REITs

The 2nd worst week of the year (2nd only to Cyprus) for US equities was accompanied by Treasury buying as the JPY carry trade unwind continues in every risky-or-'yieldy' product. On an admittedly low volume day (typically good for a magical levitation in stocks), Treasury markets closed the day unchanged (and 30Y bonds ended the week unchanged). Stocks bounced after testing yesterday's intraday lows but intriguingly (Mrs. Watanabe?) it was Utilities that were the hardest hit sector on the day as stocks fell back rapidly after bonds closed finding balance at VWAP. The JPY strength weighed on the USD as it fell 0.7% on the week with gold and silver both up notably relative to other asset classes (+1.8% and 0.5% respectively). The last minute of the day saw a ridiculous instantaneous spike to take the S&P 500 to their day-session highs to desparately try to regain green on the day (SPX cash closed -0.87 points). Futures closed green with an 8 point run from 455ET (as we note no credit police were around to stop the idiocy).

Up until today, the narrative was one trying to explain how a soaring dollar was bullish for stocks. Until moments ago, when Bill Dudley spoke and managed to send not only the dollar lower, but the Dow Jones to a new high of 15,400 with the following soundbites.

• DUDLEY: FED MAY NEED TO RETHINK BALANCE SHEET PATH, COMPOSITION
• DUDLEY SAYS FISCAL DRAG TO U.S. ECONOMY IS `SIGNIFICANT'
• DUDLEY: FED MAY AVOID SELLING MBS IN EARLY STAGE OF EXIT
• DUDLEY: IMPORTANT TO SEE HOW WELL ECONOMY WEATHERS FISCAL DRAG
• DUDLEY SAYS HE CAN'T BE SURE IF NEXT QE MOVE WILL BE UP OR DOWN

And the punchline:

• DUDLEY SEES RISK INVESTORS COULD OVER-REACT TO 'NORMALIZATION'

Translated: the Fed will never do anything that could send stocks lower - like end QE - ever again, but for those confused here is a simpler translation: Moar.

It’s painfully clear for all to see that the majestic United States is now firmly caught in the rapacious stranglehold of financial elites which have completely captured it in a grotesque gamed monetary process.  Our country’s once idealistic and industrious free market economy has been hijacked and is undeniably being fraudulently and overtly financialized by the craven clutches and maniacal machinations of a contemptible self-seeking banking class. They have become nothing more than avaricious parasites disgustingly feeding from the grand trough of our treasured human ingenuity and self-respecting industry.

Put down the Sunday newspaper; grab a pot of coffee; and call 'mom' and tell her she has to read this. Doug Rudisch has written a far-reaching summary of the true state of the world and 'why policy has failed'. Simply put, there is no faith in the system; real underlying faith and trust in the system, as opposed to the confidence born from economic steroid injections or entitlements. There also is a subtle but important distinction between faith and trust versus confidence. Faith and trust are longer term and more powerful concepts.There is more going on than a temporary lull in animal spirits that current fiscal and monetary policy will cure. If that was the case, it would be working already... We have ended up with a system where the worst of the risk takers have the ability to take the most risk and are currently taking it at extreme levels. We wish we could be more prescriptive and offer more solutions for the problems. But in order to solve a problem, you must first realize you have one. With respect to the Fed, we don’t think the U.S. realizes it has a problem.

The main take away from events in Japan is that the BOJ shifted from a tactic of interventions (under former Governor Masaaki Shirakawa) to one of monetary policy (under current Governor Haruhiko Kuroda) . What strikes us is that the monetary policy is precisely to... well, destroy their money and in the process any chance of having a monetary policy. In our view, it was exactly because the Fed’s (undisclosed) intention was to engage in never ending Quantitative Easing, that Japan was forced to implement the policy undertaken by Kuroda. Coordination with the Fed was impossible. With Mr. Kuroda’s policy, we now have the BOJ with a balance sheet objective, the Fed with a labour market objective (or so they want us to believe), the European Central Bank with a financial system stability objective (or a Target 2 balance objective) and the People’s Bank of China (and the Bank of Canada) with soft-landing objective. It is clear that any global coordination in monetary policy is completely unfeasible. The only thing central banks are left to coordinate is the suppression of gold.

Many investors are now buying yield with little regard to the price that they're paying. It's a dangerous game that's not going to end well.

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There's never been coordinated global money printing of the scale of today and it's likely to end badly. Here's how you can protect your investment portoflios from what's to come.

There's never been coordinated global money printing of the scale of today. It will end badly and investors need to prepare accordingly.

We all know how this will end: with higher inflation/ costs of living and now very likely with a market crash. Every bubble the Fed has blown has resulted in disaster. This time will be no different.

As Citi's Todd Elmer notes, today's BoJ outcome looks far closer to 'shock and awe' than disappointment. It appears the BoJ's actions may speak as loud as their words for now - JPY is weakening and the Nikkei is rallying after Kuroda's last shot at a first impression appeared to beat expectations (covering for disappointing macro data - despite six months of jawboning and a 20% devaluation). Expectations, though tough to extract given the range of possible actions, appeared centered on extending maturities of bond purchases, increasing the size (median expectations of around JPY5.2tn per month or 50% higher than in Q1), bringing forward the open-ended nature of the program, and increasing scope to foreign bonds and REITs. In his effort to do "whatever it takes", the BoJ is upping asset purchases, extending the maturity of purchases and merging its asset purchase program; increasing the size to JPY7tn and buy securities out to 40 years. Though no mention of foreign bond-buying was made, and increase in ETFs and REITs is included. They have given themselves a two-year window to achieve the 2% inflation goal - paging Kyle Bass - and ironically, as the news broke Tokyo was hit by a significant earthquake.

Events in Cyprus stem from precisely the same source as the surge in US home prices, namely monetary expansion by the Fed.  

Calmer markets today, but European officials are finding it hard to put the cat back in the bag.

Asia has badly lagged U.S. and European stock markets this year and over the past 12 months. We explain why it's happened and why it may continue.

Because having legal authority to buy corporate bonds, ETFs and REITs, in addition to everything else the Fed now buys, is apparently not enough to crush, mangle and suicide its currency, the BOJ is now considering adding yet another "asset" to its cocktail of eligible securities for purchase: those which Buffett once declared weapons of mass financial destruction - derivatives.