Kuroda has fired the shot that looks likely to trigger the next phase of the crazy monetary experiment we’ve all been living in for the last five years. Unfortunately, the next phase is where things start to get nasty. Just because equity markets cheered the latest sugar rush he guaranteed them should not make smart investors lower their guard — quite the opposite, in fact. Colonel Kuroda has gone up-country into the Heart of Darkness, and all we can do is await the Apocalypse now.
Simply put, the dollar's rise could destabilize the entire global financial system. To understand why this is so, we have to start with the source of the risk: the world's central banks.
"It's important to remember that a little gold goes a long way. If you had 5-10% allocation in your portfolio from 2000 to 2010, you wouldn't have suffered a lost decade" ... “I believe that now is a good time to take advantage of negative short-term trading sentiment,” Wickwire of Fidelity Investments said.
"Most Important Chart For Investors" Updated: Edwards Sees USDJPY 145 Next And "A Tidal Wave Of Deflation Westward"Submitted by Tyler Durden on 11/13/2014 09:38 -0500
What happens next? Here, straight from the horse's mouth that got the first part of the rapid Yen devaluation so right, is the answer. As Edwards updates with a note from this morning, "the yen is set to follow the US dollar DXY trade-weighted index by crashing through multi-decade resistance - around ¥120. It seems entirely plausible to me that once we break ¥120, we could see a very quick ¥25 move to ¥145, forcing commensurate devaluations across the whole Asian region and sending a tidal wave of deflation westwards."
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On Sunday in Brisbane the G20 will announce that bank deposits are just part of commercial banks’ capital structure, and also that they are far from the most senior portion of that structure. With deposits then subjected to a decline in nominal value following a bank failure, it is self-evident that a bank deposit is no longer money in the way a banknote is. If a banknote cannot be subjected to a decline in nominal value, we need to ask whether banknotes can act as a superior store of value than bank deposits? If that is the case, will some investors prefer banknotes to bank deposits as a form of savings? Such a change in preference is known as a "bank run."
For 14 years, as Japan's economic demise grew more and more evident, its currency devalued relative to gold (the only non-fiat numeraire). When Abenomics began, the trend began to stabilize... but for the last year or so - as The Fed tapered - JPY and Gold have practically flatlined around 132,000 JPY per ounce. This 'odd' stability stands in strangely stark contrast to the volatility and trends in the USD, JPY, and Gold over this period. Even amid the collapse in JPY in recent weeks, it has remained firmly inside a 3% envelope of the 'peg'.
With the yen reaching seven-year lows, Japanese officials are being pressed by exchange-rate questions from reporters and lawmakers. As policy-makers weigh the costs of the weaker currency along with its benefits, here is a guide to gradations of concern at exchange-rate movements based on remarks in the past.
As today's latest example of pervasive, apparently endless criminality at the world's largest banks, where once again the shocked public is exposed to a culture of sociopathic, unchecked greed and perpetual raping of clients, showed, one is either part of the all too literal "cartel", or one loses money. However, for those who are unfamiliar with the nuances of FX trading, one doesn't even have to be on the other side of the world's most criminal, above the law, cartel of bankers to have no P and only L: the fundamental premise of currency trading, whereby one can and will be stopped out thanks to leverage as high as 50x - by others but mostly by one's own brokers as we learned today courtesy of JPM, Citi, RBS, HSBC and UBS - is the very same reason why as retail FX trader Dan Gratton, a 71-year-old retiree who lives on Social Security in Kingman, Arizona has found out: "Probably the most consistent thing is losing."
Putting Things In Context ...
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."
Enjoy the sensuous downy smoothness of the currency everyone loves to hate.
Things just got much worse for Ukraine, which has been on life support by its "western allies" ever since the US State Department-coup early in the year. Because those same allies look like they may have had enough. According to Reuters, some in Brussels are disillusioned by the experience of helping Ukraine. EU generosity in waiving import duties and funding gas supplies from Russia may be being abused, they say. "Some in Ukraine's elite may be colluding with Russia, even as fighting in the east has begun to escalate again. "The Ukrainians are manipulating the EU," a senior EU official involved in negotiations told Reuters, saying the bloc was "waking up" to a need to better defend its own interests."
With the bond market closed today due to Veteran's Day and the correlation and momentum ignition algos about to go berserk without any parental supervision, it was only a matter of time before some "stray" headline sent first the carry pair of choice, i.e., the USDJPY, and subsequently its derivative, the Emini, into the stratosphere. And sure enough, just before 3am Eastern, it was once again Reuters' turn to leak, only this time not about the ECB but Japan, as usual citing an unnamed "government official close to Abe's office", that Prime Minister Shinzo Abe was likely to delay a planned sales tax increase.
- JAPAN MORE LIKELY TO DELAY SALES TAX INCREASE, REUTERS REPORTS
Which of course is a repeat of what Reuters said 2 days ago but since it came on the weekend, the momentum ignition algos didn't notice. The result was an instant surge in the USDJPY, which shortly thereafter touched on 116.00 the highest level in 7 years, and is up now 200 pips since yesterday as the obliteration of Japan's economy proceeds, in turn pushing European stocks, and shortly, the S&P, higher
"The presence of a big buyer who snaps up securities regardless of yields risks preventing the market from reflecting growth and inflation accurately,” says Shinji Hiramatsu, senior investment manager at Sompo Japan Nipponkoa Asset Management, which oversees the equivalent of $9.8b. “The BOJ’s move on Oct. 31 was favorable for my investment, but made me very concerned about a loss of fiscal discipline." Shockingly, even in the basket case country that is Japan, those who directly benefit from the BOJ's terminal experiment are now openly and vocally slamming it because they know that if continues, the final endgame is now near. It has gotten so bad that Japan's population, living in unseen "misery" has had enough, with more respondents to a recent poll stating that the negative effects of Japan's QE surpass the positive. Perhaps that is why the approval of Abe's cabinet is suddenly crashing.