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Banker Catfight: It's On!

Submitted by Tyler Durden on 09/15/2010 09:35 -0400

From Nic Lenoir of ICAP

Well, hopefully those who were long USDJPY did not close after the results of the election in Japan yesterday. After staying away from currency intervention and being campaigned against on that very basis, Kan did not wait 24 hours to turn around and start selling USDJPY! Other than the obvious irony of the turn of events, this move has HUGE consequences.

Let's turn the clocks back a couple years: in the fall of 2008 all the central banks were united fighting the credit crunch "come out of nowhere" trying to prevent a systemic collapse. Because obviously no one seems to have put much thought into why the system nearly collapsed, it wasn't long after disaster was barely (temporarily only) averted that central banks and politicians went right back to what they do best: a healthy dose of populism. Because somehow it did set in at each individual country level that growing one's middle class to generate economic growth without an explosion in lending is actually difficult, it wasn't long before the logical conclusion was reached: let's grow exports! Something that by the way has long been understood by China which has made no attempt at growing its middle class, focusing purely on currency fix and cheap labor.

Where do we go from now? Well the intellectual midget fight is on. The BOJ asked the US and Europe for support in case of intervention and both basically looked away like the prom queen when the class geek asks her for a dance. At the end of the day though, a ninja's got to do what a ninja's got to do and the BOJ moved ahead with currency intervention. The ECB can't be too pleased with that, especially the Germans who after 8 years of EUR appreciation were finally starting to reap the benefits from teaming up with economic misfits. With the Fed reinvesting interest payments in fresh treasuries and Q2 rumors, and now the BOJ in currency intervention mode, the clouds are gathering over export prospects for Europeans. The next logical step will be trade wars. When one hears US senators campaign against the Yuan manipulation it's a miracle we haven't seen more of it yet.

Market wise the implications are very interesting for the USDJPY Vs. UST-JGB spread. On one hand the BPJ is buying the USD and selling JPY, on the other the Fed is buying treasuries sending the UST-JGB yield spread lower... Grab some popcorn and a soda this one is just getting started. Ultimately the relationship will break, and I think the move to sell US Treasuries based on the BOJ intervention is ill-advised. The 10Y Treasury future hit channel resistance yesterday and could possibly consolidate with support below at 123-26 and quite a bit of upside once we bypass yesterday's highs.

For USDJPY we have recommended buying over the pat two weeks and I am glad my decision was based on technical/positioning considerations and not purely expectations of a switch of PM at the ellection as clearly it would have forced me to change my outlook yesterday! The Daily chart is self-explanatory as we had not only strong bullish divergence and a major support around 82.90 yesterday. This kind of price action is rarely ignored by the market and the magnitude of the bounce is as much a result of the news as it is a function of the market positioning going into it. Short-term we have hit the 50-dma which is the logical resistance for today's move. People looking to buy would be better off waiting for a pull-back towards 84.50, and we would not really change our expectation for further USDJPY strength unless 83.50 is bypassed on a daily close. Next key resistance once the 50-dma is bypassed is 87.90/88. If that is bypassed it would invalidate the bearish impulse started around 95.00 last May and would in my opinion imply that the bear market for USDJPY started in the 70s could be over... Let that sink in for a second and try to guess how high I think USDJPY can go.

Good luck trading,

Nic

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Wed, 09/15/2010 - 09:39 | 582987 firstdivision

At the end of the day though, a ninja's got to do what a ninja's got to do

Freaking classic line there.

Wed, 09/15/2010 - 09:51 | 583010 Cognitive Dissonance

Teenage Mutant Ninja Turtles

Wed, 09/15/2010 - 11:37 | 583269 Andrew G

No dude, this is clearly Ninja vs Mafia. BTW, for those uneducated inbreds who haven't seen this brilliant piece of moviemaking, check out http://www.youtube.com/watch?v=4aAnduWC6Jw

Wed, 09/15/2010 - 12:22 | 583386 Cognitive Dissonance

Simply brilliant dialogue. And the fight scenes are to die for.

"My friend, you'd better tell me what's going on."

Wed, 09/15/2010 - 09:42 | 582992 Sircornflakes

Central Banks burning cash.

Should be a reality show.

Christ, it IS reality!!!

Wed, 09/15/2010 - 09:58 | 583018 reading

Hey, at least our central bank isn't the only one...misery loves company

Wed, 09/15/2010 - 10:12 | 583049 SWRichmond

Central Banks burning cash.

It's what Tiggers do best.

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

- Ben Bernanke, 2002 speech

Wed, 09/15/2010 - 13:32 | 583517 Bob

Have more explicit words ever been spoken? http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm

It's a race to the bottom and I think I just heard the starting gun.

Thank Gawd. The suspense was killing me.

Wed, 09/15/2010 - 09:44 | 582995 Sudden Debt

As the cute white bunny would say:

BRING IT ON MOTHERFUCKERS! I'LL BREAK YOUR TEETH WITH ONE ARM STRAPPED TO MY BACK!

Wed, 09/15/2010 - 09:44 | 582997 johngaltfla

If that is bypassed it would invalidate the bearish impulse started around 95.00 last May and would in my opinion imply that the bear market for USDJPY started in the 70s could be over.

Let that sucker sink in as he said. If the bear market is over, we could see a massive shift of capital investment into Asia as has already started AND a mass LIQUIDATION of USD denominated holdings.

Pretty ugly consequences if we see a 7x.xx print on JPY/USD soon....

Worse if we see a 9x.xx on the JPY/EUR.....

Wed, 09/15/2010 - 09:45 | 582999 scratch_and_sniff

http://www.youtube.com/watch?v=NwXjynpy8Ew&feature=related

Wed, 09/15/2010 - 09:46 | 583001 sweet ebony diamond

We are surrounded by douchebags. WWMD?

Wed, 09/15/2010 - 10:01 | 583027 aheady

Magnum?

Wed, 09/15/2010 - 10:14 | 583052 Joeman34

Merdoch!

Wed, 09/15/2010 - 10:09 | 583041 Boilermaker

WTFWJD?

Wed, 09/15/2010 - 11:23 | 583249 Uncle Remus

Pass the collection plate?

Wed, 09/15/2010 - 09:48 | 583002 MarkTwainsMustache

And Greenspan now says that Gold is the "canary in the coal mine" Bernanke must be furious!

Wed, 09/15/2010 - 09:49 | 583006 Sudden Debt

Tyler, I already posted this in another thead today, but also here it applies.

In looking up the reconstruction plans after the American civil wars, I found these key points:

In December 1861, President Lincoln's own financial plan was presented by Treasury Secretary Salmon Chase (a free-trade liberal sweating and agonizing in the President's harness), and by Lincoln himself. Its measures included:

a nationally regulated private banking system, which would issue cheap credit to build industry;
the issuance of government legal-tender paper currency;
the sale of low-interest bonds to the general public and to the nationally chartered banks;
the increase of tariffs until industry was running at full tilt;
government construction of railroads into the middle South, promoting industrialism over the Southern plantation system.

As for the trade wars, I also see spikes in import tariffs to happen like the anti dumping laws in Europe. Personally I don't think it's a bad thing. Only for China it will be bad as it destroys their advantage of cheap labor.

Wed, 09/15/2010 - 09:50 | 583008 UGrev

Nerd Rage, Ninja's!!

Wed, 09/15/2010 - 09:51 | 583009 Ragnarok

America won WWII by out producing every other nation, and America will win the currency war because they can out produce more currency than any other nation.

Win the currency war = collapse of the fiat/Keynesian system

Wed, 09/15/2010 - 10:01 | 583022 Sudden Debt

I don't want to burn down your patriotic flag but ehhhh......

out producing money isn't actually a good thing you know...

Wed, 09/15/2010 - 10:02 | 583029 MichaelG

And there might be a bit less help from the Soviet Union during the currency wars.

Wed, 09/15/2010 - 10:10 | 583043 Ragnarok

Obviously you missed the point of the comment. "Winning" the currency war means everybody loses.....except those who own tangible real world wealth.

Wed, 09/15/2010 - 10:19 | 583055 bada boom

Apparently, the US Fed Reserve may be one of winners.

After all, aren't they trading FRN's for assets.

Wed, 09/15/2010 - 10:22 | 583077 Ragnarok

Brilliant isn't it, I don't care if I pay 100 cents on the dollar because I conjured it out of nothing and now I own tangible assets (doesn't matter what they are worth denominated in FRNs). One day when the dollar collapses the private central bankers will own everything and simply issue another fiat currency. Hopefully this time though the fiat currency is used domestically and physical gold (which can not be lent or fractionalized) will be used for international trade and settlement.

Wed, 09/15/2010 - 12:54 | 583451 Bendromeda Strain

Hopefully this time though the fiat currency is used domestically and physical gold (which can not be lent or fractionalized) will be used for international trade and settlement.

Nostagic for the '30s much? How about "new fiat" does as it will, but floats against cap gains free bullion used as the people's savings. Transact in fractional reserve fiat but under no conditions use it as the store of wealth.

Wed, 09/15/2010 - 13:39 | 583527 Bob

Funny! Glad to hear you meant it that way.

Wed, 09/15/2010 - 10:31 | 583089 TheDriver

python -c '"more" != "better"'

Wed, 09/15/2010 - 11:41 | 583301 barkingbill

sorry but america is not set up for a win....it will be a humbling decade for america coming.

Wed, 09/15/2010 - 10:06 | 583034 Bill Lumbergh

Seems like a rotating around-the-world currency manipulation...when a major market opens then jam that local currency down...when the next major market opens then jam that local currency down...wealth creation at its finest.

Wed, 09/15/2010 - 10:16 | 583056 SWRichmond

Yes, I agree. Sequential rather than contemporaneous debasement, while trying to keep eyes focused on "relative" measures of currency-thingies like USDX, rather than absolute worths against, say, gold.

Wed, 09/15/2010 - 10:07 | 583035 Kreditanstalt

It's all paper anyway...

Wed, 09/15/2010 - 10:42 | 583121 Cognitive Dissonance

To be fair, it's all electronic ones and zeros. Less than 3% of all the "money" is actually paper or cash, "which is just as good as money".

Thank you Yogi Berra for the insight.

http://www.youtube.com/watch?v=O-EZf56AfYc

Wed, 09/15/2010 - 10:53 | 583154 Sudden Debt

Overall investmenst in toilet paper give you on average a 4% return.

Meaning: It depends on the bottom value of the paper vs. return.

I would rather say:

Any paper that looks green is mean

Wed, 09/15/2010 - 10:07 | 583036 scratch_and_sniff

Get a lot of this guys, who wants to see the bankers get fidgety?

http://uk.news.yahoo.com/5/20100915/tuk-terror-group-in-warning-to-criminal-45dbed5.html

Wed, 09/15/2010 - 12:57 | 583457 Bendromeda Strain

This was already commented on in another thread (w/ Wiki link to Omagh page). So how many unintended casualties will these evil morons cause this time? Project Mayhem they ain't.

Wed, 09/15/2010 - 13:24 | 583502 scratch_and_sniff

Sorry, never seen that particular thread.

Wed, 09/15/2010 - 10:11 | 583047 Boilermaker

Who gives a shit? The daily miracle 9:45 am bounce to parity in the equity markets just occurred.

"RISK ON" (vomit pooling in back of throat).

Wed, 09/15/2010 - 10:19 | 583058 plocequ1

Infinity long ( Formerly Zero Hedge ) bitchez. Long live Tim Geitner and Benny B.

Wed, 09/15/2010 - 10:21 | 583074 Boilermaker

Did I say parity? I'm so fucking stupid. I mean to say a complete reversal of the early losses. Just change the color and leave the number the same...presto, a 5 minute hand job for the 'market'.

Huge futures buying...I wonder what that's about?

Wed, 09/15/2010 - 10:30 | 583086 firstdivision

The buying are people that have tomorrow's jobs numbers (that will be reported) in exchange for their compliance to prop the market. Looks like tomorrow's jobs number will be a "beat"...but this time only 6 states report while the other were busy at the beach on a "state-holiday".

Wed, 09/15/2010 - 10:18 | 583065 firstdivision

You forgot to mention the 10-Y is strengthing as is equities. Awesome correlation there.

Wed, 09/15/2010 - 10:13 | 583050 juno9604

>>>>>>>"selling USDJPY!" >>>>>>>what?

Wed, 09/15/2010 - 10:20 | 583071 juno9604

also, the next logical step is not trade wars...that might be the next leap to conclusion. there are admittedly sovereign interests acting in the fx markets but that's a far cry from trade wars. typically the BOJ understands that intervention slows, does not stop or reverse, the trend. the point of intervention is to put a bit of a hurtin' on JPY longs and to discourage too large currency movements and to curb volatility. not saying it works but that's the game.

Wed, 09/15/2010 - 10:23 | 583079 bankonzhongguo

Saw this little gem.

http://www.bloomberg.com/news/2010-09-15/china-said-to-weigh-15-capital-...

I recall being in a few meetings between BOC and the FRB in the 1990's. At the time, the Fed simply threw back into China's face Basel II and used that as a political reason to halt BOC and ICBC expansion into US markets. Funny how with all those USD reserves, China now has the cash to jump the shark on Basel III. Sadly, they could pour 10 trillion into banking and it would be gone via bad loans before 2019. I just know Timmy is wearing a green hat in China's book. It would be very interesting to know how exactly traders in Shanghai (not HK) are going to treat Japan's intervention. I know of a few China politicos who would like to use this currency instability period, a la Soros, for a little Nanjing payback.

Wed, 09/15/2010 - 10:32 | 583088 Jason T

From a guy at LaRuoche in an email response I got from him when I asked about the implications of silver manipulation and potential madoff style bust in silver..there isn't enough physical to meet the demand and it's consequence on the fiat money system:

The global financial system is hopelessly bankrupt at this point, and the players are desperately manipulating and stealing whatever they can, including from each other. The real insiders are eating the lesser players--lesser in the sense of being lower on the Anglo-Dutch Liberal empire's food chain (Citi being a good example)--since the number of players is still far larger than it needs to be, in the post-bubble environment.

Wed, 09/15/2010 - 10:58 | 583167 MrTrader

I am a lucky guy today. Long full to the hilt in all JPY crosses. Thank you Japan. Thank you Mr. Kan. Thank you Mr. Shirakawa. :=)

Wed, 09/15/2010 - 11:31 | 583275 barkingbill

so according to you i should sell my japanese yen. but im not going to. i dont buy your thesis. i see it continue to soar after a bit of pathetic attempts to derail it. we will see if you are right.

Wed, 09/15/2010 - 11:33 | 583280 barkingbill

so according to you i should sell my japanese yen. but im not going to. i dont buy your thesis. i see it continue to soar after a bit of pathetic attempts to derail it. we will see if you are right.

Wed, 09/15/2010 - 12:43 | 583430 Temporalist

The Global Race To The Bottom Of The Barrel

Everyone needs to devalue their currency even though, or specifically because, it is like a poison to the populace.

Too many old people/baby boomers living too long and using Social Security and Health Care far too much? No problem! Just debase that currency and starve them out by crushing their savings.

Even in Japan the elderly population is on a crime spree because they have nothing:

Japan struggles with elderly crime wave

http://www.telegraph.co.uk/news/worldnews/asia/japan/3213349/Japan-strug... (this one dates back to 2008)

Japan’s Elderly Crime Triples on Isolation, Economy (Update1)

"The number of elderly Japanese arrested for crimes tripled in the decade to 2008 as the aging population struggled to cope with isolation and a stagnating economy, a government report showed."

http://www.businessweek.com/news/2010-05-14/japan-s-elderly-crime-triple...

One can now resume discussing Demographics as a serious problem that CBs ignore or are too stupid to factor.

Wed, 09/15/2010 - 19:34 | 584271 StychoKiller

Two hots and a cot beat Social Security in Japan I guess...

Wed, 09/15/2010 - 13:31 | 583513 Problem Is

"...looked away like the prom queen when the class geek asks her for a dance."

There Are No Prom Queens at This Dance
Just double butt ugly wall flowers and Cheese-dick Timmay G...

Wed, 09/15/2010 - 14:18 | 583588 williambanzai7

CRAZY 88s

http://williambanzai7.blogspot.com/2010/09/crazy-88s.html

Wed, 09/15/2010 - 21:55 | 584456 Problem Is

"Operation Obamanomics"

William... you ARE a classic...

Wed, 09/15/2010 - 19:31 | 584267 labrat

Nic, not too familiar with forex, right? "Kan did not wait 24 hours to turn around and start selling USDJPY!" ??? You mean to say selling Yen relative to Dollars. That is the same as buying USD/JPY... which caused USD/JPY to go from about 82.90 to 85.80 in less than 24 hours. And, yes that's a big move.

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Banker Catfight: It's On!

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