Bruce Krasting's picture




The comment, earlier today, from the Japanese Economics Minister, Akira Amari, that the Yen exchange rate was now " in line with fundamentals", and the market's quick back-up reaction, got me a laugh, and has me thinking. Have things changed so much? Or is this just an illusion?


It was not long ago that we had the complete reverse of what we have today. Prior to 2009, markets were the dominate forces that determined the outcome of "things". Government leaders and finance officials have been talking for decades, they never got markets to "behave" as they wanted to before. That's completely changed. At least that appears to be the case.


As an example, consider what Mario Draghi accomplished last summer by merely mentioning the word "unlimited". The markets immediately bowed to the new, all powerful, Deity. Those markets are still in subservient mode, yet Draghi never really did a thing, except talk. The underlying problems in the EU are worse today than last summer, but the financial crisis has functionally disappeared.


As far as the efficacy of Central Bank currency intervention is concerned, one need look no farther than the utter failure of the BOJ to contain the appreciate of the Yen over three decades. It tried to talk the market up, it intervened again and again, but the Yen continued to rise. For many years, the market conclusion was that the more the BOJ bought - the more the market would demand.

My observation:

The BOJ was on the defense all those years, it was never on offense. A central bank that gives up the offense to the market, creates a situation where the market will exploit the weakness in an attempt to make a profit.


Note: The Bank of England's big losses in the 90's to the FX market, as well the endless money that was made from 1970 through 2011 at the expense of the Swiss National Bank, are other example of CBs that were on the defense, and fed the "kitty" for the markets.


Where ever you look around the globe today you see evidence that the monetary authorities have achieved the offensive. They have complete control of both the direction and volatility of markets. The best evidence of this dominance is Bernanke's magic of setting the return on tens of trillions of dollars of long term securities at rates that will produce a negative return against inflation. There can be no other conclusion, but that the US capital market has folded its cards, and Bernanke has won. At least for now.


This takes us back to Mr. Amari's comments today. He thinks that now that we have had a back up in the Yen crosses, the FX markets should just go to sleep, and trade in narrow ranges. As of now, the markets are again bowing and scraping to this type of talk.


It could turn out differently. It might just be that those finance types in Tokyo have unleashed some very powerful forces. These forces will not get contained by talk that things are now "balanced". Two factors:


- The market is very well aware of the fact that BOJ WILL NOT stop additional Yen depreciation by reverse intervention (at least not for the next 1o big figures). This reality sets up an asymmetrical risk situation. There is no "lid" on USDYEN.

- The "market" has made a true fortune on the short side of the Yen trade the past six months. This "made" a few big firm's year. This set-up ALWAYS leads the market players, who now have a big pile of chips in front of them thanks to the "house", to press on with the betting.


We have in front of us what might prove to be the first test of the new found "dominance" of the CBs and the talkers. I think it's likely that USDYEN moves up another 10%. That could happen pretty quickly. There is nothing in the way, and the argument that an FX rate is now "fair", is irrelevant. The simple fact is, there is money to be made on the short side. It's just a question of timing.


In the immediate future there is a real question for the dollar. What's going to happen with the debt limit and related issues? Will America shoot itself in the foot? With that in the air, the USDYEN, and the Yen crosses, might take a breather for a spell. But I think it will prove to be a pause in the action.

The Yen is going to get cheaper. Cheaper than the Japanese want. Cheaper than America wants. Cheaper than the EU, China and the BRICs want.


When that happens, it will be fair to ask:


"Are those talkers and CB's really in charge? Or was that just a phase we passed through?"


And if so,


"Who's next?"






The most recent example of finance types dominating markets comes today.



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mantrid's picture


defense, offense... but who's the adversary? are you sure CBs are fighting the same challenger as before? are they fighting markets? if yes, which ones? if no, then whom? other CBs?!!!

markets do not fight anyone, they only exploit opportunities. CBs deliver them as easy trades. short JPY, long GOLD etc. if markets bow, that's only because they sniff opportunity to explot someone more. Ben does not win. He's being used.

Setarcos's picture

It is all beside the point of the 9/11 false flag that launched ALL current wars and financial manipulations:


Of course if you prefer something shorter which does not require thinking about, then just ignore that link.

BTW I use the nickname 'setarcos' because I admire Socrates and his thorough-going scepticism - question everything - though I oft fall short of his standards, so reverse his name.

John McMurtry - who delivers the content of https://www.youtube.com/watch?v=Q-Be-3mW_Bk - also is of a Socratic inclination, so is not for anyone too scared, or too indoctrinated to face facts.

I use my real name, Gerry Hiles, when commenting in YouTube and elsewhere; on the basis that unless one is willing to be named, all protest etc. is meaningless.

Orly's picture

"The BOJ was on the defense all those years, it was never on offense. A central bank that gives up the offense to the market, creates a situation where the market will exploit the weakness in an attempt to make a profit."

So I can call the game for this weekend in your neck of the woods...

"Ray Lewis, back to pass...looking for Ed Reed.  A toss over the middle and!  Oh, my God!  Ladies and gentlemen, I hate to say it but Ray Lewis throws like a girl!"

It is the CBs job to be on defense.  It is government that should be on offense.

We don't have that, either.


DCFusor's picture

What can you possibly mean?  Our government is offensive as hell.

Hohum's picture

Maybe everyone realizes that if interest rate on goverment bonds spike ANYWHERE, it's all over.  So bow to the central bankers.

Umh's picture

People in the market assume they can jump out of the boat just before it sinks; sometimes they drown.

the grateful unemployed's picture

yes but which is worse, drowning, or jumping out only to see the boat sail on without you?

blu's picture

If I have nightmares tonight it's all your fault and I want you to feel bad about it.

Orly's picture

Dude, you're evil.

blu's picture

Well yes of course.


besnook's picture

the yen move is the cover for the euro and dollar to print as much as they want(and they really want) to keep up. all of which will pressure the yuan. this is the end game, the final phase. i think japan will be the first to roll out the quadrillion yen coin to end the charade, decouple from the west and run into the arms of their chinese lover.

MrSteve's picture

Never. just Never. Japan is the first developed nation to "age". They are looking at buying foreign firms for growth as the nuking of their own homeland has made growth elsewhere more attractive, among other reasons like cheaper skilled workforces.

They will not let China run their future. Never. The flumph over some wet south Pacific rocks shows the real animosity that exists over the future of resource exploration and exploitation. Japan is not folding its fan in submission. They are the Land of the Rising Sun.

Orly's picture

And China is the "sick dog of Asia."

Orly's picture

The big Japanese banks came out at the end of last week and said that the yen will meet about 94 on the dollar.  They said there will be a delay of some days but rest assured, yen buying is not done by a long shot.  Both Nomura and Mizuho banks said this.

The idea that the yen needed a correction was self-evident by anyone who can recognise a parabolic chart, so insert Japanese mouthpiece to take it down a few notches before the real deal commences.  (And, according to the charts, it would be 95, not 94...)

The Japanese have also floated the idea of buying a half-trillion USD ($558 Billion...) worth of US Treasuries and European government bonds.  Marc Chandler has suggested that these mean European Stability Mechanism bonds.  Another player from a major Japanese bank has said that he would expect the yield on the UST 10-year to hover around 1% by the end of this year due to that kind of ferocious buying.

I realise that you wrote your piece before the ever-illustrious Jean-Claude Juncker came out with his speech that the Euro was at dangerously high levels and recession would be inevitable unless the Euro came off quite a bit.  The downward move in the Euro on this kind of talk coincides with the move in the yen in the overnight.

The thing is, if Japan comes in and buys European bonds at the same time the Euro is getting monkey-hammered to some reasonable level, the Japanese will lose a boatload of money because a weaker Euro makes it much more expensive for the "periphery" countires to roll over ther debt.  Bond spreads widen, prices fall, etc...

Now, the Fed players have been coming in and saying QEx could end by the end of this year.  Over the weekend and into this week, several Fed presidents have hinted at this, even though Dr. Bernanke denied such a thing, while not answering a single logical question off the twitter-feed.  (Had to be seen to be believed, by the way...)

Now, adding all this up, it seems that you are missing a very important element of what made markets back in the day different from the markets today: collusion.  Central banks are obviously coordinating their efforts to effect the foreign exchange.  That is probably something that has never been seen before, at least not on this scale.

The question is to what end?  What is the goal?

Figure that out and you would be the all-time 4X King.


chump666's picture

Very good point.

These markets are cartel run, it would appear some phone calls have been made on the YEN and USD weakness effecting South Korea, Australia, Canada (hot inflows) etc.  Now the EU lamers have taken cue.  Also the oil price which leads directly into oil/energy inflation.

Unfortunately the Fed, Obama and America (sadly) are locked into a dance of death.

Ghordius's picture

yes, collusion, I agree
two teams, though

one wants quiet, calm markets, the other wants them choppy

sometimes they compromise on little things

blu's picture

"The question is to what end?  What is the goal?"

The goal is to out-last the Chinese by any means possible, at any cost.

the grateful unemployed's picture

is that collusion then, or collusion now?

Orly's picture

Collusion now.  It seemed to have its start, along with many other insidious ideas, at the collapse of Long-Term Capital Management.  Now, it is in-your-face blatant as can be.

barliman's picture

What is the end goal? I would agree with this from the headline item on the main page:

Adding that the past two or three years have all been about the unintended consequences of federal "spending, promising, and intervening" in finance and banking to delay a day of reckoning, Grant believes a correction is coming but again warns (in as succinct an eleven-word-sentence about our real world as we have seen recently), that "Bankers get the upside and we - the taxpayers - get the downside."

Given the choice between bankruptcy of their parent organizations or delaying the day of reckoning at taxpayer expense, is there a central bank anywhere that would not goal seek the latter?


blu's picture

It certainly affirms a feeling many have voiced, that humans have left the market and taken critical thinking with them. When all you are left with are pressrelease-parcing algos looking for happy or saddy words you get what we see today.

I don't think there will be any reversion to an old mean, either. The humans are not coming back. They took out what they had in, went another direction, and they have no further influence.

If I were to write a fictional account of how this plays out in 5 to 10 years I would have a world in financial and physical ruins. Bodies forgotten in the streets, people living in boxes, no goods or services anywhere -- but a dozen data centers in Europe and the US battling it out daily (except holidays) to see who can get an extra $.02/share of AAPL today before the close, and not a human anywhere on the floor nor at a desk nor in a server farm. Just machines, doing what they were taught to do, before the actual programmers wandered off and died.

And Apple Inc? They would have been bought out for their brand by a Chinese company making wind-up plastic clocks. The algos would be trading AAPL because 10 years before someone wrote a routine to do so and never got around to changing it when the world blew up.

OpenThePodBayDoorHAL's picture

Explains why fully 8% of HF beat the "market" last year: they're trained in finance, not politics. Reading the next move of politicians reminds me of Kremlinologists, peering at portraits to see who got airbrushed out and what it means. Whether Berlusconi farted and if he did, whether it stunk of capers or just regular fettucini. What a joke. Methinks the CBs can call the shots for a while longer but then Mr. Market will have his day again. BenB is zero-bound: that distorts the shit out of things but he hasn't got much more room to manoeuvre. He's already gone full retard; but he can still go "full super secret double retard" and do something like buy Chinese stocks.

taint's picture

Why is the yen rising?  are people selling yen denominated paper?  Understand the export angle but haven't had anyone explain why the rise.  I can only figure this is the strengthening before the collapse?

Orly's picture

I'll take a stab, though I am no authority by any stretch of the imagination.

It has to do with the bond yield spread (differential...) between the US and Japanese government bonds.  As the crisis imploded, US bonds were bought en masse, sending their yields way down.  The spread between the bonds was such that it was more profitable to own Japanese bonds and Japanese yen, selling US dollars in the meantime.

The short USDJPY trade worked to bring the other yen crosses in line with the USDJPY pair, thus hatching the "risk on/risk off" trade that had been prevalent for the past couple of years but looks to be breaking up significantly.  (Everybody is on their own...)

Now, the yield on the US 10-year note had been rising but the market looks to be reversing the trend in rising UST yields lately.  PM Shinzo Abe was able to take advantage of the relatively high yields in US bonds to talk the yen much lower (by about 6%...).  Now that the trend has reversed, though, it is going to have to be real Japanese money that comes in and buys other stuff, selling yen, to keep the price down.

We'll see if they can do it.  No one knows for sure because the USD is so much more powerful than the yen, it may just have its way unless the BoJ can get the Fed to lay off debasing the dollar.

The next few weeks are going to be interesting in 4X, that much is for sure.

Hope this helps.


joego1's picture

Gold, silver, blue fin tuna, ammo. Matches

Intoxicologist's picture

Why fool around with matches?  Propane torches, bitchez!

blu's picture

Yeah? well you can't eat blue fin tuna you stupid gold ... oh wait ...

Orly's picture



spinone's picture

Disposable plastic lighters.  Lots of em.

Orly's picture

Yeah!  And Funyuns and Mountain Dew!

TBT or not TBT's picture

And the tube dealy the ammo shoots out of, one of those.  And some "clips".

Orly's picture

Sorry, but you might say that lighters are "u-BIC-quitous."  And cheap, too.



bank guy in Brussels's picture

What's ahead in FX I think is two big firestorms

One is the political situation in Southern Europe leads one of the countries, quite quickly, to force a euro-zone break up - Greece, Spain, or Italy, I don't know which.

This is not 'priced in' but you can 'feel' it happening here. Sometime within the next 18 months but when it starts to happen it will be mere days

In northern Europe banks and insurers will collapse but the euro will strengthen as a core Germanic euro, with Switzerland, Denmark and Sweden gliding along with it


Second big storm is Saudi Arabia falling over. I have been talking to Muslim businessmen here who spend a lot of time in KSA (Kingdom of Saudi Arabia)

To my astonishment, they say Jim Willie is right. Word on the street in Saudi itself is that the monarchy is in its last days there

Once again, not priced in, not recognised ... will happen quickly, the brutal Saudi regime toppled in days

And once Saudi goes, the petro-dollar blows up

And maybe the US dollar and bond market with it

Will be a wild ride but seems like most of us here have front row seats

Mediocritas's picture

Once again we are on the same page Bank Guy in Brussels.

I thought we might get a Saudi breakdown in the Arab Spring. It came close. The House of Saud only avoided it with a major payout (bribe) to the peons. Maybe they can do the same next time, but not indefinitely, particularly since Ghawar has unofficially peaked out.

Food prices are the thing to watch and seem certain to keep rising as new-normal weather events erode crop production. Compounding it for the MENA is the exponential growth of Muslim populations. 

Contrast Norway and Saudi Arabia, two nations with a similar history from an oil perspective. Look at population and then GDP per capita:

1. Population starts from a similar base but blows out in Saudi Arabia 

2. GDP is flat in Saudi Arabia despite all that oil wealth

Saudi Arabia's oil wealth has been consumed by an ever growing population. By contrast, Norway distributed more pie to fewer people and therefore has a social buffer. Consequently, the KSA lacks a social buffer and all it takes is another sustained food-price rise and the monarchy will not be able to contain the dissent.

Bernanke must have pissed off the Pentagon in a big way as the food-price-induced Arab Spring was largely a consequence of QE pumping banks full of money to speculate on commodities. Bruce showed in the past how volumes blew out exactly in concert with QE. In my opinion and, I believe, also in the opinion of the Joint Chiefs and anyone else who cares about the world outside finance, saving banks and the PAPER economy is not worth sacrificing the stability of the MENA, hence oil prices, hence the entire REAL world economy.

Food prices look as if they're ready for a breakout (up) with higher lows outweighing lower highs.


If they do then the fall of the Saudi monarchy is just a matter of time.

disabledvet's picture

You made a great call about Europe not too long ago that not that you need me to tell you but "that's street cred" in these here parts. Collapse of the House of Saud would be big...I'm no expert on ANYTHING Middle East so outside of "the oil thingy" combined with Al Qaeda's primary goal (overthrow of the Saudi Monarchy...the alleged purpose of "drawing the Americans into Afghanistan in order to defeat them there") and I'll believe anything right now. The USA is AWASH in oil and distillates right now so really don't see it impacting the fundamentals of the US economy as say "the wild speculations after Katrina." Live by the goo die by the goo. Having said that as it relates to currency markets seems to me the price of oil has already collapsed the the US economy...so that says to me the whole "petro dollar" thing when the totality of our (foreign) reserves are in Japan, China and Taiwan is HIGHLY over rated. In short "the dollar will act on economic fundamentals"...aka "shitty growth"...but growth nonetheless. I do think it is possible for an actual "front" to emerge in North Africa...I've seen the collapse of the Egyptian dollar and I would argue "this is not good for peace."

blu's picture

"the monarchy is in its last days there"

This absolutely is the one to watch. Not the least because, if things become chaotic over there it will make it easier for industry insiders to break the news about what is really happening in the oil fields. A couple engineers coming out and saying "Production numbers have been a lie since 2008, and Gahwar is finished" would blow up half the world in under an hour.

andrewp111's picture

I find the demise of the KSA hard to believe, but stranger things have happened. That society is so opaque it is hard to know what is really going on. Anyway, I am invested in oil stocks.

Orly's picture

Something tells me CIA/NSA/TPTB have an app for that.

barliman's picture

It comes in a variety of sizes too!

The very discrete .22LR segmented subsonic, the ever popular 5.56 x 45 (though it a a little hard to come by in the States right now), the penetrating 7.62 x 51, the plausibly deniable 7.62 x 39 or the choice of discerning, well funded "contractors" - the .338 Lapua Magnum for when you really want to REACH OUT and touch someone.

There are a couple of divisions' worth of contractors in the Kingdom, last I heard.

barliman's picture


If the euro disappears and the petro-dollar complex collapses ...

... would that benefit a country which has recently hedged its oil and mineral resources by laying claim to a new  1,000,000 square kilometers of South China Sea 'prefecture'?

Especially if certain Middle Eastern countries were to be busy exchanging warshots?

I wonder if that could make the markets just a tad nervous?

andrewp111's picture

If you want negative rates you want the Treasury to mint trillion dollar coins.

kaiserhoff's picture

Whatever the question, the answer is Death to the Jew York Media.

Nothing the Lame Stream Boys want to talk about is anything but a diversion.

Burn, Baby, Burn.


kaiserhoff's picture

Exhibits A, B, and C...

How about some articles on expelling 20 million Beaners from the country?

How about cutting federal salaries and benefits in half?

How about killing section 8 housing, forever?

How about an end to affirmative action and other idiocies?

How about converting to nat gas, like yesterday?

Those who work for a living hate the guts of New York and DC.  How about some articles on the consequences of tyranny?

August's picture

"Those who work for a living hate the guts of New York and DC."

You really must be more thoughtful. 

Just imagine how you'd actually feel if a hostile power nuked NYC, DC, LA and Chicago.  Pretty rotten, I bet. Right?

boogerbently's picture

......I'm thinking, I'm thinking.....

boogerbently's picture

In DC, would both houses be in FULL session ?

John_Coltrane's picture

Or better, during the state of the union, but with all tea partiers out of town boycotting the speech.  That's about ideal.  Now where did I put that spare nuke?

Orly's picture

Your friends call you, "NS" for short?

Umh's picture

Some thinsg make sense, but who is going to roof houses and pick crops if the "beaners" are expelled. It's not going to be the typical U. S. citizen who has never done a day of physical labor and isn't going to start now.