Bonds & Interest Rates
Quotable
“If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t. And contrary wise, what is, it wouldn’t be. And what it wouldn’t be, it would. You see?”
–Lewis Carroll, Alice’s Adventures in Wonderland & Through the Looking Glass
Commentary & Analysis
Reaction to the Bank of Japan Decision to “do nothing”…
Mr. Carroll, I think we have entered the world of nonsense; it seems pervasive, but as it applies to monetary and fiscal policy nonsense is the word. For the down the rabbit hole we have gone. How else can one explain the fact central banks have completely lost their rudders yet markets turn on every utterance of useless gibberish?
It seems clear to me our central bank “leaders” are making this stuff up on the fly. I would suggest these new market master manipulators request a refund from whichever illustrious institution charged them for earning a Ph.D. in economics. To torture this further, it reminds me of the movie “Good Will Hunting.” It starred Matt Damon playing the role of the local “uneducated” South Boston toughie/genius. In the movie he confronted a crowd of cocky Harvard elites in a bar showing everyone how smart they were. Damon chopped them down to their proper intellectual size and showed them they weren’t quite as smart as they pretended. He then told them if they would have spent $2 on a library card, and used it, they could have saved their parents tens of thousands of dollars on their vaunted Harvard education. A perfect analogy I believe for our central bank Ph.Ds.
Had our CB masters shunned Ph.Ds. and the econometric nonsense so associated and instead concentrated solely on Ludwig von Mises magnum opus, “Human Action,” they would not only have saved their parents big money, but saved us from the ongoing shit-show they call monetary policy.
But it seems traders and investors are enjoying the show and playing their roles nicely—hanging on every central bank utterance as if its mana from heaven. How can it be other than a world of nonsense considering the reaction to the Bank of Japan’s decision to do nothing?
Empirical evidence suggests what the BOJ has been doing isn’t working. So, when the BOJ stops doing something that isn’t working and finally shows some degree of what we might define as rationality, what does Mr. Market (which I define as a group of highly irrational people) do—it violently reacts as if “something” should have been done. If that isn’t nonsense I am not sure what is.
But of course, today, in retrospect, there is likely some pundit, somewhere, explaining the reaction to the poor decision by the BOJ as completely “rational” based on his knowledge of monetary policy and its proper application for maximum efficiency in transmission of all that is good for the real economy, etc. etc. etc. Barf!
Said pundit likely has two things to fall back on to help justify his analysis: 1) an advanced degree of some kind from an Ivy League institution; and 2) never traded his own money in highly leveraged markets.
It’s not a stretch to suggest short USD/JPY (long JPY/USD) is a very crowded trade now. And if so, just maybe we are getting close to the end of this move. Next key support at 106.60; then the swing low at 105.18…will the oscillator pattern repeat as seen in the weekly USD/JPY chart below? Stay tuned.
Jack Crooks
President, Black Swan Capital
related: Central Banks Roil Markets
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Summary
BOJ took no fresh action despite cutting its growth and inflation forecasts.
Yen surges and Nikkei slumps.
The Reserve Bank of New Zealand left rates on hold, defying some investors, and sending the Kiwi sharply higher.
The fOMC statement failed to convince investors that a June rate hike is likely.
The Bank of Japan defied expectations and its economic assessment to leave policy unchanged. The inaction spurred a 3% rally in the yen and an even larger slump in stocks. The financial sector took it the hardest and dropped almost 6%. The yen’s surge helped underpin other Asian currencies, especially the South Korean won, which gained nearly 1%.
related:
So-called helicopter money involves using a central bank’s power to create money to directly inject funds either into government coffers or straight into the pockets of the public. Yet, nothing has been working and the ECB is now stating that they will continue to buy in debt, but they will also buy corporate debt. On the other side of the table lies the banks. The banks are advising the ECB what to buy so they can clean out the crap from their books. This is by no means in any textbook on how to manage the economy for dummies. The ECB is just shooting in the dark, hoping this will one day have some effect.…. continue reading HERE
Also from Martin:
The head of the ECB robustly defended its cheap money policy on Thursday against sharp criticism from Germany, as the country’s leader entered a debate that has driven a wedge between the euro zone’s central bank and its biggest economy.
Mario Draghi said the ECB’s policy of printing money and keeping borrowing costs at rock bottom was working, adding that interest rates would stay at current record lows for a long time… CLICK HERE for the complete article
George Soros’ dire warnings about China a speech yesterday. He is talking his book; he’s short the renminbi, and pumped for China to float the Chinese currency against a broader basket of currencies, which would also lead it to decline against the dollar.
Soros made a doomsday call against Europe in 2012 that did not pan out, and he has been aggressive there in trying to influence policy, both on economics and on Ukraine. And he acknowledged that the timing of ugly end games is uncertain… CLICK HERE for the complete article
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