"Markets Under The Spell Of Monetary Easing" Bank Of International Settlements Finds... Same As "Then"Submitted by Tyler Durden on 06/02/2013 21:17 -0400
Because when your primary stated goal is achieving "price stability" through unprecedented intervention, and instead you break the markets (both bonds and stocks) it may be time to reevaluate. As a reminder: "The Bank of Japan, as the central bank of Japan, decides and implements monetary policy with the aim of maintaining price stability. The Bank of Japan Act states that the Bank's monetary policy should be aimed at achieving price stability, thereby contributing to the sound development of the national economy." Instead, you get this...
After giving the world, or at least 99.4% of it (i.e., those non 0.6% who control $87.4 trillion of global assets), hell for the past 8 years, this is Ben Bernanke's conclusion of his speech during the baccalaureate ceremony at Princeton earlier today.
Congratulations, graduates. Give 'em hell.
Straight from the Chairsatan's mouth... Because it wasn't enough for once Princeton economist who has never traded a security in his life to take over the bond (and stock) market, crush the market's primary discounting function, and make an absolute mockery of price discovery for the 5th year running, here comes an entire graduating class of up and coming Chairsatans to perpetuate Bernanke's legacy. One couldn't make this up.
Neil Macdonald of the CBC recently did an investigative piece on central bankers and what they’re doing to the world’s economies. Mark Carney was featured heavily. He told Macdonald, “there is no secret cabal orchestrating things,” despite CBC’s own findings earlier in the program. Central bankers around the world meet in Basel, Switzerland for secretive meetings. Of course, central banks have – and have always had – enormous power that remained more-or-less hidden until 2008. A paradigm shift is occurring where a large number of people (particularly young people) are questioning their assumptions. Some of them are even beginning to read economists like Ludwig von Mises and Murray Rothbard. The “economics” of central bankers can now be revealed for what it truly is: statistical propaganda. Not only is the “Keynesian school” of economics unsound – the entire social science is bunk. Only the Austrian tradition can explain economic phenomena in such a way that makes common sense, scientific. Carney is asking us to trust him. This cannot be done. He is not speaking truth; he is speaking nonsense.
Here are four things that seem to be dominating the weekend discussions.
About once or twice a month for the past few years, it's been a steady ritual of mine to conduct a Google search for the words "all-time high" and "all-time low". The results provide an interesting big picture perspective on what's happening in the world.
Over three months ago in "South Korea Starts Currency War Rumblings; Has Japan In Its Sights" we showed that the one nation with the biggest sensitivity to Japan's currency-destructive and export-promoting Abenomics policy is its close neighbor, South Korea. With nearly 60% of SK's entire GDP deriving from net exports, every percent drop in its trade balance result in a more than 0.5% hit to GDP: more than any nation in the world. And since South Korea and Japan compete for the same export end markets, there would be no bigger loser in a zero trade sum world than Seoul. However now that Abenomics is in its sixth month, and South Korea's max export pain threshold has been reached, the country no longer will stay silent. As the FT reports, "South Korea has warned that G8 leaders need to do more to tackle the “unintended consequences” of Japan’s monetary easing when they gather for a summit later this month amid mounting concerns about the knock-on effects of a weaker yen. In an interview, Hyun Oh-seok, the South Korean finance minister and deputy prime minister, said that international co-ordinated action was needed to mitigate the impact of so-called “Abenomics” on currency markets."
The Great Economic Transformation! The Chinese are suckers for adjectives to describe and give power and eminence to their attributes, actions or constructions. The Long March. The Cultural Revolution. The Great Wall, the Yellow River. A good adjective always makes it sound as if it’s true. The Chinese have taken over as the superlative attributor to everything. The tallest (soon-to-be) building in China, the Shanghai Tower, is the living proof that China plans on making itself into a byword for superlatives it’s ‘–est’ everything these days.
“When the going gets tough, the tough get going” is a wonderful piece of linguistic wizardry. It can be read in two different ways. Either the 'tough' become fully engaged in combat and fight it out till the bitter end or the ‘tough’ up sticks and move out. It was supposedly Joseph P. Kennedy (father of US President John F. Kennedy) that gets the praise for having said it first.
The wild ride in Japan's bond market is a prelude to what will happen in other developed markets.
Outlook for the dollar and major foreign currencies in the week ahead.
Over the past few months we have explained in detail just how 'frothy' the credit market has become. Probably the most egregious example of this exuberance is the resurgence in covenant-lite loans to record levels. It seems lenders are so desperate to get some yield that they are willing to give up any and all protections just to be 'allowed' to invest in the riskiest of risky credits. With credit having enjoyed an almost uninterrupted one-way compression since the crisis, momentum and flow has taken over any sense of risk management - but perhaps, just perhaps, Sallie-Mae's corporate restructuring this week will remind investors that high-yield credit has a high-yield for a reason. The lender's decision to create a 'good-student-lender / bad-student-lender' and saddle the $17.9bn bondholders with the unit to be wound-down, while as Bloomberg notes, the earnings, cash flow, and equity of the newly formed SLM Bank will be moved out of bondholders’ reach. Bonds have dropped 10-15% on this news - considerably more than any reach-for-yield advantage would benefit and we wonder if these kind of restructurings will slow the inexorable rise in protection-free credit.
In these troubled times, there are things that are much nicer to think about or look at as indicators of how business is going and who’s buying what and who’s off-loading where. It’s not all boring traders sitting behind desks and beads of sweat dripping down foreheads, and scoffing sandwiches and choking on pretzels as the dollar takes a dive or we learn that the bond sell-off is underway as the Federal Reserve pulls the plug. Have you had enough of Abenomics? Have you had enough of the Obamanometer to measure economic growth?
Sell in May and go away will be on every investor’s mind after Friday’s week performance. It’s always been when you sell that’s been the measure for this maxim to be effective. If so the high for SPY would have been May 21st at $167.17. Then there’s the reappearance of the Hindenburg Omen but that’s for another day’s discussion.
Some of my first memories of television are of a series called The Rocky and Bullwinkle Show, which was a witty combination of animated cartoons about the exploits of the title characters, Rocket "Rocky" J. Squirrel and Bullwinkle J. Moose and their nemeses, two Pottsylvanian nogoodniks spies, Boris Badenov and Natasha Fatale. The show was filled with current event commentary, political and social satire. The show was also filled with commentary on economic and market conditions that resonated with the parents watching the show while the kids focused on the cartoons. Each show ended with the narrator describing the current cliffhanger with a pair of related titles, usually with a bad pun intended. So let's adapt some of my favorite Rocky and Bullwinkle episode titles to modern day; we might see that there are some political and economic challenges that are timeless, as it appears we have been doing the same thing over and over for decades and expecting different results.