3d USA/Yen rate now well below the important 120 barrier this morning

3e WTI::  37.72  and Brent: 39.95

3f Gold UP   /Yen UP

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil DOWN for WTI and DOWN for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund RISES to 0.122%   German bunds in negative yields from 9 years out

 Greece  sees its 2 year rate RISE to 11.60%/: 

3j Greek 10 year bond yield FALL to  : 9.09%   (YIELD CURVE NOW INVERTED)

3k Gold at $1236.70/silver $15.20 (7:15 am est) 

3l USA vs Russian rouble; (Russian rouble DOWN 19/100 in  roubles/dollar) 67.81

3m oil into the 37 dollar handle for WTI and 39 handle for Brent/

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/expect a huge devaluation imminently from POBC.

JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN COLLAPSES TO 108.33 DESTROYING WHATEVER IS LEFT OF OUR YEN CARRY TRADERS

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9558 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0888 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p BRITAIN STARTS ITS CAMPAIGN AS TO WHETHER EXIT THE EU.

3r the 9 Year German bund now  in negative territory with the 10 year RISES to  + .122%

/German 9 year rate negative%!!!

3s The Greece ELA NOW at  71.4 billion euros,

The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 1.723% early this morning. Thirty year rate  at 2.56% /POLICY ERROR)

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

FIRST  REPORT ON JAPAN  SOUTH KOREA AND CHINA

Holland rejects by a big margin, closer ties to the Ukraine.  This is a huge victory for the Euroskeptics. Also this sends a huge warning to the EMU with respect to an increasing BREXIT

EU President Is “Sad” After Dutch Reject “Closer Ties” With Ukraine In Huge Victory For Euroskeptics

Here is a summary as to what happens when “free money’ is created for every citizen to spend:

Moments ago, ECB governing council member and Bank of Italy governor Ignazio Visco had some very troubling comments.

He said that while helicopter money is not currently part of the discussion in the Governing Council that “no policy tool within our mandate can or should be dismissed a priori.” The reason for this startling admission is “the importance of expectations of low inflation in determining wage outcomes, and thus giving rise to second- round effects, may be increasing.”

He cited Italy’s recently signed collective contracts where “it was agreed that parts of future pay rises will be revised downwards in the event that the inflation rate falls short of current forecasts” adding that a “a generalized adoption of this type of contract would significantly decrease the rate of growth of wages and this would in turn be reflected in the dynamics of consumer prices.”

He went on to defend existing monetary policy which has so far only resulted in savings hoarding, ongoing deflation and a slammed banking sector, saying that “Regarding Italy, the effects are estimated to be somewhat stronger: absent the monetary impulse, the Italian recession would have ended only in 2017; inflation would have remained negative for the whole three-year period.”

But back to helicopter money: Visco also said that: “such an extreme measure would undoubtedly be subject to operational and legal constraints.”

Is the ECB really this cloase to helicopter money? It appears so, because as he notes “the redistributive implications and the close ties with fiscal policy would all make it very complex, all the more so in the euro area given its institutional framework.” He concluded that a discussion on the measure “is noteworthy, not much per se, but because it underlines the concern that monetary policy is left to act in isolation.”

* * *

What catalyzed this dramatic shift in perception? It may be the following research note from JPM’s David Mackie titled “Helicopter money may come to a Euro area airport near you.”

In it JPM writes that “over the past few years, the ECB has provided monetary stimulus by cutting interest rates, providing forward guidance, purchasing assets, and making low-cost loans to banks. Even though these policies have been successful in helping to lift the real economy and sustain inflation expectations, there is widespread concern that we have reached a point of diminishing marginal returns. If this is correct, policymakers may need to consider other options in the event of a significant economic downturn. Helicopter money is one of the options that is often suggested.”

Here is how Mackie summarizes his thoughts:

• Helicopter money should be viewed as the combination of a fiscal expansion and an expanded QE program
• As such, it is possible to imagine helicopter money in the Euro area in the event of a significant downturn
• Fiscal and monetary coordination may be limited, but that may not matter too much
• Additional benefits would come from greater risk sharing across the ECB balance sheet, but this is uncertain

Some more highlights:

Against this backdrop, it was perhaps not surprising that at the March press briefing, ECB president Draghi was asked “theoretically, does your toolbox also include helicopter money, either in the form of direct financing of public investment, for example the EIB, or in the form of direct money to consumers?”

 

What was surprising was Draghi’s answer: “We haven’t really thought or talked about helicopter money. It’s a very interesting concept that is now being discussed by academic economists and in various environments. But we haven’t really studied yet the concept.” Clearly, Draghi did not dismiss helicopter money out of hand.

 

A week later ECB chief economist Praet was asked, “In principle the ECB could print checks and send them to people?” To which he answered: “Yes, all central banks can do it. You can issue currency and distribute it to people. That’s helicopter money. Helicopter money is giving to the people part of the net present value of your future seigniorage, the profit you make on the future bank notes. The question is, if and when it is opportune to make recourse to that sort of instrument which is really an extreme sort of instrument.” Instead of dismissing helicopter money, Praet seemed to be sympathetic.

How it works mechanistically:

JPM’s take on the consensus view behind helicopter money:

Many commentators see helicopter money as the answer to the problem of limited traction of monetary policy. While monetary policy impacts spending indirectly, by changing borrowing costs and asset prices, helicopter money seeks to impact spending directly, by putting money straight into the hands of households and non-financial corporates. They could still save the money, but most proponents of helicopter money assume it would be spent, providing a direct boost to demand

How it will be pitched:

In our view, helicopter money should be viewed as the combination of a fiscal expansion and a QE program, essentially a money-financed fiscal expansion. The benefits relative to a QE program alone come from the fiscal expansion. There may also be benefits of a money-financed fiscal expansion compared with a bond-financed fiscal expansion, especially in an environment of elevated government debt. This could be particularly important in the Euro area. The benefits of helicopter money could be even larger in the Euro area if a money-financed fiscal expansion involved much more risk sharing than a bond-financed fiscal expansion, but that would not necessarily be the case. Risk sharing in the current QE program is limited.

 

Looked at in this way, the key constraint on helicopter money in the Euro area is on the fiscal side. The fiscal architecture is not well suited to a coordinated, area-wide fiscal expansion, especially given very elevated levels of debt in a number of countries. The ECB’s contribution via an expanded QE program looks straightforward by comparison. Some argue that an explicit coordination of monetary and fiscal policy is needed, perhaps as part of a signaling mechanism. Explicit coordination in the Euro area would be hard, especially if linked to the idea of the central bank becoming subservient to the fiscal authorities. In the event, explicit coordination may not be necessary to experience the benefits of helicopter money. Overall, in the event of a significant economic downturn, helicopter money as defined here would likely be implemented in the Euro area to some extent.

Of course, there are problems:

There are a number of perceived problems with bondfinanced fiscal expansions: crowding out through higher interest rates, Ricardian equivalence of future tax increases to redeem debt, and roll-over risks in refinancing operations. A money-financed fiscal expansion using irredeemable reserves overcomes these problems, even if interest is paid on the reserves. Money-financed fiscal expansions may also have a financing benefit if short-term interest rates are lower than long-term interest rates. In addition, in the Euro area there may be risk-sharing benefits if the risks of asset purchases by the central bank are spread out across the region in a way that sovereign bond issuance is not. However, risk sharing is not inevitable in the Euro area: risk sharing in the current ECB QE program is limited. But, it is very important to stress that helicopter money still involves the creation of a sovereign liability (central bank reserves) that will receive interest at whatever level the central bank sets for macroeconomic stability purposes unless reserve requirements are imposed.

JPM’s concluding thoughts as first the ECB, and then all other central banks, prepare to embark on the final lap before it all blows up:

For many, the key distinction between helicopter money and QE is that helicopter money is viewed as permanent whereas QE is viewed as transitory. It is the irredeemable nature of the reserves created by helicopter money that matters. While this may be important in theoretical macro models, we doubt that it has much relevance in the real world. The efficacy of QE over recent years has not been limited by a broad-based perception that the policy will be reversed, but rather by the headwinds from balance sheet deleveraging. Essentially, despite low borrowing costs and elevated asset prices, banks have been reluctant to lend and households and non-financial corporates have been reluctant to borrow.

 

For other advocates of helicopter money, it is the absence of paying interest on reserves that is the key benefit of helicopter money relative to QE, as occurs in the example of helicopter money with the central bank sending out checks. Essentially, the idea is that there is a free lunch to be had from the creation of non-interest-bearing money that can be distributed to households. This is often referred to as the creation of an asset for the private sector without a corresponding liability for the public sector. In our view, this free lunch does not really exist. We would argue that the lunch has to be paid for either by future non-inflationary seigniorage income, the inflation tax, or a tax on banks through reserve requirements.

 

Some advocates of helicopter money argue that it has to involve an increase in the inflation objective. This is partly where the idea of coordination between the monetary and fiscal authorities comes from: there is an idea that the central bank has to be made subservient to the fiscal authorities. We would disagree. In an environment where demand is depressed, and inflation is running well below the central bank’s objective, monetary and fiscal easing is warranted by the need to restore macroeconomic balance in terms of full employment and price stability. Policy efficacy does not require an increase in the central bank’s inflation objective.

 

In our view, the main argument for helicopter money is that there are benefits to be had from a money-financed fiscal expansion rather than a bond-financed fiscal expansion, even if interest is paid on the reserves that are created. The fiscal expansion is important because it adds directly to demand. The monetary financing helps to contain drags from crowding out and Ricardian equivalence, which may be particularly important in the Euro area where government debt is elevated.

 

In the event of a significant economic downturn in the Euro area, something that looked a lot like helicopter money as described here would likely take place. Despite the fiscal compact, there would be a move towards fiscal expansion. And, the ECB would expand its asset purchase program for both price stability and financial stability reasons. In order for the fiscal expansion to be meaningful, however, there would need to be either a broad-based rethink or a suspension of the fiscal compact. It is unlikely that there would be much explicit coordination between the monetary and fiscal authorities, due to sensitivities around the ECB’s independence, although it is not clear that this would be essential. Potentially very important is the issue of risk sharing. In the event of a significant economic downturn, automatic stabilizers would drive deficits wider and fiscal easing would add to this. With debt already very elevated in a number of Euro area countries, further increases in debt would be uncomfortable. Additional QE should make this much more comfortable. Greater risk-sharing in a future QE program would likely add significant additional benefits. Many in financial markets would view this as de facto equivalent to a eurobond.

In short, the final all-in bet is almost at hand.

the last few days days have been rife with speculation about the motivation, if any, behind the release of the Panama Papers, with the most prominent example coming from Wikileaks two days ago on Twitter which accused the journalist consortium behind the leak, the ICIJ, of being a “Washington DC based Ford, Soros funded soft-power tax-dodge which has a WikiLeaks problem” and adding that “PanamaPapers Putin attack was produced by OCCRP which targets Russia & former USSR and was funded by USAID & Soros.”

As we further suggested, the fact that none other than Rothschild, which is trying to corner the US-based “tax haven” sector, stands to benefit from the collapse of the Panama offshoring industry (as international clients who demand to maintain their anonymous status are forced to move to the US), may lead to further questions about a potential conflict of interest behind said release.

But while these and many other questions will remain unanswered, including why the ICIJ is cherrypicking which names to release especially as pertains to US clients of the Panamanian law firm, earlier today Russian president Putin made his first public announcement on the topic of the Panama Papers.

Acording to AP, Putin denied having any links to offshore accounts and described the Panama Papers document leaks scandal as “part of a U.S.-led plot to weaken Russia.” Putin described the allegations as part of the U.S.-led disinformation campaign waged against Russia in order to weaken its government. “They are trying to destabilize us from within in order to make us more compliant,” he said.

President Vladimir Putin attends the Russian Popular Front’s third media forum,
Truth and Justice, featuring independent regional and local media. April 7, 2016

“So here we’ve got some friend of the Russian president, he has done something, probably there is an aspect of corruption to it… But what aspect [exactly]? Well, there is none,” Putin said on Thursday, addressing a media forum in St. Petersburg. He also pointed out that he himself had not been mentioned in the leaked documents.

“You are all journalists here and you know what an informational product is… They’ve plowed through offshore [funds]. [Putin] is not there, there is nothing to talk about. But the task has been assigned! So what have they done? They’ve created an informational product by having found some acquaintances and friends,” the president told the media forum.

According to Putin, the Panama Papers episode is yet another attempt to destabilize Russia from within, and make it “more agreeable.”

“The easiest way to do so is to induce some mistrust to authorities within the society,” Putin said, adding that the creators of the leak aimed at the unity of the multiethnic Russian people.

The Washington-based International Consortium of Investigative Journalists said the documents it obtained indicated that Russian cellist Sergei Roldugin acted as a front man for a network of Putin loyalists, and, perhaps, the president himself.

Putin defended Rolgudin, describing him as a philanthropist who spent his own funds to buy rare musical instruments for Russian state collections. Speaking at a media forum in St. Petersburg, Putin said Western media pushed the claims of his involvement in offshore businesses even though his name didn’t feature in any of the documents leaked from a Panamanian law firm.

Putin said Roldugin, a longtime friend, did nothing wrong. He said he was proud of Roldugin, adding that the musician spent his personal money to advance cultural projects. Roldugin used the money he earned as a minority shareholder of a Russian company to buy rare musical instruments abroad and hand them over to the Russian state.

“I am proud of people like Sergey Pavlovich [Roldugin]… and am proud to have him among my friends,” Putin said, adding that claims that the cellist has billions are nonsense. “Almost all money that he has earnt he spent on buying music instruments abroad, which he then brought to Russia” and gave them to state institutions, Putin said.

“Without publicizing himself, he also has worked to organize concerts, promote Russian culture abroad and effectively paid his own money for that,” Putin added. “The more people like him we have, the better. And I’m proud to have friends like him.”

Putin contended that Washington has fanned allegations of Russian official corruption in order to weaken Moscow as the U.S. has become concerned about Russia’s growing economic and military might.

“The events in Syria have demonstrated Russia’s capability to solve problems far away from its borders,” he said, adding that Moscow has achieved its goal “to strengthen the Syrian statehood, its legitimate government bodies.”

He also touched on the topic of Ukraine, which yesterday suffered a major diplomatic loss after a Dutch referendum voted against an accession agreement meant to bring Ukraine and Europe closer together. Some of Russia’s counterparts on the international arena “got used to a monopoly” there “and don’t want to consider others,” he said, having also quoted some opinions on why relations with the West have worsened.

“Our position on the situation in the south-east of Ukraine, as well as smaller scale things, such as [Russia’s] refusal to extradite [Edward] Snowden have become irritants in our relations,” Putin said.

Meanwhile, Ukraine’s president, Petro Poroshenko, who was explicitly named in the ICIJ leaks, had to be defended by Rothschild. As the FT writes, Rothschild Trust, a branch of Rothschild Wealth Management & Trust, on Thursday confirmed signing what it described as a transparent trust arrangement agreement to manage the assets of Petro Poroshenko, “an oligarch with business interests spanning from chocolates to television who was elected president of Ukraine following the 2013-2014 Maidan revolution.”

The emailed statement follows reports and claims of possible impropriety by Mr Poroshenko in setting up a British Virgin Islands-registered company, writes Roman Olearchyk in Kiev. Documents leaked from Panama’s law firm Mossack Fonseca revealed Mr Poroshenko’s registration of a BVI-registered offshore company.

In an emailed statement seemingly aimed to dispel concerns, the Zurich-based company said:

As a matter of principle, we never comment on individuals or client relationships, but on this occasion we have been authorized by our client to confirm that Rothschild Trust has been appointed by Mr Poroshenko as trustee of a blind trust to hold his shares in Roshen. This follows over 12 months of extensive preparation, and the relevant trust deed was signed on 14th January 2016. The trust has been modelled on international standards for politicians requiring trusts to hold their assets while they are in office.

Despite his name explicitly appearing in the ICIJ files, Poroshenko has gotten zero media attention across western countries. We wonder if Rothschild will pen comparable “explanation letters” for other oligarchs or pundits who tend to have a pro-Western bent?

GLOBAL ISSUES

In order to conserve electricity, our basket case Venezuela has now ordered 3 day weekends:

Venezuela Orders Three-Day Weekends To Save Electricity

Closing currency crosses for THURSDAY night/USA dollar index/USA 10 yr bond: 2:30 pm

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This afternoon, the Euro was DOWN by 22 basis point to trade at 1.1377   as the markets REACTED TO THE PLUMMETING USA:YEN CROSS, AND PLUMMETING COPPER AND OIL. 

The Yen ROSE to 108.13 for a GAIN of 160 basis pints as NIRP is a big failure for the Japanese central bank/also all our yen carry traders are being fried!!.

This ends the stock indices, oil price, currency crosses and interest rate closes for today

Closing Price for Oil, 5 pm/and 10 year USA interest rate: