Mon, 27th March 2017

Anirudh Sethi Report


Latest Posts

School scandal brings political risk to Japan

The scandal over a shady land sale to a nationalist school operator has dealt a rare blow to Japanese Prime Minister Shinzo Abe’s government, unnerving investors counting on continued political stability.

Getting out of hand

 The issue boils down to whether an 800 million yen ($7.19 million) discount on land sold to Moritomo Gakuen by the government was appropriate, and whether any political figures were involved in the sale or the approval process for the school to be built on the plot. If politicians did play a role and money changed hands, that could be considered graft.

Moritomo Gakuen chief Yasunori Kagoike alleged political involvement when he testified Thursday before the Diet, but this has been denied by officials who led finance bureaus involved in the deal. Yet government explanations have not cleared up public doubts about the process or the sale price.

“It’s a shame that this couldn’t bring the matter to a close,” a senior government official said after Kagoike’s testimony.

The prime minister’s office led the effort to bring Kagoike before the Diet, seeking to highlight contradictions in his claims. Yet the administrator did not budge even while under oath, putting the onus on the government to explain the sale as well as the role of Abe’s wife, Akie.

Priebus, Price Blamed For Healthcare Failure: NYT

On Friday morning, when it was still unclear if the GOP would round up enough votes to pass the Republican healthcare proposal, we noted that Bloomberg reported that as a “Plan B” contingency plan, Trump was preparing to sacrifice Paul Ryan, to wit “several Trump associates have already laid groundwork to blame the speaker” as well as potentially Reince Priebus.

Trump’s long-time friend, Newsmax CEO Chris Ruddy was quoted as saying “I think Paul Ryan did a major disservice to President Trump, I think the president was extremely courageous in taking on health care and trusted others to come through with a program he could sign off on. The President had confidence Paul Ryan would come up with a good plan and to me, it is disappointing.” Additionally, Bloomberg quoted a Trump associate who said that White House chief of staff Reince Priebus may also be imperiled.

One day later, while the fate of Paul Ryan is still to be determined even as he will likely be responsible for setting the framework of Republican tax reform, the NYT confirms that the internal scapegoating has begun and that as hinted yesterday, the blame for the failure to get GOP support for ObamaCare repeal and replace legislation has increasingly fallen on White House chief of staff Reince Priebus and other top administration officials.  Specifically, the Times also reports that the blame for the legislative failure has fallen on Priebus, who was in charge of coordinating an initial plan on ObamaCare repeal with Speaker Paul Ryan, who for now appears to hve avoided Trump’s direct wrath. To wit:

Chris Martenson: “Why This Market Needs To Crash (And Likely Will)”

Like an old vinyl record with a well-worn groove, the needle skipping merrily back to the same track over and over again, we repeat: Today’s markets are dangerously overpriced.

Being market fundamentalists who don’t believe it’s possible to simply print prosperity out of thin air, we’ve been deeply skeptical of the financial markets ever since the central banks began their highly interventionist policies. Since 2009, they have unleashed over $12 Trillion in new money into the world, concentrating wealth into the hands of an elite few, while blowing asset price bubbles everywhere in the process (see our recent report The Mother Of All Financial Bubbles).

Our consistent view is that price bubbles always burst. Which is why we predict the world’s financial markets will implode spectacularly from today’s heights — destroying jobs, dreams, hopes, economies and political careers alike.

When this happens, it will frighten the central bankers enough (or merely embarrass them enough, being the egotists that they are) that they will respond with even more aggressive money printing — and that will then cause the entire money system to blow up.  Ka-Poom!  First inwards in a compressed ball of deflation, then exploding outwards in a final hyperinflationary fireball (see our recent report When This All Blows Up…).

Emerging Markets -An Update

  • Reserve Bank of India will introduce a new monetary policy tool.
  • Moody’s raised the outlook on Russia’s Ba1 rating from stable to positive.
  • Fitch cut Saudi Arabia’s rating a notch to A+.
  • Moody’s cut the outlook on Turkey’s Ba1 rating from stable to negative.
  • China has temporarily suspended beef imports from Brazil.

In the EM equity space as measured by MSCI, Russia (+2.0%), Colombia (+1.8%), and Chile (+1.5%) have outperformed this week, while Poland (-2.8%), Hungary (-2.0%), and Brazil (-1.3%) have underperformed.  To put this in better context, MSCI EM rose 0.3% this week while MSCI DM fell -0.9%.

In the EM local currency bond space, Hungary (10-year yield -22 bp), Poland (-17 bp), and Mexico (-15 bp) have outperformed this week, while Argentina (10-year yield +38 bp), the Philippines (+11 bp), and Czech Republic (+6 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 8 bp to 2.42%.
In the EM FX space, ZAR (+2.0% vs. USD), MXN (+1.0% vs. USD), and KRW (+0.8% vs. USD) have outperformed this week, while BRL (-1.2% vs. USD), EGP (-0.6% vs. USD), and HUF (-0.5% vs. EUR) have underperformed.