Bonds & Interest Rates

The Next Experiment, Part 1: Japan Prepares To Buy Pretty Much Everything

For most of the world, the past decade’s monetary and fiscal experiments are viewed as failures. See, for instance, French support for the EU project crumbling on both left and rightand Why were smart people suckered by Abenomics? 

So what do the best and brightest now running global economic policy do when their experiments don’t work? Apparently they double down, repeating the experiment with an even bigger dose. In Japan:

BOJ Needs Massive Move to Shock & Awe, $2 Trillion Investor Says

(Bloomberg) – The Bank of Japan could announce a “massive stimulus program” as the nation seeks to reach a 2 percent inflation target, according to UBS Wealth Management.

“It is how much they do, and whether they can create that kind of shock and awe at this point in the cycle,” said Mark Haefele, global chief investment officer at UBS Wealth Management, in a Bloomberg Television interview, on Monday. “They could announce a massive stimulus program both on the monetary and fiscal side or they could end up reducing their inflation targets. Right now, it looks like they are going to use more stimulus. ”

Governor Haruhiko Kuroda said over the weekend in the U.S. that the central bank won’t hesitate to boost monetary stimulus if needed, and there is ample space for additional easing. He also said at the Federal Reserve’s annual policy retreat in Jackson Hole, Wyoming, that the central bank will carefully consider how to best use policy to achieve its price stability target.

Consumer prices excluding fresh food — the BOJ’s benchmark inflation gauge — fell 0.5 percent in July from a year earlier, government data earlier this month showed. That was the steepest drop since March 2013, the month before Kuroda launched unprecedented stimulus. 

Japan-central-bank-failure-Aug-16

Benchmark 10-year JGB yields reached a record low of minus 0.3 percent last month before rising to minus 0.07 percent Monday in Tokyo. The BOJ refrained from increasing bond purchases or cutting negative interest rates further in July.

Central Bank Jeopardy

Japan’s inability to achieve its goals has “put that country and that central bank into some kind of jeopardy that they are going to have to work their way out of,” according to Haefele. He oversees the investment policy and strategy for about $2 trillion in invested assets at UBS Wealth Management, according to UBS’s website.

The BOJ is currently undertaking a review of its monetary policy ahead of its next meeting Sept. 20-21. Whether the central bank adopts more stimulus with the yen at its current level or waits to see if it strengthens more is “an open question,” he said.

“It is hard to say that any one move is going to be enough given the history of stimulus in Japan has been erratic,” Haefele said. “But everybody is hoping that they will give it another try because clearly Japan, despite reaffirming their inflation targets, has not been able to hit them.”

Well, yeah, the BoJ doubling down from here would definitely “shock” the markets, but probably not in the positive way its advocates hope. The above chart is a little hard to read (Bloomberg’s esthetic sensibilities have become ever-stranger in recent years) but its point is clear: Three years into an epic debt and money creation binge, the result is approximately nothing. Inflation – that is, the rate at which the yen is losing value – has not only not risen, it has fallen to the point that the yen is gaining value. For a heavily-indebted society, deflation (i.e., an appreciating currency) is an existential threat, as debts that are already too big to manage become even more debilitating. 

But if tens of trillions of newly-minted yen didn’t work the first time around, why would tens of trillions more do any better? The answer is that they probably won’t, and are more likely to destabilize the system in one way or another than to produce steady, mildly-inflationary growth. 

Meanwhile, if Japan goes for it the way history suggests and most observers now expect, what will they buy with their new yen? BoJ already owns nearly all the available Japanese sovereign debt and a big chunk of domestic equities. So would it buy up the rest of the stock market, or encourage corporations to leverage themselves even further by issuing more debt? Or would it look abroad and start loading up on US and European stocks? All of these possibilities take BoJ outside the bounds of what used to be considered a central bank’s role. So whatever comes next will be new and fascinating from a theoretical standpoint and flat-out crazy from any other angle. 

And either way, win or lose, Japan’s next big move will set other players in motion. If it manages to send the yen off a cliff, then Japan’s exporting industries win big – but at the expense of European, US and Chinese counterparts. Europe in particular would have to respond in kind with a big, fast euro devaluation (see the article on France that opens this post). So too would China, the US and maybe even the emerging markets that will be destabilized by hot money inflows if the developed world escalates the currency war. 

Whatever way you slice it, 2017 is looking like quite a show. And as always these days, gold looks like the main beneficiary.

….also: Only Two Choices….Both Miserable

The Precious Metals Sector and the Fed. . .

Technical analyst Clive Maund reflects on how Federal Reserve statements may affect markets, and explains why he thinks the precious metals markets are due for a correction.

Metals and fed cover

Chart courtesy of www.sentimentrader.com

While the Fed is almost powerless these days, as it has succeeded in “painting itself into a corner,” the markets still seem to think that its utterances are important and react, sometimes violently, to its apparent stance, or implied stance. For this reason we have to treat Fed statements as important, even though they really aren’t. Today we have the Fed making pronouncements and the markets can be expected to gyrate around and react as usual.

In general they are not expected to “rock the boat.” Powerful vested interests—what may be described as the status quo—want Hillary Clinton as the next President, as she will serve as their marionette and do their bidding. Trump can talk a lot, but even if he gets in won’t make much difference for two reasons. One is that he is the candidate for the Republican Party, and the same plutocrats control the Republican Party that control the Democrats—they are two sides of the same coin. So if elected Trump will have to buckle down and do as he is told. If he tries to seriously take on the military-industrial complex that runs the U.S. he will end up like JFK. In any event, he has already indicated that he will yield and comply, by talking about “beefing up our great military” and by paying homage to “our great friend in the region (Mid-East) Israel.” 

So whoever gets in, the outlook for the ordinary American citizen remains hopeless, despite all the mindless pre-election hype and razzmatazz. Of the two candidates the powerful vested interests, of course, prefer Hillary, so we can expect the Fed to do as little as possible to upset the markets ahead of the elections (i.e., nothing of any consequence). This being so, today’s Fed remarks might be greeted with a sigh of relief and spark another up-leg in the broad market, which is now supported by a gigantic slush fund.

Although at first sight it looks like we are being presented with a buying opportunity in the precious metals sector, which has reacted back over the past couple of weeks, we have to careful here. There has been no major correction in this sector all this year, which is inflated after months of rallying, and we will look at some evidence here that the correction may have considerably  to go, in points terms if not in time terms.

We will start by looking at the eight-month gold chart. As we can see, although stocks have been slammed over the past couple of weeks, gold has barely dropped yet, although it has broken down from a Triangle as predicted at the start of the week in Gold and Silver Probable Short-term Scenario. If the dollar rallies, gold could get whacked back to the vicinity of its 200-day moving average, now at about $1,220. Such a drop would lead to further heavy losses in PM stocks over a short-term time frame, and would be expected to be followed by a reversal to the upside, and thus present a MAJOR buying opportunity.

metalsfed 1

The latest gold Hedgers chart (a form of COT chart, shown at the top of the article) shows an extremely lopsided situation that normally calls for a significant drop, and it has contributed to our cautious stance of recent weeks…

On the latest 8-month chart for GDX the sector looks like it is at another buy spot. It may be, depending on how markets react to the Fed later, but other factors such as the gold chart above, and sentiment readings that we will look at in a moment, urge caution and suggest that instead the sector could break down into a short-term plunge that sees GDX correct back to the vicinity of its 200-day moving average. If the sector reacts positively after the Fed, it will be in order to buy it, but prudent to set quite close stops.

metalsfed 2

After the latest retreat the Gold Miners Bullish Percent Index is still at an uncomfortably high reading of

75% bullish, which increases the risk that this correction is not done yet and could end with a nasty flushout that will also throw up a great buying opportunity.

metalsfed 3

One thing worth pointing out here is that it looks like a breakout by Treasuries is imminent, and it may well be triggered by the Fed’s remarks today. On the 8-month chart for Treasury proxy TLT we see that the neat Symmetrical Triangle that has been forming in recent weeks is now closing up. Various factors suggest an upside breakout, although the gap between the moving averages is now large, so the opposite outcome is possible, depending on the market’s interpretation of the Fed. . .

metalsfed 4

So let’s see how the markets react after the Fed later today.

Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years’ experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.

….related: A Bit More Downside Potential In Gold Stocks

Disclosures:
1) Statements and opinions expressed are the opinions of Clive Maund and not of Streetwise Reports or its officers. Clive Maund is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the content preparation or editing so the author could speak independently about the sector. Clive Maund was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. 
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
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Charts provided by Clive Maund

“It’s Gone” – Why Foreign Demand For US Treasuries Has Disappeared

Last week’s TIC data confirmed something the Fed’s Treasury custody account has indicated for the past several months: foreign demand for US government bonds has not only tumbled, but there has been aggressive selling.

custody holdings 2 0

….continue readng HERE

related:

The Federal Reserve’s Cycle of Monetary Insanity (and Treason)

 

The Federal Reserve’s Cycle of Monetary Insanity (and Treason)

bank

In 2008; the central bankers of the West went berserk with their monetary crimes. Interest rates were driven to near-zero. Money-printing was driven to near-infinity, as represented by the Bernanke Helicopter Drop.

As a condition for engaging in monetary policies which were more insane (i.e. more criminal) than anything ever done in our economies; the central bankers promised an immediate Exit Strategy, in early 2009: thenormalization of interest rates and the normalization of money-printing. Through the middle of 2016; we’re still waiting.

The question, never asked by media drones….continue reading HERE

also:

Don’t miss Michael’s Mid-Week Update – List of Rapid Technological Changes Here Now!

Will Investors Get Fed Clarity Today?

grfWednesday August 17: Five things the markets are talking about

Today is FOMC minute’s reporting day. Will investors get the granularity on the timing of US rate normalization they so much crave? Market odds are leaning towards a resounding ‘no.’

Already this week, investors have been served up some mixed messages from voting and non-voting members. Net result, the market remains skeptical that the central bank would increase rates before the end of 2016. As questionable US data of late (inflation and retail sales) provides a strong argument preventing a rate increase at the Fed’s meetings in September or December.

On Monday, Fed President Williams (San Francisco) suggested that the central bank should be considering new tools to deal with a stubbornly slow economic growth, including raising its inflation target. Yesterday, New York Fed President Dudley counter argued that the US economy should pick up in H2 and that the November presidential election should not factor into the Fed’s decision to raise interest rates. In translation, gradual rate rises are warranted.

This push/pull from Fed members certainly makes it more difficult to trade in these already “thinly” traded holiday sessions. Expect this afternoon’s minutes release at 02:00pm EDT to not make it any easier for capital markets.

1. Crude and commodities look to the Fed for direction

…continue reading HERE

related:

Bond Sentiment Extreme near a Cycle Turning Point