Bank of Japan
The BoJ may now run into the same inconvenience in its efforts to control the stock market that it encountered on the way to monopolizing the JGB market: there’s only so much out there to buy. "BOJ held 3.85t yen ($32.0b) of ETFs at end-2014 and plans to boost these holdings by 3t yen per year; at this pace, the current market value of 11.5t yen in ETFs would be entirely bought by BOJ by end-2017," Bloomberg notes.
Recall Lenin’s quote: “The capitalists will sell us the rope with which we will hang them.” Today, of course, the capitalists don’t even sell the rope; they give it away, for nothing. But what’s not to like? Stock investors are getting rich. Bondholders are making money. The government can spend as much as it likes. And the voters are bamboozled by it; they think it helps make the economy work better. This is going to be a hard habit to break. So, here’s the gist of my conclusion: Governments won’t break the habit of getting something for nothing. It will break them. But how?
All Good Things Must End... this may not be the end of the world exactly. But the end of the fiat money system President Nixon gave birth to in 1971... when he cut the dollar loose from gold. And it may feel like the end of the world, because of the social chaos it will provoke.
It started off as the perfect storm for futures: after Sunday night's latest plunge in WTI, which saw it drop to the lowest price since Lehman, the double whammy that has now forced Deutsche Bank to become the first major institution to forecast no growth for S&P500 EPS in 2015, namely the strong dollar, reared its ugly head and the EURUSD seemed dangerouly close to breaching the all important 1.04-1.05 support level we first noted last week. However, overnight parties tasked with preserving "financial stability" appear to have once again stepped in, and not only has the EURUSD rebounded off 1.05, but crude is now just barely down from the Friday close as all firepower is put to the same use, that sent the Shanghai Composite soaring by 2.3% overnight, and which sent the Dax over 12,000 for the first time ever.
Fed to lose patience. Many expected Norway and Switzerland to cut rates. Could they be disappointed?
Someone call the ECB because it looks like the game is well nigh up. Greek FinMins are taking time away from photo shoots and looting pension funds to call out QE for creating equity bubbles and the mainstream financial news media has figured out that there’s an acute collateral shortage and that buying €1.1 trillion in bonds €15 million at a time probably indicates a forced deviation from the original plan.
"Mario Draghi and the ECB’s manipulation of asset prices makes Greenspan’s Fed look like a rank amateur. More shocking though than the plunge in the euro, and more shocking even that 25% of sovereign eurozone bonds now trade in negative territory, is what has happened to eurozone equity valuations. For, as we approach the sixth anniversary of the US cyclical bull market, the PE expansion of eurozone equities is simply off the scale!" - Albert Edwards
Plunge Protection Exposed: Bank Of Japan Stepped In A Stunning 143 Times To Buy Stocks, Prevent DropSubmitted by Tyler Durden on 03/11/2015 17:10 -0500
The BoJ has now gone full intervention-tard - buying Japanese stocks on 76% of the days when the market opened lower.
Yields can always go lower… but at some point investors will have to ask, “how much am I willing to pay the Government to sit on my money? 1%? 2%? 3%?”
While the dollar strength this morning, which has pushed it to a fresh 13 year high and has accelerated the EURUSD plunge to under 1.06 - a drop of over 300 pips since the start of the week - has been a recap of yesterday's trading action, the main difference is that unlike yesterday, the USDJPY has managed to find a strong bid in the overnight session, pushing not only the Nikkei up by 0.4%, but also lifting US equity futures as the entire global marketplace is now merely a sandbox in which the central banks try to crush their currencies as fast as possible.
The entire formerly rich world is addicted to debt, and it is not capable of shaking that addiction. Not until the whole facade that was built to hide this addiction must and will come crashing down along with the corpus itself. Central banks are a huge part of keeping the disease going, instead of helping the patient quit and regain health, which arguably should be their function. In other words, central banks are not doctors, they’re crack dealers and faith healers. Why anyone would ever agree to that role for some of the world’s economically most powerful entities is a question that surely deserves and demands an answer.
A survey of 40 financial institutions shows that BoJ purchases are sapping liquidity and making it difficult for dealers to fill orders. Defiant to the end, the central bank pledges to stay in the market until inflation hits 2%.
We already know that the Bank of Japan will monetize 100% or just over of all Japanese gross sovereign bond issuance (source). As for Germany, on a run-rate basis, and assuming allocation based on the abovementioned capital key, it means that for the next 12 month period, assuming no major funding changes in Germany, the ECB will swallow more than a whopping 140% of gross German issuance! Or, said otherwise, the entities who will buy more than all gross German and Japanese issuance for the next 12 months, are the ECB and the Bank of Japan, respectively.
Something curious has emerged as a result of the divergent "Fed-vs-Everyone-Else" central bank policy: as JPM observed over the weekend while looking at the dollar fx basis, the dollar funding shortage is back with a vengeance, and is accelerating at pace not seen since the Lehman collapse.
The BoJ's Takahide Kiuchi warns of “dire consequences” if the central bank continues to blatantly disregard the “side effects” of QE and also expresses skepticism about the ability of further asset purchases to boost inflation, going so far as to suggest that the BoJ’s prediction of 2% inflation by mid-2016 is nothing more than a fairytale.