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Japan's 13 Sigma Bond Swan
For six months the Japanese jawboning has seen investors front-running the BoJ, selling JPY and buying whatever risk-asset is the most correlated that day - whether it is the Nikkei 225 or the S&P 500. However, now that words have been replaced by actions, it appears that someone (cough Japanese institutions cough) has decided the 13.4-sigma swing in JGBs last night is just too much and have rotated to US Treasuries. The selling of JPY and buying of EUR (to fund peripheral bond buying) and USD (to fund Treasury buying) is very clear. That means, implicitly, that every ramp higher in JPY (weaker JPY) is simply more bond-buying - which leaves the algos directionless.
If you were a risk-manager, what would you do? And as far as all those VaR risk models - oops!!
It seems the 'sellers' of those JGBs have found a new place to put that capital to work (and in a non-devaluing currency)...
Charts: Bloomberg
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I love Sushi
Seeking alpha? Howabout Freaking Sigma!
See! Even Tyler knows that the USD isn't devaluing.
Hint, we are in a deflationary environment. Thus why the UST yields are dropping.
We are in an artificial environment thats why gold was dropping
We are deflating.
Gold at $1600 vs $350 ten years ago.
Oil at $92 vs $30 bbl ten years ago.
and the Constant Commodity Index, let's take a look at that:
http://www.mrci.com/client/crb.php
Gold is a fear trade.
And oil is transitory.
Oil is indeed transitory, on that we can agree...
That Gold is a fear trade is also true. Fear of being robbed by .GOV that is.
And how about the other CCI components?:
Natural gas, wheat, corn, soybeans, copper, cotton, live cattle, lean hogs, coffee, cocoa, sugar, orange juice, silver, platinum?
Transitory!
Just a silly question here... but what about all of those hundreds of trillions in currency and interest rate swaps back at the unregulated TBTF casino?
Could be some very big winners and some very big losers coming out of these seismic shifts if everyone hasn't netted out exposure properly...
These policies is less likely to work in our era.
Niall Ferguson on the death of Keynesianism in Japan and around the world:
http://www.planbeconomics.com/2013/04/niall-ferguson-on-keynesianism-in-...
Yup.
Transitory like the $12 trillion added to c.b. balance sheets.
Transitory like the M1, M2, M3 money stocks that have shot through the roof
http://research.stlouisfed.org/fred2/series/M2
Thirteen, fourteen.....whatever it takes.
The banks are printing like mad to fight the deflation of their debt/bond bubble. Every thing else is inflating:
The balance sheets of 8 central banks combined.
http://www.ritholtz.com/blog/wp-content/uploads/2012/01/balu10.gif
Bigger picture required
Biflation, bitchez. The stuff you need (like food) costs more; the stuff you already own (like a house) or don't want/can't afford (like a yacht) costs less.
Yachts cost less now...?
Fuck yeah, bitchez- I know what I'm having for lunch- yacht sandwich with a side order of iPad...
.
More like a protest trade against the fascist elite running the circus.
LOL. Almost as good as MDB.
And soy, wheat, aluminium, copper?
Oil is transitory, but gold is forever!
Krugman: "Gold is a fear trade. And oil is transitory."
It's more honest to say: "The MIC is the fear trade. And life and peace are transitory."
And gold is the mistrust & mitigation trade. Since we're into dropping all pretensions.
If you actually are Dr. Krugman you really should consider the self-preservation value of keeping your idiot mouth shut.
How about groceries, building materials, car parts and maintenance supplies, tires, household items, cleaning supplies, garden supplies, and durable goods in general? Deflation, my fucking ass.
The only things deflating are my property values, and take home pay.
The only thing transitory is the purchasing power of the dollar....
As for why central bank will fail.
POINT 1.
Central bankers have read keynes and know how expectations are important and how managing expectations of the market is important. Now market participants have read keynes too and know how expectations are important and how central bankers are trying to manage expectation.
Do you rationally believe that market participants are going to ignore that when they listent to central bankers. Are we supposed to have read Keynes and now let our expectations get managed when we know the Central bankers are trying to manage our expectations?
POINT 2.
Central bankers are supposed to have credibility, it is very important. Ok, how do we reconcile this with point 1 which is that we know that central bankers are trying to manage our expectations??? (telling bullshit for our own´s sake.)
The only thing that transpires from this concept is arrogance, which will result in EPIC FAIL because market participant see right through it.
POINT 3:
During the subprime crisis a lot of people in the hedge fund community knew that the thing would blow up, but nobody at the Fed or IMF was smelling the coffee. A lot of guys bought some credit derivatives and in the end the gov and teh Fed had to pony up money to pay those guys. Who is managing the expectation of who? I guess the hedge fund guys are managing the expectations of the Fed instead.
"The age of financial globalisation has brought us to the verge of this second extreme. The extraordinary growth of financial activity has far outstripped the growth of real economies, leading to the accumulation of financial assets that are largely the liabilities - i.e. the debts - of countries, banks, corporations. The markets are telling us now that this process has gone too far and that a “deleveraging” - i.e. a reduction of the indebtedness - is now required by all debtors, public and private.
The world economy is, in other words, confronted with a “global Triffin dilemma” in which the excessive indebtedness of the issuers of financial assets is now affecting the value of the assets themselves; of all assets, not just of reserve currencies, as in the early Triffin dilemma.
But, how is it possible to carry out this huge process of deleveraging in an orderly manner and without further destabilizing the world economy?
The obvious answer is that it may take time and in any case a longer period of time than that financial markets, suddenly become aware of the unsustainability of the situation, seem willing to concede."
Fabrizio Saccomanni
BIS Working Papers
No 399
Global Safe Assets
And the BIS was at the center of policies that led to the current debt bubble.
Actually it was Saccomanni's response/rebuttal to the following paper.
http://www.bis.org/publ/work399.pdf
Fair enough but the BIS has been at the epicenter of gold and interest market rigging now for decades and these concerned analyses are a distratction from what they've been doing.
-
Moved.
Junked!
Christ this is fun. +1 Tylers. Can Banzai dress his head up like a pinata? No no wait, it's fine, just leave it as is.
To Hong Kong?
I cannot wait to hear the real you spouting your bullshit on MSM when Japan truly hits the windshield.
"Well you see the problem [insert random douchebag here] was that Abe and Kuroda just didn't go far enough."
Moved, the coo coo clock!
I agree with you. But how is buyimng MBS from the banks helping us out of this deflationary enviroment? More debt but less money chasing goods is not what we need. Tell your masters to skip the banks and just refinance straight with the people.
It frees up the banks to loan money to businesses.
You mean it frees up banks to buy stocks, right?
Prop desks were done away with by the Dodd-Frank Act.
Total US debt at $56 trillion:
http://research.stlouisfed.org/fred2/series/TCMDO
We need more debt.
Bwahahahahahahahhahahahahahahahahahahahahahahahahahaahaha!!!!!!!!!!!!!!!!!!!!!!!!
hahahahahahahahahahahahahahaha
you jest! hahahahahahahaha
Dodd Frank is a bust....and there is no money flowing to Main Street. The government can't stimulate consumption. It's so inneficient it can't add value to anything, quite the opposite, which requires continual additional subsidies from the taxpayer. It's an ugly downward spiral of no return. Secondly, TBTF banks are so big and need so much cash to operate and provide returns to shareholders, the only way they can get it in a stagnant economy is by performing outright manipulation and participating in risky investments. What you have here is a volatile mixture of stupidity and greed and you are part of the equation Dr. Krugman. When the shit blows up I want to see the look on your face when the uneducated masses come to get you and 'thank' you for all your thoughts and influence on furthering a busted economic and social agenda.
Dear Fake Dr Krugman, let me educate you on Gold.
John Fullarton:
“The amount of hoards is not governed by the state of prices, but by the market-rate of (real) interest, which however it may be essentially identified with the rate of profits on capital, it is well known rises and falls in the first instance with every contraction and expansion of the medium through whose agency capital is distributed, where that be money or credit.”Now about fear aspect, you are partly correct.
John Fullarton
“No person who has ever resided in an Asiatic country, where hoarding is carried on to a far larger extent in proportion of the existing stock of wealth, and where the practice has become much more deeply engrafted in the habits of the people, by traditiuonary apprehension of insecurity and hte difficulty of finding safe and remunarative investments, than in any European commonudity, no person who has had personal experience of this state of society, can be at a loss to recollect innumerable instances of large mettalic treasures extracted in times of pecuniary difficulty from the cofferes of individuals, by the temptation of high rate of interest, and brough in aid of the public necessities, nor, on the other hand, of the facility with which those treasures have been absorbed again, when the inducements which had drawn them into light were no longer in operation.”McMolotov 1000.01% right. Does anyone listen to EKM? The primary dealer > toss-A-cross< ?
yes tons of loans
http://www.zerohedge.com/news/2012-12-26/record-2-trillion-deposits-over-loans-feds-indirect-market-propping-pathway-exposed
Dr. PK: "It frees up the banks to loan money to businesses."
It turns out that this is not quite accurate either, unless you're talking about the TBTF banks. If a small business wanted to buy rental property -- even with 50% down -- it turns out, you can NOT get a mortgage. Comments?
Velocity is in vaporlock.
The banks are too busy bolstering capital reserves or flipping treasuries. They are preparing for a collapse that they know is imminent.
They are too preoccupied with the above exploits to bother loaning to start ups or finance expansion in existing businesses.
Try again.
LOL
we are in a deflationary environment.
Didn't Bernanke always boast he has the ultimate tool to fight deflation?
Never heard the fight deflation part.
If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.
http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/
Abe-san.
And here I thought it was because Ben was buying them all with 85 billion a month.
What an ignorant copy of Krugman you make!!! please educate yourself.
We would be in deflation if the Fed was not compensating the contraction of credit with expansion of money. As for interest rates actually it is a by-product of money printing. In XIX style deflation, what would occur is that there would be a bid of currency for Gold at the central bank and an ask at the mint. When people were asking to redeem their notes for Gold, it would have a similar effect as what happens with the HKD. The HKD is operating like a Gold standard with a bid and ask on the monetary object, there is a bid and ask for the HKD against dollar. When people are concerned about credit quality, you would see in aggregate a redemption of the currency for the monetary object, this would make interest rate rise and precipitate bad credit into bankruptcy even more rapidly.
The Hong-Kong dollar still works like the old currency systems of hte XIX century pegged on Gold. Check this out page 3.
http://www.hkma.gov.hk/media/eng/publication-and-research/background-bri...
The HKD is a sound currency system, the problem is that it is pegged to a shitty monetary object (the USD) which is neither a proper monetary object nor a proper currency. The USD is somewhat undefined.
As for money printing. Again read fullarton. The money printing itself make interest rate go down, when the money reaches the real economy, the money printing will stop because it would accelerate inflation expectations even further. For now the base money printed goes into finanical assets. (still).
Fullarton 1844. (BTW you are a horrible fake Dr. Krugman)
The process by which the redundant issues of inconvertible government paper (fiat system) act upon prices is exactly analogous to that which is set in motion by an increase of the productive power of the mines (large discovery of Gold in a metallic money system). It is in the discretion of the issuing authority, either to limit the employment of the notes which it sends out to the purposes of a temporary advance in anticipation of taxes, or to issue them for all purposes of state expenditure without making any provision to secure their return. In the former case, there will be no permanent addition to the circulation, nor any power of purchase obtained through taxation alone. In the latter, the issuing authority will be place nearly in the same position with the merchant returning with his double cargo of gold and silver from El Dorado.
[In that case] the market would take off at part merely such proportion of the importation as had hitherto sufficed for the purposes of consumption, and the rest would all be sent to the mint for coinage, yielding an enormous accession to the importers, who, to the extent of the means thus placed in their hands, would immediately become competitors for every description of productive investment in the market, as well as for all the material which contribute to human enjoyment. But as the supply of such objects of desire is always limited, and would in no way be augmented by this great inundation of circulating coin, the inevitable results would be,
–First a decline of the market-rate of interest
–Next a rise in the value of land,
–And of all interest-bearing securities
–And lastly, a progressive increase in the prices of commodities generally “
That is about the only thing that you have got right. The deflation is so severe that the Fed cannot create electronic money fast enough to offset the collapse in credit. It would melt down in an incandescent moment if it tried.
A FIAT currency system that is based upon expanding debt will suffer a severe recession if debt creation slows down. When debt creation goes into reverse it is totally doomed. There is going to be an outbreak of sound currency in terms of the US Dollar and the Fed is powerless to fight it.
Good article on sigmas:
http://lukenotricks.blogspot.com/2010/03/fabled-25-sigma-event.html
Very good quote in the comments:
"The chances of this event happenning by random occurrence is so devistatingly remote, one can only conclude that the event was deliberately made to happen."
Sigma's are for normal distributions and the like. Fat tails are a different story. Probability is so poorly understood that they gave a Nobel prize for Black-Scholes. Quite equivalent to giving Obama a Nobel peace prize.
These Japanese are WAY ahead of the curve.
they are the curve
Confucious say man who jump off cliff first never splats last
usa usa usa usa ....barf
Wonder what Kyle Bass is whispering today...I would love to hear the conversations going on in his conference room.
Bernanke wisdom courtesy of William Banzai7
http://www.zerohedge.com/contributed/2013-04-05/13-sigma-godzilla
Swan-anara
Bullish 'topes.
Positively glowing.
Exactly what the FED needs to take the accelerator of the QE pedal. World instability is the FED's best friend right now. Best monetary policy they can buy. Moar money velocity from offshore accounts being raided to weakening currencies all around them is their unwind. Just need the O'great divider of men and nations to keep breaking down the societal structures to keep that instability recovery rolling.
being the strongest currency is like the plague now.
repeat of dropping the gold standard.
last one out is a rotten egg(best balance sheet).
Daisy.... Daisy......
HAL, or WOPR, take your pick.
HAL...
30y treasuries 2.85 yield
30y mortgage rates 3.64 wtf?
Whats the rate on a 30y mortgage in japan?
More accurate to compare the 10y note (or swap rate) when looking at Mortgage Rates - they are more aligned duration-wise.
The primary vs secondary spread has BLOWN out. Thus Chase and Wells are rolling in it.
Does it really matter? Although I understand that there are some really HOT properties in the Fukushima Perfecture.
Hello Kitty Bonds.
What a fucking 13.4 woody!
No comment on the EURJPY/USDJPY action?
Methinks that's Bruce's signal.
Started to following you. Like your models. Can you put EUR/USD live also online like Gold? :-)
Many thanks. All the published models are live, including Gold.
We make the Gold model publicly available because we hate seeing gold bugs get burned. The rest are for subscribers.
Where can I find the tutorial?
http://www.quantsig.net/guide.html
It's light and explains the platform, models, and usage. Should be a good start.
Deleted - Double post
Seems like they bought a hell of a lot of French Bonds today [ATL on 10 & 30] and also a stack of Italian 10 Y, what could possibly go wrong with that?
I woke up in a world I no longer recognize. I must have been abducted or sent through a wormhole to a parallel dimension.
Here is my new favorite "New Normal" quote.
"Facebook Home is the new monetized mobile screen saver," Krishna Subramanian, chief marketing officer for Velti, a mobile advertising company, wrote in a note. "Not because you will see ads on the home screen but because that Facebook Home app will drive increased mobile usage and create an explosion of mobile data that can be tied back into desktop advertising." He added, "Mobile advertising revenue does not need to be tied to simply showing ads on mobile apps … it's bigger than that."
You don't actually need to show a mobile ad to derive revenue from a mobile ad. Somehow monetizing mobile through Facebook is about monetizing the desktop. That Facebook Home will drive increased mobile use, which will drive increased revenue from targeted desktop ads.
My wall now has a giant head shaped hole in it.
Tell this Subrakrishna Mantra this:
"I know, that you think you understood what you mean I have said. But I'm not sure, if you comprehend, that what you believe to have heard is not, what I will tell you now:
(pause) You're fired!"
To hell with fuckbook!
Better than your head having a giant wall shaped hole in it, I guess. Why people use Facebook and just voluntarily hand all their personal shit right directly to the alphabet agencies - for them to laugh at -is beyond me.
Why not just sign up for an email account directly with them? At least then you could get a cool email address - e.g. - imfucked@we-monitor-your-email-for-you.nsa.gov
Alternate dimension.
I fell into this one somewhere back in August 2001.
I'm pretty sure it was while I was in REM sleep one night, my subconcious was open, and my doppleganger from reality #1,045,033 saw his chance to get the hell out of this one and booted me here.
The world was crazy then, but not bat shit crazy like this one.
Do you know how click adds on......FACEbook?
Well done on making my spirit degrade even further. Fuck.
See the barll. Be the ball, Danny.
So, one of the world's biggest and most important businesses produces nothing and gets its revenue from ads that don't exist. Their stock is selling at a P/E of 2,707. This is now considered normal.
SELL! SELL EVERYTHING! QUICKLY!
They are buying the ES. TBTF are selling it.
I think thats it: The TBTF & PD`S need buyers to unwind. Deposit confiscation and anything else that can flush money off the sidelines and into the shearing pens are warmly welcomed at this point.
So money is coming flooding into treasuries now. Bernak can probably cease QE. The market is doing his bidding for him. Woohoo. We win.
US Treasuries are the last stop before gold?
This is going to be... interesting.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012...
Those poor algos.
Japan and Europe buying U.S. Treasuries; a sardonic irony with hints of alternating sadism and masochism.
What a mess, what an absolute mess; savers punished, gamblers rewarded, and central banks shooting each other up with monetary heroin and sharing needles. Ick.
I'm turning Japanese
I'm turning Japanese
I'm turning Japanese
You really think so?
Bernanke is winning! QE too! QE = stronger currency! Better than in Krugman's dreams!
/this is what the Keynesians believe
If I were a fund manager I would do what I do every single day:
1. Wake up, check futures.
1. Turn on computer
2. Load up algo programs
3. If futures are higher, turn on VWAP BUY programs for SP500 with $25mil
3a. If futures are lower , turn on VWAP BUY programs for SP500 with $50mil
4. Go play golf
5. Get lunch.
6. Count profits once market has closed.
Todays action off the open shows this is exactly what is happening.
Open is low, slow move up. Do not stop until all or most of any loss has been recovered. Any dip > 1% is a massive strong buy and is basically free money.
Japan's bond bomb fuse has been lit.
Yeah and it blows Sunday night!
No no no.. Wednesday when that little fat turd launches his rockets.
the chinese will buy those japanese bonds. :yuk yuks:
Portugal constitutional court is set to rule in 15 minutes or so if the austerity measures are legal... if they rule against, it's gonna be meltdown mode.
Eyes watchin'!
Keep us updated. Thx.
Decision in 10-15 minutes. Voting taking longer than expected. This will be close...
Goddamn sissies in their dresses and wearing wigs are late again.
Portuguese Constitutional Court rejects two articles from Government budget - cd have huge implications for application of (no) cuts policy.
The Portuguese constitutional court just ruled that 1.1 billion euros in cuts were unconstitutional.
As Yogi Bera once said, "13.4 sigma events happen all the time".
And "Cash is money too" What a concept!
All right let's just stay calm here!
Do you have ANY idea how unlikely a 13 sigma event is?
No? good, cos neither do I. What's more worrying, neither does Google.
A six sigma event:
99.99966% of not happening.
A 13 sigma event is, as is sometimes said here, essentially "unpossible".
The unpossible often has a kind of integrity which the merely unprobable lacks -- apologies to Douglas Adams
DON'T PANIC!!!!
" I can count to 13 on just one hand "
- Fukishima resident.
i don't know who it is but if he ran on US tresuries, he must be one hell of an idiot (erm or daytrader ;-)
Ummm....I think there is going to be a few pissed off Japanese grannies when they find out the cupboard is bare,no pension for you sucka-san....
First they glow in the daytime and now this...Ranks a rot !!!
Re Kyle Bass's short position of last few years against japan:
Is that the sound of Bolli corks popping in his office?
Okay,so you've worked hard all your japanese life,paying into your pension fund,loses a little value over the Lehman thing,but no problems,time to take life easy,and WHAMMO.......
This is a culture and society where this is not supposed to happen!
BRACK SWAN!
A: Dark Pools of GS.
Q: Which GS?
A: You figure it out.
Well,actually I have heard that they have a mafia,the Yakuza,and the Sumo matches are often rigged just like the boxing matches used to be here. This is sorta interesting,when the mafias around the planet start getting targeted,does this perhaps show the way for a worldwide payback episode. Russians get shaken down in Cyprus,Yakuza in Japan,confiscation of mafias assets in Sicily,etc. Thank God there is still a good opium crop growing in Afghanistan...
Rejoice, we truly are living in a time of miracles.
abe and kuroda were banned from buying foreign bonds as part of japans meontary policy easing/QE
where "investors" in JGB's switch into non-Japanese government bonds, this represents a "de facto" (de fucto?) implementation of the banned QE policy.
expect this to escalate into capital controls very shortly and the yen to first strengthen back to low 90's and then really tank as the credibility of the laughable krugmanite policy of "nobody has to work because we can just print money, run deficits and get someone else to build bridges to nowhere"
serious question: even though the US government has quandered trillions of dollars on banks, corruption, fraud and poor quality government, would you trust this government to come up with a concerted infrastructure replenishment plan that would be budgeted to cost 8 trillion dollars, escalate to 16 trillion dollars and deliver 1 trillion dollars of value?
japan couldnt do it over the last 25 years..the US either fixes the banks, corruption, fraud and poor quaity government..or pursues Japan down the drain of incompetence (and Keynesian economics)
all aboard to the state of clinton!
http://www.youtube.com/watch?feature=player_embedded&v=GaDAHUU1S9w
Black swan dive into a dark, empty pool.
Check this chart out. [IMG]http://imageshack.us/a/img27/230/96353472.png[/IMG]
The first line was 12:00 p.m.(N.Y.). The second line is closing. Ramapalooza!
sterling yen is a fav pair of mine, but its getting harder and harder to juggle 8 parts that all consist of crap currencies, which curency is any good any more now they have all blown out the water by shitty central banks! vietnam dong maybe or kiwi dollar.
seems such a cop-out to stay long renminbi..open marxism is better than closet (krugamnite) marxism
just have to wait til sfr/eur gets a leedle closer to 1.20 and have moar swiss rolls for tea!
http://www.marketwatch.com/investing/currency/EURCHF
Thanks for the link h-2009. It's all about price action. Just like ( BTFD @ T-Minus 30 minutes) in N.Y. Good on ya.
This looks like the beginning of the end for Japan, and seeing exactly what I would expect to see when Japan goes boom....
1) Rise in dollar/drop in US Treasury yields as noted in the article
2) decoupling of Gold from other commodities. when shit hits the fan buy gold and US Bonds... other metals tend to act like normal commodities in times of crisis and drop accordingly (I think this was noted on zerohedge recently but dont have link). (gold has been going up with oil going down, pretty good indicator of a problem on the horizon)
3) Volume/volatility starting to spike, as BoJ start to do battle with investor selling.
4) stocks will be trailing indicator I think and will eventually wake up and sell off a bit, and further pushing down US bond rates.
Then another global recession of some magnitude and that is going to really stress Europe......
13 Sigma = As frequently as the spare parts in an automotive salvage lot spontaneously assembling themselves into a McDonald's restaurant?
Maybe you should work for Goldman Sachs' risk desk.