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Goldman On BOJ's Banzainomics: "We Highlight The Potential For Harsh Criticism Of Further Cost-Push Inflation"

It was about several months ago when Goldman, which initially was an enthusiastic supporter of BOJ's QE, turned sour on both Abenomics and the J-Curve (perhaps after relentless mocking on these pages), changed its tune, saying an unhappy ending for Abenomics is almost certainly in the cards. Not surprisingly then, in its post-mortem of the BOJ's overnight action, already being affectionately called Banzainomics, is hardly glowing, and is summarized as follows: "We maintain our view that unless the yen continues to depreciate significantly, as a result of the latest QQE action, the BOJ is unlikely to meet its scenario for inflation to stably reach 2% during FY2015. From a political perspective, with nationwide local elections looming in April 2015, we also highlight the potential for harsh criticism of further cost-push inflation driven by the weaker yen among nonmanufacturers, SMEs, and households. Irrespective of the latest easing moves, we believe the BOJ is treading a very narrow path."



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Frontrunning: October 31

  • Futures rally after BOJ ramps up stimulus (Reuters), Japan's central bank shocks markets with more easing as inflation slows (Reuters)
  • Kuroda Jolts Markets With Assault on Deflation Mindset (BBG)
  • Japan Mega-Pension Shifts to Stocks (WSJ)
  • Russia Raises Interest Rates (WSJ)
  • Oil-Price Drop Has Saudi Officials Divided (WSJ)
  • Not anymore, the BOJ is here: Fed Exit Could Spark Slump in All Markets, ATP CEO Says (BBG)
  • Wal-Mart Weighs Matching Online Prices from Amazon (WSJ)
  • Euro-Area Inflation Picks Up From Five-Year Low on Stimulus (BBG)
  • Big Banks Brace for Penalties in Probes  (WSJ)
  • Ex-UBS Trader Defense Could Be Threat to U.S. Forex Cases (BBG)


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Shocking Bank Of Japan Trick And QE Boosting Treat Sends Futures To Record High

Two days ago, when QE ended and knowing that the market is vastly overstimating the likelihood of a full-blown ECB public debt QE, we tweeted the following: "It's all up to the BOJ now." Little did we know how right we would be just 48 hours later. Because as previously reported, the reason why this morning futures are about to surpass record highs is because while the rest of the world was sleeping, the BOJ shocked the world with a decision to boost QE, announcing it would monetize JPY80 trillion in JGBs, up from the JPY60-70 trillion currently and expand the universe of eligible for monetization securities. A decision which will forever be known in FX folklore as the great Halloween Yen-long massacre.



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Markets Explode Higher As Bank Of Japan Goes All-In-er; Increases QE To JPY 80 Trillion

UPDATE: Nikkei 225 +1100 points,  USDJPY +3 handles to 111.00 post-FOMC,

In a surprise move given all the recent congratulatory bullshit from Abe and Kuroda on breaking the back of Japan's deflation and bring about recovery (forgetting to mention record high misery index, surging bankruptcies and a crushed consumer), the Bank of Japan (by a 5-4 vote) raised its bond-buying program from JPY 70 trillion to 80 trillion... and triple its ETF buying to JPY 3 trillion. This move, on the heels of more confirmation of broader foreign asset purchases in Japan's GPIF sent USDJPY instantly gapping 1 big figure higher to 110.30 and Nikkei futures instantly rose 400 points. S&P futures are also surging. Gold and silver are tanking and TSY bonds are selling off.



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Putin To Western Elites: Play-Time Is Over

Most people in the English-speaking parts of the world missed Putin's speech at the Valdai conference in Sochi a few days ago. Western media did their best to ignore it or to twist its meaning. Regardless of what you think or don't think of Putin, this is probably the most important political speech since Churchill's “Iron Curtain” speech of March 5, 1946. In this speech, Putin abruptly changed the rules of the game. To sum it all up: play-time is over. Children, put away your toys. Now is the time for the adults to make decisions. Russia is ready for this; is the world?



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I Pledge Allegiance...

Being surrounded by people who have been taught, just as I was, to pledge allegiance to the state, is the unfortunate reality we are all confronted with. something that is so deeply engrained that the best I can do is teach my children to think for themselves and decide on their own. Figuring out how to best teach my children the danger of such blind allegiance is without a doubt the most difficult task I face as a father.



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Goldman, Morgan Stanley Warn European QE, While Fully Priced In, Is Neither Imminent Nor Likely

On balance, Morgan Stanley feels that broad-based QE, (i.e. large-scale purchases of government bonds) is further away for the ECB than the market currently believes. Presently they only assign a subjective 40% probability to such a step being taken; whereas the euro rates market is already pricing in the ECB resorting to a broad-based purchase programme with a very high probability of 80-100%. Goldman agrees warning specifically that "Sovereign QE is not imminent... and indeed may never happen." It appears no matter what, disappointment is guaranteed for the market.



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Careful What You Wish For: Plunging Yen Leads To 140% Surge In Bankruptcies

Due to the depreciation of the JPY, leading to soaring raw material costs (crushing SME profitability), TSR reports that Japanese bankruptcies year-to-date in 2014 are up a stunning 140% having unerringly surged since Abenomics was unleashed. Despite constant reassurance and propaganda from various political leaders each and every night that Japan is on the right track... it simply is not and if there is a better indicator of the death spiral Abe has unleashed than surging bankruptcies, we are unaware of one.



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The Dollar Decline Continues: China Starts Direct Convertibility With Asia's #1 Financial Hub

Earlier this week some of the biggest financial news of the year made huge waves all over Asia. Yet in the Western press, this hugely important information has barely even been mentioned. So what’s the news? The Chinese government announced that the renminbi will become directly convertible with the Singapore dollar... effective immediately.



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Disillusioned Millennials Dump Democrats, Blame Obama

In a sad reflection of the hope-and-change expectations, a new national poll shows likely voters in the so-called millennial generation prefer a Republican-led Congress after next week's elections, and young Hispanics are turning sharply against President Obama. As National Journal reports, the poll of 18-to-29-year-olds by Harvard's Institute of Politics (IOP) shows that young Americans are leaving the new Democratic coalition that twice elected Obama as the president's approval rating among Millennial tumbles from 47% in April to just 43% now (and nearly 60% of young Americans disapprove of Obamacare). However, the news is not all good as the future of the American electorate, generally hold Republicans in the lowest regard.



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Hillary Clinton: "Businesses Don't Create Jobs" – Why She's Never Been More Wrong

The idea that Hillary Clinton, or any of these politicians (like Bush, Romney and Obama) can create jobs is lunacy. It’s scary to realize just how demented our political leaders truly are. Hillary’s wrong on the idea that government creates jobs – the government destroys jobs. Here are seven reasons why...



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Goldman Warns Midterm Elections Raise Risk Around Fiscal Deadlines

The US midterm elections taking place on November 4 may very well lead to a shift in Senate control to Republicans from Democrats, according to Goldman Sachs. They argue that a Republican-controlled Congress could renew legislative activity – at least on small issues – but also increase (unwanted) uncertainty on some larger ones creating risk around fiscal deadlines.



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Caption Contest: "So Bullish It Hurts" Edition

Don't worry the pain will stop soon... (one way or another)



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Thank You US Taxpayers: Russia-Ukraine Agree Terms On Gas-Supply Through March

Good news for the cold-showering, snow-covered Ukrainians... Russia has reached an interim agreement to supply natural gas to Ukraine through March according to Bloomberg. Of course, this will be paid for by more IMF loans (thank you US Taxpayer), pushing Ukraine further into debt and more dependent upon the West.



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Jim Grant On Complexity: The Hidden Cost Of Central Bank Actions

Central banks are printing rules almost as fast as they’re printing money. The consequences of these fast-multiplying directives — complicated, long-winded, and sometimes self-contradictory — is one topic at hand. Manipulated interest rates is a second. Distortion and mispricing of stocks, bonds, and currencies is a third. Skipping to the conclusion of this essay, Jim Grant is worried: "The more they tried, the less they succeeded. The less they succeeded, the more they tried. There is no 'exit.'"



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