Bank of Japan

One can call the BOJ inefficient, slow and for the most part utterly worthless, but one can certainly not accuse them of lying, and beating around the bush. Because unlike all other central banks, with the BOJ at least it has been fully public knowledge that this particular central bank unlike all others (wink wink), is actively engaged in buying equity products, among them REITs and broad equity ETFs (which provide much explicit tail-wags-dog leverage and explains why the FRBNY's red phone hotline goes directly to Citadel's ETF trading desk). And buy stocks on full tilt and in record quantities is precisely what the BOJ just did, only as one can expect, with absolutely no impact on the broader stock market. Because once even the central bank is exposed as participating in the market, the element of surprise is gone, and the central bank becomes just one mark (if one with a largish balance sheet). As MarketWatch reports, "The Bank of Japan stepped back into the stock market Monday, making its largest single-day purchase of exchange-traded funds to date... The Japanese central bank said it spent 39.7 billion yen (about $500 million) buying up stock ETFs as part of its ongoing asset-purchase program, breaking a previous record of ¥28.5 billion, set on April 16. In addition to the ETF buys, the Bank of Japan also acquired ¥2.3 billion in real-estate investment trusts Monday." Too bad that this latest outright bull in a Japan store (sic) intervention had zero impact: "the move failed to prevent a sharp fall for the Tokyo equity market." But at least they are honest. Imagine the shock and horror (and complete lack of apologies to all those who have predicted just that) when the world finally gets a trade confirm-based proof that Brian Sack was indeed buying (never selling) SPYs and ES. Why everyone would be truly shocked, SHOCKED, that the Fed is nothing but another two-bit gambler in a rigged and broken casino.

Likely glowing from his glorious victory (h/t Trish Regan) over Krugman in Bloomberg's recent Paul vs Paul debate, Rep. Ron Paul destroys the central-planning arrogance of Bernanke and his ilk in an Op-Ed released by the FT today.

Control of the world’s economy has been placed in the hands of a banking cartel, which holds great danger for all of us. True prosperity requires sound money, increased productivity, and increased savings and investment. The world is awash in US dollars, and a currency crisis involving the world’s reserve currency would be an unprecedented catastrophe. No amount of monetary expansion can solve our current financial problems, but it can make those problems much worse.

Simultaneous Global Printing Is Failing Miserably

Forget Competing Theories … What Do the Facts Say about Quantitative Easing?

Better late than never. All you need to read. 

The Fed’s promise to use more QE should the economy falter is supporting gold.

The global economic picture remains grim, with euro zone economic sentiment falling more than

expected in April and the US job market recovery showing signs of a slowdown.

Apple earnings and the tech boom and indeed possible tech bubble remains one of the primary

drivers of continuing irrational exuberance and risk appetite.

The poor and deteriorating economic backdrop is gold supportive.

PIMCO's Bill Gross spent a longer-than-soundbite period discussing QE3, the chance of a US double-dip, and Europe's ongoing dysfunction with Trish Regan on Bloomberg Television this afternoon. Given more than his typically limited-to-ten-second thoughts some other media outlets appear to prefer, the old-new-normal-bond-king believes the Fed will resist another round of quantitative easing in the short-term but "if unemployment begins to rise for two-to-three months then QE3 is back on". Noting that investors should focus on nominal GDP growth tomorrow, he goes on to dismiss the idea that the US can decouple from a troubled Europe pointing the political dysfunction between the Germans and the rest as greater than the polarity between Democrats and Republicans here at home. Preferring to play a slightly levered long bet on low rates holding for a longer-period, he like MBS (as we have discussed in the past) but does not see the 10Y yield dropping precipitously from here though he does echo our thoughts entirely in his view of the 'flow' being more critical than the 'stock' when it comes to the Fed's balance sheet and hence the June end-of-Twist may be a volatile period for all asset classes.

While gold demand from the western investors and store of wealth buyers has fallen in recent months, central bank demand continues to be very robust and this is providing strong support to gold above the $1,600/oz level. IMF data released overnight shows that Mexico added 16.8 metric tons of gold valued at about $906.4 million to its reserves in March. Russia continued to diversify its foreign exchange reserves and increased its gold reserves by about 16.5 tons according to a statement by its central bank on April 20. Other creditor nations with large foreign exchange reserves and exposure to the dollar and the euro including Turkey and Kazakhstan also increased their holdings of gold according to the International Monetary Fund data.Mexico raised its reserves to 122.6 tons last month when gold averaged $1,676.67 an ounce.Turkey added 11.5 tons, Kazakhstan 4.3 tons, Ukraine 1.2 tons, Tajikistan 0.4 ton, and Belarus 0.1 tonnes, according to the IMF. Ukraine, Czech Republic and Belarus also had modest increases in their gold reserves. Central banks are expanding reserves due to concerns about the dollar, euro, sterling and all fiat currencies.

All you need to read and some more.

The IMF meeting ended yesterday and leading world economies agreed to more than double the lending power of the IMF in an effort to protect the global economy from the euro zone contagion. This was still short of Lagarde’s $600 billion goal. The Netherlands  was drawn into the spotlight over the weekend when the government failed to agree on budget cuts, making elections nearly unavoidable and casting doubt on its support from future euro zone aid.  Investors will watch the China HSBC manufacturing survey at 1430 GMT as a measure of the conditions of the world’s 2nd largest economy.  The Federal Reserve meets on Tuesday and Wednesday, and its statement on monetary policy is given on April 25th.  The Bank of Japan meets on Friday and is expected to ease again. Trading is sluggish as the market waits for clues.

Over the past month, the world has finally awakened to the reality that when it comes to easing, there is more than just one central bank (i.e., the Fed). in fact, as we have been showing since early this year, the bulk of the easing over the past 5 months has happened elsewhere, primarily in Europe with LTRO 1+2, and subsequently at the BOE, and more recently at India and Brazil. Yet some holdouts still remain. One of these naturally is China, which everyone would love to see cut RRR or even the benchmark rate, yet which as recent CPI data has shown still has lingering packets of inflation precisely where it hurts: food (and of course recall China's Schrodinger economy). Which leaves Japan, which already eased more a few months back when it expanded its LSAP program... but it is never enough. Needless to say strategists, in their quest to shake any and every central banker here or there for some free money, have been seeing imminent BOJ easing in the form of yet another Y5 trillion LSAP any second now. Yet it is one thing for bankers to do what they are programmed to do, which is demand more free money, it is something very different when politicians step in and defuse the myth that any central bank is even remotely independent, especially when reelection is at stake. As Bloomberg points out this morning, the fight for the BOJ's "independent" balance sheet is starting to get lethal.

Nothing dramatic here, but the Chairman of the fermentation committee just has that unique flair in explaining things so simply, even an economics Ph.D., a caveman, or the other kind of 'Chairman', would understand...

"In the last three plus years, central banks have had little choice but to do the unsustainable in order to sustain the unsustainable until others do the sustainable to restore sustainability!" is how PIMCO's El-Erian introduces the game-theoretic catastrophe that is potentially occurring around us. In a lecture to the St.Louis Fed, the moustachioed maestro of monetary munificence states "let me say right here that the analysis will suggest that central banks can no longer – indeed, should no longer – carry the bulk of the policy burden" and "it is a recognition of the declining effectiveness of central banks’ tools in countering deleveraging forces amid impediments to growth that dominate the outlook. It is also about the growing risk of collateral damage and unintended circumstances." It appears that we have reached the legitimate point of – and the need for – much greater debate on whether the benefits of such unusual central bank activism sufficiently justify the costs and risks. This is not an issue of central banks’ desire to do good in a world facing an “unusually uncertain” outlook. Rather, it relates to questions about diminishing returns and the eroding potency of the current policy stances. The question is will investors remain "numb and sedated…. by the money sloshing around the system?" or will "the welfare of millions in the United States, if not billions of people around the world, will have suffered greatly if central banks end up in the unpleasant position of having to clean up after a parade of advanced nations that headed straight into a global recession and a disorderly debt deflation." Of course, it is a rhetorical question.

Tomorrow will bring the end of a two-day policy meeting at the Bank of Japan which SocGen expects will result in the announcement of additional easing measures. Whether medium-term macro-economic issues or short-term risk tolerance fading weighs heavier on their minds as their efforts from the previous easing announced on Feb 14 are rapidly losing their effectiveness - especially evident in their recent inability to restrain JPY appreciation (which notably JPM believes will continue on the back of a disconnect between Commitment of Traders positioning and the JPY carry divergence - via Bloomberg's chart-of-the-day). Critically the exchange rate is a cornerstone of BoJ policy and while risk-off will drive JPY appreciation via carry unwinds (in a purely technical world) the political, currency, and economic factors that SocGen lays out suggests strongly that the BoJ (under increasing attack from politicians for its failure to reflate the economy) will bring out yet another bazooka to show its worth - and prove this time is different even as we noted here with inflationary concerns rising. Lastly, will JPY lose its carry-trade attractiveness and implicitly its impact on US equities even if they do ease dramatically or when will the market/politicians lose patience with a drip-drip-drip approach and side with China's view of a rising devaluation risk as we noted here recently.

Last Friday saw the release of a below-expected US Non-Farm Payrolls figure, causing flight to safety in particularly thin markets, with equity futures spiking lower and US T-notes making significant gains. Data from this week so far in Asia has shown Chinese CPI is still accelerating, coming in above expectations at 3.6% against an expected 3.4% reading. Looking ahead in the session, there is very little in the way of data due to the reduced Easter session in the US and the European and UK markets closing for Easter Monday.