It is increasingly certain that the future will not be like the past. Previous downturns have been equally devastating but the primary causes eventually reversed themselves; low commodity prices recovered and damaging government policies were rescinded. This recovery will be different for a variety of reasons which will combine to cap growth, opportunity and profits, even if oil and gas prices spike. The following major changes appear permanent...
Following yesterday's Yen surge in the aftermath of the disappointing BOJ announcement, the pain for USDJPY long continued, with the key carry pair tumbling as low as 106, the lowest level since October 2014 before stabilizing around 107, and is now headed for its biggest weekly gain since 2008, which in turn has pushed the US dollar to to its lowest close in almost a year as signs of slowing growth in the U.S. dimmed prospects for a Federal Reserve interest-rate increase. As a result, global stocks fell and commodities extended gains in their best month since 2010.
Low interest rates attempt to buy time. The idea is to bring consumption forward until the economy heals on its own as capital projects are completed. But those projects never began this time. The end result is ever-higher debt that borrows more and more from the future. Unfortunately, it borrows from the future without making the future any brighter through solutions to root causes of economic ailments. At some point, the “future” becomes “today”.
In the wake of the Bank of Japan (BoJ) decision to stand pat, Japan looks to be in ever more desperate straits, given the growing danger of sliding into its second recession since Abenomics was introduced. Such a recession would be the nail in the coffin of Abenomics, launched with high hopes and much fanfare three years ago. It made sense, therefore, for Prime Minister Shinzo Abe to seek the advice of Paul Krugman, who has been one of the chief cheerleaders for Abenomics, in a private meeting last month meant to lay the groundwork for the G7 Summit at Ise-Shima next month.
It seems - just as we have seen since The Fed's December rate-hike decision - that The Bank of Japan's "shock" decision not to pour more punch into the global equity bull's bowl overnight has sparked another leg higher in the market's indicator of monetary policy incompetence. Gold and Silver are surging back near cycle highs...
Less than one week after the BOJ floated a trial balloon using Bloomberg, that it would reduce the rate it charged some banks which set off the biggest USDJPY rally since October 2014, we are back where we started following last night's "completely unexpected" (for everyone else: we wrote "What If The BOJ Disappoints Tonight: How To Trade It" hours before said "shock") shocking announcement out of the BOJ which did absolutely... nothing. "It’s a total shock,” Nader Naeimi, Sydney- based head of dynamic markets at AMP Capital Investors told Bloomberg. "From currencies to equities to everything -- you can see the reaction in the markets. I can’t believe this. It’s very disappointing."
Federal Reserve officials are virtually certain to hold interest rates steady when their meeting ends today but they could try to send a message to markets and outside observers about what likely comes next. With no press conference scheduled after this week’s meeting and no new economic forecasts to be released, all the attention will be focused on their words and the market is more aware than ever that the Fed doesn’t act in a vacuum. As Bloomberg's Richard Breslow notes, The Fed is hopeful (that their always-wrong forecasts come true this time) but they're also scared to death on the consequences.
Is gold, often scoffed at as being an unproductive asset, more productive than cash? If so, what does it mean for asset allocation?
The recovery was always hollow or shallow, for a short time in 2014 it just came in a more appealing package; so appealing, the mainstream never looked beyond that cover. With 2015 a wreck and 2016 looking at best more of the same, they just keep right on reciting all the past cliches because to admit the actual circumstances is just too traumatic.
For those who thought that the world's biggest company losing over $40 billion in market cap in an instant on disappointing Apple earnings, would have been sufficient to put a dent in US equity futures, we have some disappointing news: with just over 7 hours until the FOMC reveals its April statement, futures are practically unchanged, even though the Nasdaq appears set for an early bruising in the aftermath of what is becoming a disturbing quarter for tech companies. Instead of tech leading, however, the upside has once again come from the energy complex where moments ago WTI rose above $45 a barrel for the first time since November after yesterday's unexpected 1.07 million barrel API inventory drawdown.
Despite surging commodity prices in China - which must be real and represent demand growth and price increases, right? - Aussie core inflation slowed to the weakest on record as headline prices unexpectedly fell last quarter (CPI -0.2%). RBA Rate-cut odds tripled instantly sending AUD down over 1.2% (its biggest drop in 2 months). Perhaps, just perhaps, that collossal credit injection in Q1 via China did not make it into the AsiaPac economy after all and merely fueled a speculative frenzy in commodities that merely "looks" like a recovery?
The history of economic central planning is not exactly glorious. In fact, as American economist Thomas Sowell once noted, "in general [central planning] has a record of failure so blatant that only an intellectual could ignore or evade it."
It is quite evident there is something amiss about the BLS’ employment reports. Is the disparity simply an anomaly in the seasonal adjustments caused by the depth of the financial crisis? Is there an exceptional and unaccounted for margin of error in the surveys? Or, is it something more intentional by government-related agencies to keep “confidence” elevated as Central Banks globally “paddle like crazy” to keep global economies afloat.
"Central banks are mistaken. They think they’re targeting employment and inflation,” he continued. “They’re actually targeting asset prices and leverage.” When asset values rise, inflation and employment gradually increase. When assets fall, inflation collapses; it’s a coincidental variable. “At these levels of asset prices, it takes a lot of leverage to lift them further.” So the second central banks see a little inflation and curb leverage, rates rise and it all unwinds. “The only way to make money this year is to understand this sequence, and trade it.”
Just 24 hours after Goldman Sachs suggests a looming collapse in the Yen (USDJPY to 130), the Japanese currency is rallying by the most in 3 weeks against the USDollar. Having been hammered on Friday, Yen has rallied back over 100 pips this morning (pushing USDJPY back to a 110 handle) as a potential short-USDollar squeeze begins (with hedge funds net short the greenback for the first time since July 2014).