Progress in Japan

April 6, 2011

Markets are opening with a bid today while bond markets sell off slightly. The 10 year treasury now sits at 3.5%, the 2-year at 0.82%. Commodities are up slightly this morning, led by copper, gold and oil.

The IMF reversed its long standing opposition to cross-border capital controls by endorsing some temporary restrictions. The change in policy is a direct response to US complaints about China, Brazil and other countries using currency controls to stem the inflationary impact of the Fed’s weak dollar policy.

The next deadline for a potential government shutdown, the first one since the Bill Clinton/Newt Gingrich days, is rapidly approaching. The government could shut down Friday at midnight, although the real impact wouldn’t begin until Monday. The President has said he won’t accept a one-week or short term extension, instead holding out for a deal. Democrats have come up to $33 billion in cuts, Republicans have dropped to $40 billion. The composition of the cuts seems to be a bigger sticking point. To put the proposed cuts in perspective, a $40 billion reduction in federal spending would allow the deficit to be balanced in 52 years, assuming all other expenditures (including entitlements) and tax revenues were held steady over that ½ century.

John Mauldin calculates that if you use the number of people in the workforce two years ago as the denominator for the unemployment rate, the rate jumps from last week’s reported 8.8% to over 10%. The question is where have all those job seekers gone?

China increased their benchmark lending rate to 6.31%, the fourth increase in the past six months. Economists are now looking for a slowdown in Chinese growth as incomes rise and the service sector becomes more robust.

Tepco officials announced they were able to stop the leak of highly radioactive water that has been flowing into the ocean over the past five + days. Radioactivity in fish has been detected for the first time since the company began dumping millions of gallons of radioactive water into the sea to make room for the storage of more dangerous fluids. Fisherman in Ibaraki have halted operations after higher than acceptable levels of Cesium were found in fish. Cesium has a half-life of 30 years, and can build up in the meat of fish and move up the food chain.

According to a study from George Washington University, inflation is running at a 5.7% annual rate while weekly wages are growing just over 1%. Demand from BRIC countries and the Middle East in addition to Fed policy is causing the seeming dislocation as typically inflation is driven by higher wages in the US.

There is a growing consensus in Congress that future Medicare beneficiaries will have to accept lower benefits to ensure the program survives. The New York Times is reporting that the program would be tiered, and those now under 55 would see a different level of benefits than those on the plan today. Rep Paul Ryan of Wisconsin proposed a plan that would cut over $5 trillion from anticipated spending over the next 10 years, with major changes to Medicare and Medicaid.

APAC markets were up last night, with the Shanghai rising 0.8%, Hang Seng 0.5%, Taiex 1.7%, and Nikkei 0.2%. New Zealand’s NZX dropped by 0.7%.

Have a great day

Ned