Economic Uncertainty Is Plummeting

We keep seeing various indications people are feeling better about the economy, with consumer confidence returning to pre-recession levels.

Still, a longstanding canard has been that pervading "uncertainty" has stifled a stronger recovery.

Over the last five months, however, economic uncertainty has taken a nosedive. Researchers at Stanford and the University of Chicago charted it out.

Stanford/U. Chicago Economic Policy Uncertainty Index

Here's their larger index, based on the volume of news articles discussing economic uncertainty, CBO reports, and Fed forecasting.

We're basically at a three year low for economic uncertainty. Sure paints a pretty picture, but it remains to be seen if this means growth will soon be upon us.

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Gold Is Spiking

Gold futures are up 1.3% to $1,416.70 per ounce today on dollar weakness.

The surge in gold is being driven by dollar weakness. The dollar is currently trading around ¥97.10 to the yen and is down 2.0% on the day. The dollar began to weaken against the euro after ECB president Mario Draghi's press conference. 

This FinViz chart shows gold's performance today:

Fin VIz

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DEUTSCHE BANK: We Don't See A Bottom In Japanese Stocks

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The Japanese Nikkei 225 has corrected a staggering 15% since just May 22.

As a result, one of the world's hottest stock markets is suddenly flirting with "bear market" territory – defined as a 20% price decline from the market's previous peak.

In his latest note to clients, Deutsche Bank strategist Makoto Yamashita cautions that "we do not see a bottom," and says it is "natural to assume that the Nikkei Average will correct for several months."

The good news, says Yamashita, is that a range-bound Nikkei will help to reduce the volatility in the Japanese government bond market that has been cause for concern in the marketplace as of late.

Yamashita writes:

The Nikkei Average fell to below 14,000, and we do not see a bottom. It has fallen 17% from the recent peak of 15,942 on 23 May. This is an extremely large fall for just under two weeks. Many investors likely still see this as a healthy correction since the Nikkei Average had nearly doubled over the six months since November when it was above 8,000. That said, normally we would expect it to take some time for the Nikkei Average to pass 16,000. Japanese stocks also saw a large correction after rising sharply in 2005-2006. The Nikkei Average rose from below 12,000 in August 2005 to above 17,500 in April 2006 due to expectations of progress in structural reforms after then-PM Junichiro Koizumi called a snap election on postal reform. The index corrected sharply in June 2006 to around 14,000 then rose to above 17,500 through end- 2006. However, it took eight months for stocks to exceed their previous peak after bottoming.

It is therefore natural to assume that the Nikkei Average will correct for several months even if it eventually rises above 16,000. Stocks could rebound faster this time given volatility is higher, but at least in June we see little chance of another rise in share prices. A range-bound Nikkei Average would help to reduce volatility in JGBs. Gross potential buying pressure will become relatively large compared to coupon-bearing JGB issuance with supply/demand in June impacted by the BoJ's more flexible JGB purchases and large JGB redemptions. Conditions for a fall JGB yield volatility are coming together. UST yields remain a source of volatility, but we believe the risk of a sharp rise in yields has diminished given the deterioration in yesterday's US ISM index.

The Nikkei finally stanched the bleeding today – rising 2.1% – but if Yamashita is correct, the wild price gains that have made Japanese stocks one of the hottest trades of 2013 may pause for a while going forward.

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ALBERT EDWARDS: I Cannot Suppress My Anger Any More, The UK Is Putting Young People Into Indentured Servitude

Albert Edwards, the famously bearish strategist at Societe Generale, has a new note that goes to town on U.K. chancellor George Osborne, who, as part of his budget plan unveiled in March, proposed that the U.K. get more involved in subsidizing mortgages.

Edwards has decided that he can no longer keep his mouth shut on the matter, and must lash out at this horribly misguided policy.

George Osborne in his March budget proposed an unusually misguided piece of government interference in the housing market. The measures will see government provide lenders with a guarantee of up to 20 per cent of a mortgage in an attempt to encourage lending to borrowers with small deposits. This means that if a borrower defaults on a loan, the taxpayer will be liable for a proportion of the losses. Numerous critics of George Osborne's scheme range from the IMF to the outgoing Bank of England Governor Mervyn King, who said "We do not want what the US has, which is a government-guaranteed mortgage market, and they are desperately trying to find a way out of that position."

He goes on to express the viewpoint that house prices are already way too high.

He points to this chart, showing how high U.K. prices are relative to other countries.

SocGen

In the end, he says, this is mere indentured servitude of the youth, under a crushing burden of debt:

What makes me genuinely really angry is that burdening our children with more debt (on top of their student loans) to buy ridiculously expensive houses is seen as a solution to the problem of excessively expensive housing. I would have thought the lack of purchasing power should contribute to house prices declining or stagnating (relative to incomes), hence becoming affordable once again.

You would have thought that George Osborne would be ideologically predisposed to a market solution, wouldn't you? But apparently not. Why are houses too expensive in the UK? Too much debt. So what is George Osborne's solution for first time buyers unable to afford housing? Why, arrange for a government guaranteed scheme to burden our young people with even more debt! Why don't we call this policy by the name it really is, namely the indentured servitude of our young people.

(HT: Katie Martin)

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11 Stomach-Churning Photos Of Overcrowded Farms In China

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Northern Ireland Installed Hilarious Fake Storefronts To Cover Up Its Crappy Abandoned Buildings Before The G8 Summit

Northern Ireland welcomes the G8 conference this year, and local councils are doing everything in their power to hide economic problems in the the region, Reuters' Cathal McNaughtan reported yesterday.

They've spent 2 million pounds obscuring derelict or abandoned buildings with billboards, demolishing some eyesores, and  installing picturesque security fences. 

One town, Belcoo, has taken an unorthodox strategy of implying prosperity:

In the one-street town of Belcoo, the changes are merely cosmetic. At a former butcher's shop, stickers applied to the windows show a packed meat counter and give the impression that business is booming.

Here are six pictures from Reuters of the interesting measures Northern Ireland is taking to look pretty for the G8.

Security fencing covered with scenic pictures around an unfinished building site in Irvinestown, Northern Ireland:

Reuters

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Reuters

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