Category Archives: Central Banks

The Post-BoJ Landscape

By Biiwii

After the Bank of Japan action…

I have let things settle out and even though I am short an investment bank, a bank index and a Semi equipment company, I am positive on the day.  That is not to minimize the fact that today would be much nicer had I held SPY and GOOGL, but it is what it is.  Not bad.

Going right into Kuroda’s wheel house I purchased a stock that just yesterday I noted as being a formerly over hyped (though high quality) Machine Tool company pitched by financial suits as a Robotics company…

A Prime Machine Tool Builder w/ a Hyped Twist Falls Flat in Q4

Fanuc got hammered again today and considering BoJ’s stance on the Yen, I took a shot on this exporter.  You see, BoJ had been talking about reforms and certain financial entities had been explaining a bullish thesis on Japan, in part based on reform and the potential of a strengthening Yen (don’t look now but Japan’s banks are conspicuously bearish today).  Well, that is out the window as any wax that went on was stripped right back off again by BoJ last night.  Indeed, not only is the wax off, they are grinding down into the metal now.

Continue reading The Post-BoJ Landscape

Played by BoJ

By Biiwii

If you are going to write publicly (especially about the financial markets) for an extended time (for me it’s 11+ years) you are going to have those times when you write something and wake up the next morning looking like an idiot.  Hello, my name is Gary and I am an idiot.  I sold SPY and GOOGL because Amazon got hammered (on the heels of eBay’s disaster) and the one sector on which I was positive for the short-term was in trouble.  I got in the way of a central bank that just surprised the world by adopting a negative interest rate.  The Bank of Japan joined the Draghi as 2016’s edition of Kabuki Dance Theater warms up.

bloomberg graphic
From MSCI by way of Bloomberg

“The Bank of Japan gave markets a nice surprise to end the month,” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG in Bonn, Germany.

So I feel as though I allowed myself to get played.  Putting it in perspective, I’ll say that every day is a new day and being slightly positive for the baby new year, I should try not to let my ego or self-esteem get hurt by this and simply go about managing it.  I’ll adjust by either continuing to selectively play the ‘bounce’, which we were on top of while many people buying the futures this morning were still in hiding, or very possibly just let it play out until the next tradeable move looks likely.

But for now, market participants are lapping up the juice and that’s just the way it is.  There are a couple people out there who love to see me screw up, so here ya go guys.  Cherry pick away and have a blast.

Yay Mario Draghi! Boo Mario Draghi!

By Biiwii

“Boo Mario Draghi!!!”

Self-explanatory chart of the day; a picture of our modern financial markets as the policy maker of the day, Mario Draghi, disappoints a crack addicted market.

stox

 

Janet Yellen Responds as a Central Banker Would

By Biiwii

Janet Yellen goes on the defensive…

Let’s try to untangle the web of Fed-speak going on here.  “Reality” for our purposes is defined as my opinion, obviously.

Yellen Defends Seven Years of Low Interest Rates in Letter to Nader

Fed-Speak:

Warning that “an overly aggressive increase in rates would at most benefit savers only temporarily,” she argued in the letter released Monday in Washington that the Fed’s seven-year era of zero rates had sheltered American savers from dramatic declines in the value of their homes and retirement accounts.

Reality:

It was a thing called deflation, which is a natural corrective to man-made, currency-compromising monetary policy that leverages the ‘value’ inherent in official ‘money’ in service to asset appreciation.  Periodically, this ‘money’ becomes valued as liquidity as the monetized economy deleverages from the official Fed-sponsored inflation (in this case, Alan Greenspan’s commercial credit bubble).  In other words, the “value of their homes” was a false economic signal to begin with.  So what she is saying is that the Fed’s seven-year era of zero rates have been a tool employed to forestall, you guessed it… reality.

Fed-Speak:

“Many of these savers undoubtedly would have lost their jobs or pensions (or faced increased burdens from supporting unemployed children and grandchildren),” if the Fed had not acted with such force, she wrote.

Reality:

Yes indeed, they would have.  That would have been due to the fallout from from the last time the Fed acted to delay an economic deleveraging.  So what you are saying Ms. Yellen, is that you have employed a different flavor (government vs. commercial credit) of the same solution that was in actuality, the cause of the problem to begin with.  See?  The consumer is now hopped up on government credit instead of mortgage products on this cycle.  From FloatingPath

government credit to the consumer, answer to janet yellen

Fed-speak:

Repeating that she and most of her colleagues expect the pace of policy tightening to be gradual after liftoff, Yellen said “overly aggressive” rate hikes could also undercut the economic expansion and force the Fed to reverse course back to zero, drawing a parallel with Japan, where rates have been stuck near zero for the past 25 years.

Reality:

It’s a Kabuki Dance.

janet yellen does a kabuki dance

Fed-Speak:

Yellen’s letter responded to a plea from a “group of humble savers” that included consumer advocate Ralph Nader frustrated by low returns gained from traditional bank deposits and money-market accounts.

“We want to know why the Federal Reserve, funded and heavily run by the banks, is keeping interest rates so low that we receive virtually no income for our hard-earned savings while the Fed lets the big banks borrow money for virtually no interest,” it read. “It doesn’t seem fair to put the burden of your Federal Reserve’s monetary policies on the backs of those Americans who are the least positioned to demand fair play.”

Yellen told the group that lower borrowing costs helped make large purchases more affordable for American consumers, supporting the economy and creating “millions of jobs.”

Reality:

I didn’t know Ralph Nader was still around.  I remember him from when I was a kid, and I am pretty old.  To answer your question Ralph, the Fed has been keeping rates so low in order to make sure that enough of the economy deleverages from previous Fed-induced moral hazards.  The Fed has held savers in suspended animation in an effort to make powerful and abusive interests whole again.  It is these interests that matter to the Fed, not regular people.

As to the last paragraph, the average American consumer cannot make large purchases without ample credit (see graph above).  Households are no doubt better off today than they were in 2009 but again, we are talking about the cure being the disease.  Yellen is justifying a new flavor of the policy that created the “Great Recession” as the media came to call it.  It was not a great recession, it was a deflationary episode that unwound the Greenspan Fed’s excesses, and then deflation was kicked down road by the Bernanke/Yellen Feds as if it were just an empty can of Budweiser.

FOMC, Speed Readers on Your Mark

By Biiwii

Bold mine

Release Date: October 28, 2015

For immediate release

Information received since the Federal Open Market Committee met in September suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft [take a bow, Uncle Buck]. The pace of job gains slowed and the unemployment rate held steady. Nonetheless, labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation moved slightly lower; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring global economic and financial developments. Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

In other words…

The committee has no effing idea what is out ahead so we do nothing (and hope the hell Uncle Buck calms down).

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.

Post-Draghi Implications

By Biiwii

So now the dust settles on global markets that were given quite a stir yesterday by the ECB’s proclamation “We are ready to act if needed.  We are open to a whole menu of monetary policy instruments.”

These things come on a nice, neat menu now?  As if they are codified, tried and true and simply ready for implementation?

Well, if the US – where they showed ’em how it’s done – is a good example then yes, it is as simple as that.  I used to write about Ben Bernanke’s big brain as he took policy innovation (interference?) to previously unheard of levels.  It was ‘Check out the big brain on Brad Ben’…

big brain on brad, after the ecb qe statement

What it actually is is a global deflationary whirlpool sucking things toward the drain.  But the valiant fight is kept up by our policy heroes in a sometimes competitive, sometimes alternating fashion. Right now they are alternating.

Continue reading Post-Draghi Implications

Bernanke on Warren-Vitter & Last Resorts

By Biiwii

Ref. Warren-Vitter and the lender of last resort

[edit] I have had some complaints about writing that I “like” Bernanke and Obama.  That is telling of how divisive today’s financial and political climates are.  I did not write ‘I like the jobs they have done’, after all.  I have not “liked” the job a Fed chief or President have done since I can remember.  It was wording in a post simply implying that I think they are probably nice men.  Sheesh… it would help if some people would actually make the effort to pick up on nuance.  It’s a post answering the assertions of a former Fed chief destined to see the annals of history one day revoke his “Hero” status.

I have always liked Ben Bernanke, in that I think he is a soft-spoken, nice guy who took the hand off from Alan Greenspan in stride, heroically making chicken soup out of the chicken excrement he was left with.  He kept his dignity and calm demeanor during the days when inflationist gold bugs codified the term “Helicopter Ben” and turned it into just another accepted way of saying “Ben Bernanke”.

Mr. Bernanke met the impossible challenges left him by the Greenspan Fed and the Bush White House, and being a scholar of the Great Depression and an intellectual Keynesian, did what he was always meant to do.  He employed tried and true Central Bank policy-making against a natural bust (i.e. reaction to Greenspan’s policy-induced 2003-2007 inflationary boom) of the system.

Continue reading Bernanke on Warren-Vitter & Last Resorts

Raghuram Rajan Speaks

By Biiwii

Of all the world’s Central Bankers, one stands out as a teller of truth and an adherer to sensible long-term policy.  Yes, my personal hero (insofar as one has heroes in the financial realm), Raghuram Rajan.  Thanks to Joe for the link…

India’s central bank chief accuses G-7 of currency manipulation

I mean sure, we all see and to varying degrees understand the bald faced currency manipulation (and other policy machinations) going on out there.  But it is important when a Central Banker cries out in the wilderness.  Even if said Central Banker is not overseeing the finances of a fully developed nation (yet).  It doesn’t sound like the IMF is listening.  That would be the International Muppet Fund.

Speed Readers

Speed readers everywhere see “does not mean that that the Committee has decided on the timing…”

And they’re off to the races!

For immediate release

[edit] Okay, so they dropped the word “patient” that everybody was hyperventilating about.  What did they replace it with?  That gobbledeegook above.  It really is unbelievable how so many take this so seriously.  Folks, we are in Wonderland…