloomberg, drought damage to corn and soybean fields in the U.S. – the world’s top grower and exporter – is eroding supplies of the nation’s two largest crops to below year-earlier consumption levels for the first time since 1974. Worldwide inventories on Oct. 1ST were 117.27 million metric tons, down from 123.95 million predicted a month ago and 131.54 million estimated this year, and reserves in the U.S. fell 37 percent to 619 million bushels from 988 million estimated this year according to the U.S. Department of Agriculture. As the tight supply escalates the price of corn while the demand is constant, we expect that the investment in the ETFs focusing on crops will be more demanding. 

Investment Tip: Follow the ETF – Global X Fertilizers/Potash (SOIL) 
                                    It is the only ETF that is pure play on fertilizers. When the corn price is going up so high, the first thing that farmers buy is fertilizers!!
                                    As the global supply of corn shrinks more, the fertilizer will be more demanding and so will be the ETF. 
                                    It has gained almost 18 percent on returns since June 1st this year. 

Bottom Line:

Investing in commodities is not for everyone. As I have mentioned earlier, it is too obscure to have a clear understanding of how the mechanism works in commodity markets. However, if we can manage the large volume of information and insights that are publicly available and properly speculate the trend, we believe that we have a shot!! On one hand, we should have some slice of our long-term money parked in commodities. On the other hand, we should resist tendency to overinvest in commodities when the financial crisis or unprecedented incidents take place due to the fact that ridiculously demanding commodities blind our mind to be rational. 

Young G.