Bank of Japan

The stock market is just too important to leave to the vagaries of an actual market now. Too much depends on good-looking numbers now. It must be guided and controlled, or else the stilts on which our global financial system balances become shakier and more visible. The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system.

Just when the Chinese plunge protection team (and "arrest shortie" task force) seemed to be finally getting "malicious selling" under control, first we saw a crack yesterday when the composite broke the surge of the past three days as a result of yet another spike in margin debt funded purchases, but it was last night's reminder that "good news is bad news" that really confused the stock trading farmers and grandmas, which goalseeked Chinese economic "data" beat across the board, with Q2 GDP coming solidly above expectations at 7.0%, and retail sales and industrial production both beating, but in the process raising doubts that the PBOC will continue supporting stocks.

"Mr. Varoufakis, who kept reminding everyone that he is a professor of game theory, believed that the European leaders would prefer to make concessions now rather than manage the disruption of a Greek default. He must not be familiar with the Tyler Durden school of negotiation: the first rule of using game theory is you do not talk about using game theory. What’s more obvious is that Syriza didn’t understand what the game is."

Next week's key events and data, if we can look beyond Greece and China.

Who cares about constantly being wrong right here, right now (aside from 11 million Greeks that is) when your projections keep promising that growth is always "just around the corner" as they do in the following chart showing just why the IMF has now lost all credibility not only as an bailouter of last resort (see Greece), but as a forecaster.Presenting: over five years of glorious IMF hockeysticks.

The Big Crisis, the one in which entire countries go bust, has begun. It will not unfold in a matter of weeks; these sorts of things take months to complete. But it has begun.

Cheap, easy credit has created moral hazard and nurtured magical thinking throughout the global economy.

“There are three things that matter in the bond market these days: liquidity, liquidity and liquidity. When the unwind comes, like we’ve seen in the past few months, it comes abruptly and sharply as the exit door is tiny"...

According to BofA's Jill Hall, "BofAML clients were big net sellers of US stocks in the amount of $4.1bn, following four weeks of net buying. Net sales were the largest since January 2008 and led by institutional clients—after three weeks of net buying, institutional clients’ net sales last week were the largest in our data history."

Before taking a look at Europe, an update on China. Just a few short hours ago, when looking at the bursting of the Chinese bubble where stocks were down between 3% and 5% across the board in the first post-holiday trading session after the worst week in 7 years, we said that "without assistance (levitation) from the same PBOC that just clamped down on liquidity, the China bubble has burst." And then as if by request, minutes later we got, drumroll, levitation and the stickiest stick-save by the PBOC seen in months, when the Shanghai Composite staged an unprecedented 7% surge from the lows to close 2.2% higher after tumbling as much as 5% earlier in the session. And just like that, faith in the "wealth effect" is preserved.

What the stock bubble shows is the unthinkable degree of difficulty in trying to actually manage letting air out of any bubble in an orderly fashion. It may already be too late, as growth declines still further month by month, but stock prices go even more insane, drawing in more and more “retail” accounts and regular Chinese. In other words, the reform idea may have been impossible from the start; that the PBOC went ahead anyway, and still continues despite all that has happened, more than suggests that they now recognize the most dangerous existence is asset bubbles, far and away more important than even “necessary” growth.

European shares remain higher, close to intraday highs, with the autos and travel & leisure sectors outperforming and basic resources, utilities underperforming. Meeting of finance officials to reach a deal over Greek aid ended in frustration, forcing leaders to call for an emergency summit for Monday. ECB plans to hold an emergency session of its Governing Council on Friday to discuss a deterioration in liquidity at Greek banks, three people familiar said. German airwave auction raises $5.7b to top 2010 sale. Bank of Japan leaves monetary policy unchanged as forecast. Shanghai Composite Index capped its worst weekly decline in seven years.

The similarities between today and the 1929 era suggest a massive crash could be appraoching.

Bank of Japan Governor Kuroda has managed to do it again. In his now daily missives on "deflation mindset being over", "economy is on the right track", "QQE is working", and his best yet "BoJ has no plan to finance government debt", Kuroda unleashed the ultimate idiocy last night when he proclaimed "it is desirable for FX to move in a stable manner." USDJPY has fallen over 2 handles for the biggest surge in JPY strength in 6 months... to which Amari noted "Kuroda didn't intend to move market with his remarks." Irony indeed.

For once Mario Draghi was right. A day after the European central bank head warned of a spike in volatility, volatility did just that, with markets everywhere from China to Europe seeing volatility explode.