Article / 05 November 2014 at 8:45 GMT

Daily Shot: Japan doubles down Team / Saxo Bank
  • Saudis cut prices on US oil exports
  • USDJPY breaks through 114
  • Alibaba now worth more than Wal-Mart

By Walter Kurtz

The Saudis continued to apply pressure on US energy producers today by cutting prices on oil exports to the US (while raising them for exports to Asia and Europe). We are about $4-$5 per barrel above what some analysts are calling the “drop-dead” price for US producers. I have heard suggestions that the US government should use these depressed prices to increase the strategic oil reserve.


The currencies of both Mexico and Canada came under pressure due to weakness in oil prices.

Here is the Mexican peso (chart shows USD appreciating against MXN):

USDMXN Source:

…and the Canadian dollar is trading at a new post-2008 low.



USDJPY broke through 114 as the BoJ’s Haruhiko Kuroda defended the 2% sustained inflation target. Once again, a central bank is asked to solve a nation’s structural problems with a rather blunt tool. This is going to be hard on people living on fixed incomes, as Japan’s import prices will rise sharply.


In spite of lower allocation to government bonds by Japan’s national pension fund (GPIF), the Bank of Japan’s accelerated quantitative easing is expected to overwhelm the demand for government paper.

From Morgan Stanley:

Morgan Stanley


Speaking of the GPIF, the increased allocation to foreign equities by Japan’s state pension should benefit a number of stock markets. In dollar terms, the US market is the winner, but on a relative basis the impact will be modest (about $30 billion if my math is right).

Equity allocation Potential equity inflow

Here are a few trends in the European Union that I am following closely:

1. The UK has been the driver of economic growth in the EU, providing the bulk of growth last year and the largest contribution this year.
Real GDP growth
Source: @AmbroseEP  

2. Most “eurosceptic” political parties have made significant gains in the latest EU parliamentary elections (with the National Front being the most widely publicised outside of the EU).

Source: @Stratfor

3. The unemployment problem, particularly in the Eurozone, is taking its toll.
Jobless households
Source: @TenYearNote  


Brazil's industrial production was down 2.2% year-over-year (2.9% year-to-date) — more than expected. Durable goods seem to be the main problem.

Brazilian Industrial Production

The US is keeping China’s economy humming; the trade deficit with China represents 80% of the US' total trade deficit (an historic high). Of course, at the same time US (and EU) businesses operating in China are finding it increasingly difficult to conduct business.
US trade with China

Rising rental costs in the US have been particularly hard on younger people. As a percentage of spending, housing is now materially more expensive than before the Great Recession for those under 25.

Housing expenditures Source: US Census Bureau


One trend in the US economy (outside of housing) that is starting to concern me is the slowdown in retail sales (as indicated by the Goldman-ICSC chain store sales index). This could spill over into the holiday season.
Chain store sales

Not sure what to make of this, but according to the Wall Street Journal, “Alibaba's shares are up 50% from their IPO price. The company is now worth more than Wal-Mart.”.

Retail kings


Here is a scary chart from SocGen (from a few years back), showing “US whole economy non-financial profit growth” leading the stock market index. US whole economy non-financial profit growth has recently fallen to minus 5%.
Non-financial profit growth
Source: @AmbroseEP, Albert Edwards at SocGen


The Economist ran a story recently (called “eliminate the negative”) on target volatility strategies for institutional investors. I can understand an options-based collar strategy/overlay where an investor buys downside protection and finances it in part by giving up some upside. But here is how the Economist described this process:

 Source: The Economist

An investor following this approach would have ramped up equity positions in late June/ early July, when the volume was at lows. Then in October, the investor would have sold at the bottom when volume spiked, maximising losses and then missing the equity market rally back to the highs. 



On the commodities front, the broad index (Continuous Commodity Index) resumes its slide.
Continuous Commodity Index

Gold in particular is under pressure in part as a result of the BoJ’s actions. A more aggressive QE in Japan provides support to the US dollar and weakens gold, which is now at levels not seen since early 2010.



Now some food for thought. The Russian propaganda machine is ramping up internationally, as the state-owned media outfit called RT takes on the US as well as the Western media. Sadly, it’s hard to argue with this particular message.


-- Edited by Michael McKenna

* Walter Kurtz is an alias

** Thanks for reading the Daily Shot. To subscribe or unsubscribe, link to the Daily Shot and select the appropriate command. E-mail addresses are NEVER shared with anyone. 


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail