Two days ago, when we posted ""Frustrated" Liquidity Addicts Demand Moar From BOJ As Nikkei Rally Stalls", we suggested that more QE from the Bank of Japan is just around the corner (and likely to take place as early as April) as the only real "driver" behind Abenomics, the surge in the stock market had stalled for nearly 6 months. 48 hours later, and 700 points in the Nikkei higher, the realization that indeed more QE is coming has swept through the market like wildfire. So what will the Bank of Japan's expansion of quantitative easing look like, when supposedly only $75 billion per month amounting to a whopping 70% of all new issuance, is not enough? According to Goldman "the BoJ could take the lead in this reallocation process by notably increasing its purchases of risky assets, such as ETFs and RIETS, or even outright equities – say purchasing a wide range of Japanese equities by index weight." It may get even better: "the BoJ is likely to consider more unorthodox policy to push up inflation expectations" - like paradropping NGDP, better known as paradropping yen (a move Yellen herself is now contemplating as we previewed back in September).
Maybe 2015 will be the year of the collapse. Our entire economy runs on debt creations, vis-a-vis financialization, since we import $500 billion a year more than we export. 2015 is the year when increasing debt results in ZERO GDP growth. The end of the line. But that won’t stop the Federal Reserve and the criminals in Washington. Enjoy what time we have left before it all collapses. The Keynesians that are busy trying to turn the magic levers in our economy right now still aren’t getting the message, more than two years later: government spending can’t make the economy grow. Until they stop trying (and racking up immense, almost unfathomable amounts of debt), things are likely to continue to get worse.
How is inflation of 2% acceptable? Why is this base assumption never challenged? At this rate, in 10 years you’ve lost roughly 20% of your purchasing power. And during the average worker’s lifetime, they will see a 40-60% decrease in purchasing power.
In response to questions from members of the Senate Banking Committee at her confirmation hearing, Janet Yellen emphasized the need to maintain a highly accommodative stance of monetary policy in light of the disappointing economic recovery. Her comments were broadly in line with what Goldman would have expected, and by-and-large were very similar to statements made by Chairman Bernanke in the past; confirming moar of the same blindness to bubbles, lots of tools, and over-optimism.
The soon-to-be-confirmed Mr. Chairwoman had plenty to say - none of which came as a great surprise. Overall we scored her comments 32 Dovish to 18 Hawkish (which fits with all pre-conceved ideas about the size of her index-finger in relation to the 'print' button). A few cherubs include:
- *YELLEN SAYS BENEFITS OF QE STILL EXCEED THE COSTS
- *YELLEN SAYS QE `CANNOT CONTINUE FOREVER'
- *YELLEN DOESN'T SEE ASSET BUBBLE IN HOUSING PRICES
- *YELLEN SAYS QE IS NOT AIMED AT HELPING TO FINANCE U.S. DEFICIT
- *YELLEN: NO ONE HAS A GOOD MODEL ON WHAT INFLUENCES GOLD PRICES
She covered fiscal policy, regulation, gold, income inequality, and bubbles; but it was her admission late in the Q&A that "real" unemployment is around 10% that perhaps leaves the most room for moar...
Yellen is the head of the San Francisco Fed. There is a lot of misinformation about her on the web, but the fact of the matter is that she is a career academic with absolutely zero banking experience or business experience.
It would appear that much of the rally yesterday (and early overnight) was driven by hope (and confirmed relief) that Fed chair nominee Yellen is not about to take on a substantially less-dovish tone in today’s testimony in an effort to garner the support of the more hawkish elements of the Senate Banking Committee. There was a great deal of confirmation bias in the market's move and interpretation but, as BofAML notes below, this may be misplaced. The more important part of today’s testimony is yet to come in the Q&A session - where we will hear likely more unscripted thoughts from the QEeen at her Senate confirmation this morning.
- Yellen to defend Fed's ultra-easy monetary policy (Reuters)
- Japan growth slows on global weakness (WSJ)
- Eurozone third-quarter growth falters (FT)
- Fed Debates Its Low-Rate Peg (Hilsenrath)
- Yellen: Economy Still Needs Fed Aid (WSJ)
- ‘Obamacare’ launch fiasco rouses sceptics (FT)
- DoubleLine's Gundlach says U.S. equities 'only game in town' (Reuters)
- Indian Inflation Exceeding Estimates Adds Rate-Rise Pressure (BBG)
- HUD Said to Fail in Bid to Sell $450 Million of Mortgages (BBG)
- Boeing machinists reject labor deal on 777X by 67 percent (Reuters)
Japan growth cut in half, Europe growth cut by more than half, but none of that matters: today it will be all about the coronation of QEeen Yellen, who testifies before the Senate Banking Committee at 10am. Not even Japanese finance minister Aso's return to outright currency intervention warnings (in addition to the BOJ's QE monetary base dilution), when he said that Japan must always be ready to send signal to markets to curb excessive and one sided FX moves and it is important that Japan has intervention as FX policy option, which sent the USDJPY back up to 100 for the first time since September 11 made much of an impact on futures trading which after surging early in the session following the release of Yellen's prepared remarks, have now "tapered" virtually all gains. Certainly, the follow up from Europe doing the same and also warning it too may engage in QE, has been lost. Which is odd considering the entire developed world is now on the verge of engaging in the most furious open monetization of virtually everything in history.
Hunting season is off to a good start this week, and I’m not just talking about deer hunting. It seems that former Fed officials declared open season on their ex-colleagues. First, Andrew Huszar, who once ran the Fed’s mortgage buying operation, let loose in yesterday’s Wall Street Journal. Huszar apologized to all Americans for his role in the toxic QE programs. And then today, the WSJ struck again, this time with an op-ed by former FOMC Governor Kevin Warsh. Warsh is a former Morgan Stanley investment banker whose 2006 to 2011 stint on the FOMC spanned the end of the housing boom and the first few years of “unconventional” policy measures. After such a solid grounding in the ways of the Fed and Wall Street, he recently morphed into a critic of the status quo. His criticisms are welcome and we believe accurate, but they’re also oh so carefully expressed. They’re written with the polite wording and between-the-lines meanings that you might expect from such an establishment figure. He seems to be holding back. So, what does he really want to say?
The notion that the euro area crisis is over has recently been heavily propagated by EU politicians and the mainstream media. However, it is way too early for such victory laps. Hans-Werner Sinn is perfectly correct in pointing out that the ECB's attempts to restore the 'monetary policy transmission mechanism' by suppressing interest rates in the periphery is going to perpetuate capital malinvestment,delay the necessary reforms and these interventions have actually scared private capital away, as investors require adequate compensation for the risks they are taking. Meanwhile, savers are ultimately paying for this ongoing waste of scarce capital. It is high time that central banking is recognized for the disease it is. Without central banks aiding and abetting credit expansion, this situation would never have arisen. Even a free banking system practicing fractional reserve banking could not possibly have created such a gigantic boom-bust scenario. Money needs to be fully privatized – the State cannot be trusted with it.
Just as the market was expecting, and may have been leaked once again, Janet didn't let anyone down. Today's exuberance in stocks matched only by confirmation that Janet Yellen has gained her helicopter pilot's license and is ready to take over the reigns of printer-in-chief from Bernanke. Key extracts: "Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential... I believe the Federal Reserve has made significant progress toward its goals but has more work to do." In short: Get to work Mr. Chairwoman, and allow Congress to keep doing more of what they have been doing under the Fed's central planning: nothing.
Q3 earnings for financials show that the interest rate risk created by the Fed after years of zero rates is very real indeed
- Desperate Philippine typhoon survivors loot, dig up water pipes (Reuters)
- Fading Japanese market momentum frustrates investors (FT)
- China's meager aid to the Philippines could dent its image (Reuters)
- Headline du jour: Granted 'decisive' role, Chinese markets decide to slide (Reuters)
- Central Banks Risk Asset Bubbles in Battle With Deflation Danger (BBG)
- Navy Ship Plan Faces Pentagon Budget Cutters (WSJ)
- Investors pitch to take over much of Fannie and Freddie (FT)
- To expand Khamenei’s grip on the economy, Iran stretched its laws (Reuters)
- Short sellers bet that gunmaker shares are no long shot (FT)
- Deflation threat in Europe may prompt investment rethink (Reuters)