First the Japanese central bank proceeds to monetize all new debt issuance and is on route to holding 50% of all 10 Year bond equivalents within 2 years, sending the Yen year plummeting to 7 years lows daily, and then - just like Europe - Japan gets cold feet and realizes that the next steps are USDJPY 145+, meaning a complete collapse of the Japanese economy and a full on FX, if not shooting, war in Asia. So what does Japan's finance minister Aso do? Why he talks the Yen higher, in the process completely confounding the FX algos, and risking a full blown collapse in the Nikkei just 3 weeks ahead of the Japanese snap elections.
To put the events of October 15 in context, here is a 1-minute clip courtesy of Nanex showing the daily history bond market liquidity starting with 2008 and going through November 2014.
"My personal fond hope and expectation is still for a market that runs deep into bubble territory (which starts, as mentioned earlier, at 2250 on the S&P 500 on our data) before crashing as it always does. Hopefully by then, but depending on what the rest of the world’s equities do, our holdings of global equities will be down to 20% or less. Usually the bubble excitement – which seems inevitably to be led by U.S. markets – starts about now, entering the sweet spot of the Presidential Cycle’s year three, but occasionally, as you have probably discovered the hard way already, history can be a snare and not a help." - Jeremy Grantham
The markets have been pushing new all-time highs this past week as earnings season begins to wind down. Starting next week, much of the focus will shift back to the economy and holiday retail sales. Expectations are for a robust season but the early arrival of winter could have a more negative effect on the economy than anticipated should current weather patterns persist.
Abenomics Creates "Potential For Economic Collapse Triggered By Bond Market Crash", Warns Richard KooSubmitted by Tyler Durden on 11/11/2014 15:10 -0500
"Overseas views on the BOJ’s surprise easing announcement can be broken down into two camps: the reflationists, who commend the BOJ for its bold actions, and those critical of the policy, who say it is a symptom of the final stages of Japan’s economic decline. The critics can further be divided into two groups: those who believe that continuing the current policy of “Banzainomics” will lead to a collapse of the Japanese economy and government finance triggered by a crash in the JGB market, and those who worry that the ongoing devaluation of the yen under this policy will hurt their own countries’ industries.... The first group’s scenario, in which the BOJ’s reckless attempts to achieve a 2% inflation target trigger a bond market crash and an eventual collapse of the Japanese economy, is of greater concern. After all, it is the same scenario the world’s QE pioneers—the US and the UK—are desperately trying to avert at this very moment."
In reality, there is nothing surprising in Matt Taibbi's latest piece since returning to Rolling Stone from the Intercept, as it tells a story everyone is by now is all too familiar with: a former bank employee (in this case Alayne Fleischmann) who was a worker in a bank's (in this case JPM) mortgage operations group, where she observed and engaged in what she describes as "massive criminal securities fraud" and who was fired after trying to bring the attention of those above her to said "criminal" activity. The story doesn't stop there, and as Carmen Segarra already showed, when she revealed that Goldman runs the NY Fed, once Alayne was let go and tried to "whistleblow" on the house of Jimon from the outside, she found the that US Department of Justice headed by Eric Holder is just as, if not more, corrupt, and in his desperate attempt to prevent discovery and bring JPM et al to justice, he would stretch the statue of limitations on frauds committed during the crisis long enough to where nobody had any legal recourse any more, up to and including the US taxpayer.
When the next crisis comes there will no doubt be economists and commentators who blame it on some proximal event, like the failure of a large important financial institution. Don’t be fooled. The seeds of the next crisis are already sown. Fed policy under Ben Bernanke and Janet Yellen has distorted the economy in a way that makes it precariously fragile, and susceptible to collapse.
The market environment is turning sour...
Congress gave the Fed a mandate to “promote maximum employment, production, and price stability”; it never explicitly authorized propping up stocks. Yet through a remarkable theoretical stretch called the “wealth effect,” that’s exactly what the Fed is doing.
The Magic Number Is Revealed: It Costs Central Banks $200 Billion Per Quarter To Avoid A Market CrashSubmitted by Tyler Durden on 10/21/2014 11:58 -0500
"For over a year now, central banks have quietly being reducing their support. As Figure 7 shows, much of this is down to the Fed, but the contraction in the ECB’s balance sheet has also been significant. Seen from this perspective, a negative reaction in markets was long overdue: very roughly, the charts suggest that zero stimulus would be consistent with 50bp widening in investment grade, or a little over a ten percent quarterly drop in equities. Put differently, it takes around $200bn per quarter just to keep markets from selling off."
"The Economic Outlook Keeps Getting Better And Better" Says Fed President Who Last Week Unveiled QE4Submitted by Tyler Durden on 10/20/2014 13:02 -0500
"I’ll be honest: These speeches get more and more enjoyable as time goes by because the economic outlook keeps getting better and better. Instead of gloom and doom with a scattering of hopeful notes, things are now pretty upbeat, with only a couple of standard economist’s caveats thrown in.... So the message is that things are getting better. We’re on track to end our asset purchases and we’re preparing for the time the economy can sustain an end to accommodation. We’ll want to see improvements in unemployment, wages, and inflation, and we’ll be driven by the data. But all in all, it’s good news—with just a few of those requisite caveats thrown in."
"...the underlying cause of a crash will be found in the preceding months or years, in the progressively increasing build-up of market cooperativity, or effective interactions between investors, often translating into accelerating ascent of the market price (the bubble). According to this ‘critical’ point of view, the specific manner by which prices collapsed is not the most important problem: a crash occurs because the market has entered an unstable phase and any small disturbance or process may have triggered the instability."
"Yes, we did extremely well in 1987... What really scared me in October of 1987 was that after Monday’s crash, there was a lot of concern about not getting paid, that brokerage firms would have to liquidate. That was a wake-up call that really helped us to protect ourselves later during the crisis in 2008... [because] you are an unsecured creditor of a brokerage firm... That lesson also shaped my understanding of how fragile the system was. I believe the system was much closer to going down in two days in 1987 than at any point in 2008."
The ECB may not release its minutes to the public (opting instead to keep these secret for 30 years) at least for now, but earlier today a transcript of its internal deliberations was made public by the NYT, which revealed how the ECB governing council once again snubbed its responsibilities, and in January 2013 bailed out a failing Cyprus bank, Cyprus Popular Bank, just months ahead of the now infamous Cypriot "bail-in" i.e., deposit confiscation. The story in a nutshell: following much internal wrangling and posturing by the "northern" states, notably the usual suspects such as Wiedmann and Knot, the Cypriot bank, which the ECB continued to bail out even though it should not have as the bank had obtained an ECB lifeline based on fake financials and glaringly impossible assumptions, the bank ultimately failed. Who was left holding the bag? Why Cyprus' depositors of course.