http://www.zerohedge.com/news/2013-05-26/when-herding-cats-fails-visual-tale-two-qes
Submitted by Tyler Durden on 05/26/2013 11:27 -0400
Submitted by Tyler Durden on 05/26/2013 09:50 -0400
Long ago, before stock markets were the only manipulated "proxy" for where the economyshould be, if not where itis, and as a result confidence in the outlook for the economy was the only "fundamental" metric that mattered since everything else was, is and will be imploding (and how would it not,when it is the same market central planning that is destroying the underlying economy), there was at least some pretense that fiscal policy was as if not more important than monetary policy. The days when pretending it is not all about credit money creation are now long gone (perhaps the only good outcome from the second great depression), just as the Fed has, courtesy of global open-ended QE,finally admitted it was all about the Flow, not the Stock, destroying decades of central bank canon in the process.
and.......
http://www.zerohedge.com/news/2013-05-24/nikkei-futures-resume-rout
Submitted by Tyler Durden on 05/24/2013 08:25 -0400
What else does one need to say ? Check the chart !
http://www.zerohedge.com/news/2013-05-24/despite-promises-japanese-market-chaos-continues
Submitted by Tyler Durden on 05/24/2013 00:17 -0400
http://www.zerohedge.com/news/2013-05-23/japan-has-officially-gone-insane
Submitted by Tyler Durden on 05/23/2013 22:05 -0400
http://www.zerohedge.com/news/2013-05-23/japanese-stocks-open-15-bonds-half-way-limit-down
Submitted by Tyler Durden on 05/23/2013 20:04 -0400
and.......
http://www.zerohedge.com/news/2013-05-23/bass-japans-turbo-qe-it-wont-be-enough
Submitted by Tyler Durden on 05/23/2013 17:12 -0400
Submitted by Tyler Durden on 05/23/2013 16:52 -0400
Submitted by Tyler Durden on 05/23/2013 14:23 -0400
http://www.zerohedge.com/news/2013-05-23/quote-day
Submitted by Tyler Durden on 05/23/2013 15:07 -0400
When Herding Cats Fails: A Visual Tale Of Two QEs
Following last week's Japanese market fireworks, one thing has finally become clear: any ongoing collapse in the Yen, and corresponding surge in the Nikkei225 - supposedly beneficial "side-effects" of Abenomics impacting the Japanese economy - will send Japanese bond yields surging as more panic and sell their fixed income exposure, leading to further instability and volatility in the bond market, which in turn becomes a selling catalyst and so on in an escalating selling feedback loop. Because, as we have been warning, Abenomics "works" only as long as it only impacts stocks beneficially, i.e., sends them higher, but much more importantly as long as nobody sells their bonds. This is the reason for the surge in damage control out of Japan, desperate to "keep Mrs Watanabe's faith" in the wealth effect mechanism known as the stock market following last week's epic market crash best summarized in this piece by Bloomberg: "Kuroda Backs Japan Bulls After Stock Plunge Jolts Confidence."
So with Abe and Kuroda supposedly unwilling to take a break until long-term inflation expectations are anchored at 2%, this means the 10 Year JGB, most recently trading south of 1%, has much, much more downside. And as we explained before, the ongoing plunge in JGB prices means massive Tier 1 capital impairmentfor various Japanese banks which are the biggest holders of JGBs. It also means that as Kyle Bass has long been warning, the amount of Japanese tax revenues needed to fund interest will explode to nearly half of all. Although when the central bank directly monetizes the deficit, all sound math and logic becomes moot.
All that, and many other reasons why QE of the type implements in the US are impossible, have been explained extensively in the past on these pages.
However, the best argument why the type of Quantitative Easing imposed by Ben Bernanke, and the associated "necessary and sufficient" condition to exit this greatest of all monetary experiments, or eventually allow Ben and Kuroda to taper QE, i.e., the "great rotation" from government bonds into stocks (because otherwise both the Fed and the BOJ will be stuck monetizing and monetizing and monetizing until one day, soon, they own all government bonds), will never work in Japan is a simple one. And quite visual.
The chart below is a comparative study of the US and Japanese government bond markets: it assumes tota US government and Japanese debt of $16.7 trillion and $11.5 trillion, respectively, are indexed 1:1.
What is shown, and is far more important, is the relative size of the associated stock market, nearly $20 trillion for the US, but just a tiny $3.3 trillion in Japan.
And here lies the rub. Because while for the US the relative party of the bond and equity markets (delta of under 20%), the largest in the world, allows Bernanke to experiment with major moves in and out of the bond and stock market without major impacts to either class, in Japan the ratio of the bond to the stock market is a whopping $11.5 to $3.3 or a tiny 0.29x
Now, we won't get into the details of what happens when one tries to funnel liquid (because it literally is "flow") from a massive container into a tiny one, and the volatility that results on the margin as more and more contents from massive bucket A are transferred into tiny bucket B, but we don't think it is necessary. It is sufficiently intuitive.
The bottom line is that what may have worked for Bernanke up until now, will absolutely not work for Abe and Kuroda, who literally try to herd massive cats into a tiny trap, and where the bond and stock markets are literally worlds apart.
Of course, if Abenomics entire purpose is to destabilize global markets on the margin, create unprecedented stock and bond volatility, and ultimately crush faith in the Yen first, and then all other fiat, then he most certainly is on the right path.
http://www.zerohedge.com/news/2013-05-26/japan-opposition-accuses-ruling-party-creating-stock-bubble
Japan Opposition Accuses Ruling Party Of Creating Stock Bubble
Long ago, before stock markets were the only manipulated "proxy" for where the economyshould be, if not where itis, and as a result confidence in the outlook for the economy was the only "fundamental" metric that mattered since everything else was, is and will be imploding (and how would it not,when it is the same market central planning that is destroying the underlying economy), there was at least some pretense that fiscal policy was as if not more important than monetary policy. The days when pretending it is not all about credit money creation are now long gone (perhaps the only good outcome from the second great depression), just as the Fed has, courtesy of global open-ended QE,finally admitted it was all about the Flow, not the Stock, destroying decades of central bank canon in the process.
One amusing side effect of this shocking (to some) realization, is that politics, and the entire fiscal process, has effectively been rendered obsolete, and politicians are now nothing but figureheads in a central banker world. Perhaps, the general public would be angry if it were to realize that the only entity left making global macro economic decisions is a private organization run by academics, who in turn are merely firgureheads for the world's private banks. That, however, would entail that the co-opted media would actually explain to the broader population just what is going on behind the scenes: a process that would entail the loss of core advertising revenue, which is why expect confusion about just who pulls the strings to linger for years.
But what is most amusing, is that politicians, now completely powerless to attack their adversary's policies in the hope of gaining political brownie points and incremental votes as those same policies are meaningless in a world in which the only thing that matters is if Central Bank X will inject another $YY billion next month, are only left with resorting to such hilarious attacks on whether or not the market is in a bubble.
Case in point Japan, where the now-opposition, Democratic Party of Japan, was left to debate on prime time TV with the ruling Liberal Democratic Party whether or not stocks are in a bubble.
As Bloomberg notes, "fluctuations in Japan’s stock market that pushed the Nikkei Volatility Index to a two-year high last week signaled a “bubble,” Mitsuru Sakurai, policy chief for the main opposition Democratic Party of Japan, said on public broadcaster NHK’s “Sunday Debate” program today."
Of course, with one party forced to resort to such cartoonish allegations as whether or not 30x P/E is indicative of a bubble, the only logical response is just as childish: the market reflects the outlook for the economy.
Ruling Liberal Democratic Party policy chief Sanae Takaichicountered by
saying Japan’s economy is responding to efforts by Prime Minister
Shinzo Abe to stimulate growth.
Uhm, no it doesn't, as otherwise the US economy would be growing at between 4 and 8%, and not plunging the unchanged line every quarter, and forced to resort to such cheap gimmicks as including intangibles in the definition of GDP.
But never let facts get in the way of propaganda.
So here is a good sample of what political discussion will look like going forward: the political party in opposition saying there is a stock bubble...
Sakurai on Market Turbulence: “What has been behind the recent stock rally has been large inflows of hot money. As the real economy has not caught up to speed, it may be signaling a bubble. The lives of people, especially those on pensions, are becoming more difficult as import price increase.”
... while the ruling party saying there is no bubble.
Takaichi on Stock Movement: “Stock gains in the first few weeks of May had been rapid, so investors were waiting to take profits. I think more money will start to flow into the economy and exports will increase toward summer after the approval of supplementary and fiscal budgets. There are those who may be worried about the recent movement in stocks, but I think we will start to see more signs of strength in the economy as we can see large increases in car sales and construction. Companies that cut costs and overcame long periods of deflation and yen strength are being evaluated properly.”
Of course, in a world in which every G-7 central bank is injecting unprecedented amounts of liquidity into the stock market, the discussion of whether there is a bubble is complete moot: there has never been a liquidity bubble as big as what has been created now.
However, with a tiny portion of the population delighted by soaring stocks, and everyone else enjoying the largely meaningless paper increase in their retirement accounts (because if indeed stocks surge for fundamental reasons, than the coming inflation will destroy all funds locked up in long-term retirement accounts), the argument will be dominated by the party that is urging for soaring stocks, until obviously the bubble pops, and everyone who listened to the lies is left with nothing, and the opposing party (in some cases with a nationalistic aftertaste, just see Greece, Italy and the UK) soars in the polls.
Perhaps the most curious consequence of this confluence of monetary and fiscal (non) policy, is that very soon, political winners and losers will be defined only by where the stock market is, and how far it has or will crash.
and.......
http://www.zerohedge.com/news/2013-05-24/nikkei-futures-resume-rout
Nikkei Futures Resume Plunge
Japanese stocks had another violent night with record trading volumes on the TOPIX. The early 'buy the dip mentality' rapidly escalated into sell-Mortimer-sell as the Nikkei 225 dropped another 1000 points after the lunch break. A late day recovery managed to close the index just in the green and all could relax that the world was once again a better place thanks to Abenomics. However, since Japan closed, Nikkei futures have been sold aggressively now testing back down towards overnight lows.
The overnight destruction was save by a late-day recovery just into the green - but things are escalating rapidly once again...
Last night's drop occurred on record trading volume on the TOPIX...
Charts: Bloomberg and @InsideGame
What else does one need to say ? Check the chart !
http://www.zerohedge.com/news/2013-05-24/despite-promises-japanese-market-chaos-continues
Despite 'Promises', Japanese Market Chaos Continues
UPDATE 1: Japanese stocks turned negative (NKY -600pts from highs, -1.5% on day; and TOPIX down over 4% from highs); Japanese banks -11% from yesterday highs; S&P futures down 10 points from after-hours highs...
UPDATE 2: *KURODA WANTS TO AVOID INCREASING VOLATILITY IN BOND MARKET(yeah thanks... as useful as saying "we all want to avoid syphilis")
UPDATE 3: Nikkei 225 Drops below 14,000 -TOPIX down 11% from highs
For the second day in a row, and in spite of comments from Abe and Kuroda on communicating with the market (as Kuroda says BoJ Monetary easing sufficient), Japanese capital markets are out of control.
JPY, after weakening 150 pips from early this morning and breaking back over 102.50 has just given 100 pips back in matter of minutes and is now trading stronger vs the USD on the Japanese session. Japanese stocks have cliff-dived with the NKY dropping 400 points in minutes and TOPIX over 1.5%. JGB futures (prices not yields) have surged back higher to trade unchanged on the day as the correlation we noted earlier - and believe is now critical - has held between an out of control bond market and any further sustainable gains in stocks.
This is not good... as if the JPY carry trade implodes (driven quite simply by a total lack of reward-to-risk given the volatility in the carry currency and loan rates themselves) then what happens to all the levered longs in European peripheral bonds and any number of the 'most-shorted' companies in the US... It seems clear that this is all an experiment to see how markets react - the answer - not well!
30 minutes later...
Where's Maria B and the 'Buy on the dip mentailty' when we need her?
When is Tuesday already??
This seemed to sum it up nicely:
http://www.zerohedge.com/news/2013-05-23/japan-has-officially-gone-insane
Japan Has Officially Gone Insane
On one hand:
- BOJ OFFERS TO BUY 300B YEN DEBT WITH MORE THAN 10YR MATURITY
- BOJ OFFERS TO BUY 600B YEN IN 5-10YR GOVT DEBT
and on the other
- ABE SAYS BOJ ISN’T DIRECTLY BUYING GOVERNMENT DEBT
We give up: raging schizophrenia and a sado-maso fetish is now a core prerequisite for anyone who wishes to follow the daily lies these central planning sociopaths spew with impunity.
http://www.zerohedge.com/news/2013-05-23/japanese-stocks-open-15-bonds-half-way-limit-down
Japanese Stocks Open +1.5%; Bonds Half-Way To Limit Down
It seems the correlation to USDJPY has started to disintegrate and what is more worrisome for the BoJ is the linkage between JGBs and the Nikkei 225. Equities in Japan are about to open to a modest bounce around 1.5% but JGB prices are down around 0.50 (half the limit-down price moves). So, the problem for the BoJ is -do you let JGBs flop to maintain your equity market's appearance of normality? Or are Japanese stocks about to be as implicitly repressed as the bond market? It would appear TPTB are doing their best to ramp the JPY to keep this bounce alive (USDJPY opening just shy of 102.50).
- *AMARI SAYS 'ABENOMICS' IS PROGRESSING STEADILY (this is progress?)
- *AMARI SAYS BOJ IS COMMUNICATING CLOSELY WITH MARKETS (we suspect the market is communicating back even more)
What the subsequent violent gyrations in markets indicate is thatany hint of applying the brakes risks generating a fresh financial crisis, which in turn would render the economic recovery still born. Both financial markets and the real economy have become addicted to "quantitative easing", such that they can't do without it....Central bankers dream of getting back to "normal" – normal interest rates, a normal balance sheet, and so on. But that point isn't going to come any time soon. They are stuck on a money printing treadmill, and there appears no way off.
Japanese stocks made it to the 38.2% retrace just like the S&P 500 did and faded...
Careful what you wish for on the rebound... JGBs heading for limit-down (inverted below to show correlation)
and longer-term - JGBs have some room to the downside as the BoJ loses control...
JPY being dumped hard to keep the dream alive...
Charts: Bloomberg
and.......
http://www.zerohedge.com/news/2013-05-23/bass-japans-turbo-qe-it-wont-be-enough
Bass On Japan's Turbo QE: "It Won't Be Enough"
If JGB investors 'believe' as Richard Koo earlier noted, in the BoJ's new actions and Abenomics (to double the monetary base and generate inflation), then, Kyle Bass explains, a rational investor is likely to sell a portion if not all of them. The BoJ only has JPY10 trillion cushion (after the JPY60 trillion deficit) to soak up this 'rational investor paradox' selling and this is dwarfed by the holdings of JGBs in the largest Japanese banks (who are now starting to rotate away from JGBs into foreign bonds). Simply out, Bass exclaims, they are going to have make the plan even bigger... if they are to successfully contain rates. With a quadrillion JPY of JGBs out there, if a mere 5% is sold (from 'Abe'lievers) then Japan's Turbo QE is not big enough which leads to the paradoxical increase in the QQE, moar inflationary 'belief', and moar selling pressure... The BoJ has been in the market every day but 2 since April 4th trying to hold rates down (and is failing)...
Bass also explains his portfolio approach to positioning for Japan's problems - which is different from the mainstream media's perspective of being long the widow-maker...
and discusses the 'macro tourists' who are merely renting the Nikkei as opposed to owning it as evidenced last night - who do not comprehend the lack of improvement in the deficit despite the calamitous devaluation of the JPY (and a hollowed out manufacturing sector)...
Spend 7 minutes listening to some facts...
http://www.zerohedge.com/news/2013-05-23/cme-hikes-nikkei-associated-margins-33
CME Hikes Nikkei-Associated Margins By 33%
Two years ago it was only gold and silver that saw the CME's wrath on a daily, and sometimes hourly basis. Back then, however, it was due to soaring prices. Today, it is due to the bone-crushing price collapse in the Nikkei which has just seen the CME hike most Nikkei-related outright futures margins by 33%. So not only will those who resume trading Nikkei-related products in the futures market see a big loss in their P&Ls, they will also have to post some 33% more margin. We can only hope they still have some collateral and aren't margined up 100%. That would not be good for the Japanesepennystockmarket and "experiment" no matter how much good luck Jens Weidmann wishes them.
Source: CME
http://www.zerohedge.com/news/2013-05-23/richard-koo-warns-beginning-end-japanese-economy
Richard Koo Warns Of "Beginning Of The End" For Japanese Economy
The surge in Japanese long-term interest rates is likely causing some lost sleep among bond market participants and policymakers (despite their ignorance of the moves in the BoJ minutes) as Nomura's Richard Koo notes, if this trend continues (now added to by the collapse in stock prices) it could well mark the “beginning of the end” for the Japanese economy.
Although the stock market has (until now) welcomed the yen’s continued slide against the dollar, Koo warns that this trend needs to be carefully monitored, as simultaneous declines in JGBs and the yen can be interpreted as a loss of faith in the Japanese government and the Bank of Japan. The biggest concerns are that the extreme volatility in Japanese stocks and bonds is occurring at a time when the BOJ was buying large quantities of government bonds.
Until the recent events there was an expectation in the JGB market that bond prices would not fall substantially even if the Bank’s aggressive easing program depressed the yen and lifted inflation expectations as long as the BOJ remained a major buyer. It is now clear that even large-scale BOJ purchases of JGBs cannot stop yields from rising.
Via Richard Koo, Nomura,
The lies are working (too well)...
Mr. Kuroda’s psychological tactic of repeating a lie often enough that it becomes the truth has succeeded brilliantly.The problem is that it works on lenders as well as on borrowers. Moreover, borrowers are agents in the real economy and need time to react, whereas lenders are financial sector entities that can respond instantaneously, creating the possibility that lenders will react sooner than borrowers.The fact that the BOJ has also reversed the traditional order of things and is trying to spark an economic recovery by generating inflation has increased the possibility that higher long-term rates driven by inflation concerns will emerge sooner than higher long term rates rooted in a recovery in the real economy.
But that is leading to a 'bad' (uncontrollable) rise in rates...
If we refer to higher interest rates driven by an economic recovery as a “good” increase and higher rates sparked by inflation concerns as a “bad” increase, I think there is a significant possibility that the latter will emerge first in this case.That would not only weigh heavily on the first shoots of private loan demand to arise in a long time but could also focus attention on the banks’ and the government’s financial health, damping the positive momentum in the economy and markets seen over the last four months.This kind of contradiction in timing is called the “time inconsistency problem,” and it will continue to hang over the policies of the Kuroda BOJ.
Simply out, Koo's perspective is that the BoJ needs to rein itself in...
BOJ needs to declare it will not tolerate overshooting of inflationWhat can the BOJ do? To begin with, the Bank and the government could make it clear that they are targeting a 2% rate of inflation but at the same time, they will not under any condition tolerate a significant overshooting of that rate.By stating that they will not accept an overshooting of the target, the Bank of Japan and the government could reassure the markets that there will be no plunge in the yen and no bouts of uncontrollable inflation.
http://www.zerohedge.com/news/2013-05-23/quote-day
Quote Of The Day
The only sane central banker in the world, the Bundesbank's Jens Weidmann, take the prize for today's quote of the day with the following:
- ECB'S WEIDMANN WISHES JAPAN `GOOD LUCK IN THEIR EXPERIMENTS'
So do we. They will need it.
And some other pearls from his speech:
- WEIDMANN: JAPAN SHOWS MONETARY POLICY CAN BE PUSHED INTO DIFFICULT SPOT
- WEIDMANN: COUNTRIES MUST RESPECT THE RULES OF MONETARY UNION
- WEIDMANN SAYS ASKING ECB TO CALM MARKETS CREATES A WEAK EUROPE
- WEIDMANN SAYS STATE INSOLVENCIES MUST BE POSSIBLE IN EURO AREA
And now cue the Princetonians.
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