Overview of the capital markets as if they were not managed by an evil cabal.
I challenge the central banker, manager, trader, and investors to manufacture and financially engineer a safer and better alternative to the USD.
It will be the plotline of scary stories parents tell their children for decades to come: in Q1 2014, the US economy was supposed to grow 3%... and then it snowed. This led to a -2% collapse in the world's largest economy. Yes, inconceivably heavy snowfall (in the winter), and frigid temperatures (in the winter), were the reason for a $100+ billion swing in US GDP. Well, as the following chart from DB's Torsten Slok shows, of the roughly $2 trillion in GDP the global economy is expected to grow in 2015, about 90% of that is expected to come from China and the US!
The Japanese Yen's real effective exchange rate (REER) has collapsed to the weakest since 1982, according to Mitsubishi UFJ Morgan Stanley Securities. Simply put, REER is a trade-weighted measure of Yen strength (or weakness) against, in this case, 59 trading partners; and as the nation posts an unprecedented 27th straight month of trade deficits, Bloomberg reports MUFJ indicates "a structural shift" has taken place. As MUFJ chief FX strategist warns, "If the trade deficit doesn’t noticeably narrow from here, the yen’s real effective rate could fall to levels never seen before," and, ominously, "from a supply and demand perspective, yen selling for foreign currency by Japanese importers will just continue endlessly." And Japan becomes Venezuela...
Amid two (notably female) resignations this weekend (Justice Minister Matushima and Trade Minister Obuchi for alleged misuse of political funds), Abenomics tilt towards women as a pillar of the Japanese recovery is taking yet another blow, removing "one of his ways of distracting people from his less popular policies." However,it is Japan's Economy Minister, Akira Amari, that went full economic retard this weekend - having learned well from his wise American central-planning brethren. Rather than face reality that Abenomics currency devaluation printfest has crushed the consumer beyond all expectations (as we noted since the start and Goldman just admitted), he blames the weather for economic weakness: "including the effects of large typhoons and heavy rains in July and August, Japan’s 3Q economic situation is probably not a strong recovery."
Confused why one second the market is down 1%, and then moments later, upon returning from the bathroom, one finds it up by the same amount on negligible volume? Simple: there continues to be zero liquidity. Although, not just in equities, but in bonds as well, something this website - and the TBAC and Citi's Matt King - has warned for over year. It is the lack of bond liquidity that led to last week's dramatic surge in bond prices as Bloomberg noticed overnight. So for those curious just how bad bond liquidity is now, here is JPM's Nikolaos Panigirtzoglou with the explanation:
Ever since Abenomics was announced in late 2012, we have explained very clearly that the whole "shock and awe" approach to stimulating the economy by sending inflation into borderline "hyper" mode was doomed to failure. Very serious sellsiders, economists and pundits disagreed and commended Abe on his second attempt at fixing the country by doing more of what has not only failed to work for 30 years, but made the problem worse and worse. Well, nearly two years later, or roughly the usual delay before the rest of the world catches up to this website's "conspiratorial" ramblings, the leader of the very serious economist crew, none other than Goldman Sachs, formally admits that Abenomics was a failure. So what happened with Abenomics, and why did Goldman, initially a fervent supporter and huge fan - and beneficiary because those trillions in fungible BOJ liquidity injections made their way first and foremost into Goldman year end bonuses - change its tune so dramatically? Here is the answer from Goldman Sachs.
No heavy ideological axe to griind or conspiracy theories to propound, just a simple look at the price action in the capital markets.
Having rotated their attention to the T-bill market in Japan (after demand for the Bank of Japan's cheap loans disappointed policymakers) in an effort to ensure enough freshly printed money was flushed into Japanese markets, the BoJ now has a major problem. For the first time since QQE began, Bloomberg reports the BoJ failed to buy all the bonds they desired. Whether this is investors unwilling to sell (preferring the safe haven than stocks or eu bonds) or that BoJ has soaked up too much of the market (that dealers now call "dead") is unclear. Japanese stocks - led by banks - are sliding as bond-demand sends 5Y yields (13bps) to 18-month lows.
Apparently under pressure from some members of Japan's parliament (who are likely being screamed at by the firms and people that bought and voted for them) as they question the possibility of JPY dropping to 170 per USD, BoJ Chief Haruhiko Kuroda proclaimed yesterday that "monetary policy can prevent hyperinflation," but don't worry because he "doesn't think Japan will experience hyperinflation." Well that's a relief because all his other predictions about how well Abenomics would work have been utter failures. Perhaps Kuroda should listen to ex-BoJ chief economist Hideo Hakayawa who stunningly suggested, The BOJ should start paring its unprecedented easing soon or risk hurting people, "it’s important to quit while you’re ahead."
Global stocks plummeted yesterday and again today, on investor concern that U.S. and Chinese inflation data are signalling a global slowdown in economic activity. U.S. retail sales fell in September and producer prices declined for the first time in a year.
While some are focused on the demise of the dollar, the fact is that it has been appreciating and this is causing some confusion. See if this helps clarify what is happening.
What if there was some degrees of freedom in the centrally planned capital markets that rational, non-emotional and non-ideologically-laden thinking could shed light on ? Here is such an attempt
As Monday Looms, Experts Warn Japan's Half-Trillion Dollar Fat-Finger-Trade "Could Absolutely Happen" In The USSubmitted by Tyler Durden on 10/11/2014 14:46 -0400
Just over a week ago, the Japanese stock market participants were stunned when stock orders amounting to a whopping $617 billion (yes Billion with a B) - more than the size of Sweden’s economy - were canceled for reasons still unknown in what was one of the biggest 'fat finger' trading errors of all time. Since then, US equity markets have suddenly become notably more volatile - and fallen significantly, VIX has seen odd intraday 'spikes', S&P futures saw the very odd 'satan signal', and USDJPY has suffered its worst losses in 3 years. This raises the question of whether US market microstructure is any better than Michael Lewis' Flash Boys' book describes.. (as we head into a bond market holiday, dismal liquidity, and a potential Black Monday), “That could absolutely happen here,” Tabb Group's Larry Tabb warns Bloomberg.
The last note briefly addressed the benefits associated with the reverse repurchase facility (RRF). Indeed liabilities have increasingly moved from bank balance sheets to the Fed, freeing lending capacity. One must recall reserves are not fungible outside of the banking system (but can act as collateral for margin). With flow decreasing, the opportunity for small relative volume bids spread over a large quantity of transactions (most instances per unit time) decreased with market prices in many asset markets. Is more downside coming?