Tuesday, October 5, 2010

Who Knows What?

Well that was a shocking display of football last night! After an ugly first half, the Patriots returned the 3rd quarter kickoff for a score and Miami fell apart. Like completely. I would love to say the Pats are in good shape, but that was a serious meltdown by the Dolphins. Thanks anyways guys!

Who Knows What?
If you follow things finance today was a wild day across all markets. Things are a real mess and there are many currents at play. Instead of speaking to a small item or a a few points I thought it may serve better to step back and take a look at the whole picture.

I wrote last night that I had serious questions about the reason the FED and associated players felt it was needed to go out and make all kinds of statements about future policy accommodation. The answer perhaps was found this morning when I opened the computer:
Bank of Japan Reverts to Zero Rates in Surprise Move
The headline is dumb because Japan was at 0% anyway, but they did go further in their own QE quest:
The central bank also decided to set up, as a temporary measure, a 5 trillion yen ($60 billion) fund to buy assets ranging from government bonds and short-term government securities to commercial paper and corporate bonds, and will also accept another 30 trillion yen of those assets as collateral under a loan scheme.The BOJ said it would guide the overnight call rate at a range of zero to 0.1 percent, against the previous target of 0.1 percent. It also pledged to keep rates effectively at zero until prices were seen stabilizing.
"The BOJ is bringing its monetary policy closer to quantitative easing, allowing market rates to hover near zero and pledging to keep a near-zero interest rate policy in the longer term until prices stabilize," said Naomi Hasegawa, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.
"These steps are more aggressive than markets had expected. The BOJ's decision is a surprise and will have an impact on currencies due to the message it delivers."
If the move had any effect on Japan's currency, I could not find it!

So going back, the FED on Monday all but screams we are set for another Trillion or so in QE here, and overnight Japan pulls the trigger on their own QE move. Now this makes sense. The Golden Truth had this to say and I find it compelling:
So what is going on here? I believe the market is responding to what it believes will be the U.S. Fed's "counter-measures" to Japan's move last night. In fact, Japan's QE proposition is actually quite small (including the bank lending pool announced, it's not much more than $400 billion) compared to the first round of QE of roughly $1.7 trillion in total by the U.S. It is my view, in conjunction with the speech issued last week by the NY Fed's William Dudley (who is also a former Goldman Sachs partner, meaning he is plugged into the policy channels if not creating them outright), that the U.S. is getting ready to announce, in some form, an even larger stimulus program next month.

The precious metals market and the US dollar index are thus behaving in a manner which is consistent with the expectation by the market that the Fed/Obama Administration will respond to Japan's currency war shot with an even more powerful shot across the bow of its own.
I agree.

And for good measure another FED player, Chicago Fed President Charles Evans, removes any doubt on what the new story is:
"In the last several months I've stared at our unemployment forecast and come to the conclusion that it's just not coming down nearly as quickly as it should," [Chicago Fed President Charles] Evans said in an interview with The Wall Street Journal Monday. "This is a far grimmer forecast than we ought to have," he added. As result, he said, he favors "much more [monetary] accommodation than we've put in place."
One could wonder why the forecast by the FED on unemployment has not mattered one bit until Monday, but why bother. Clearly the FED have been scared by what they are seeing and reacting in a near panic about it.

After yesterday's stunning public policy moment of truth (that the FED targets asset prices with their policy) some were somewhat worried as to where this is headed. Pragmatic Capitalism has good coverage of a David Rosenberg piece that is well worth a look. Prag Cap summarizes
I am honestly still trying to grasp the fact that they have admitted to trying to run what is really nothing more than a ponzi scheme….That is our great American growth strategy. Unbelievable.
Prag Cap is level headed and while I often disagree with things over there, this snippet really got me concerned.

I offered in the comments section that I wonder what S&P 2000 will really mean to a regular person. Many own little or no stocks; others borrowed from their 401k to buy a home or get through being unemployed for 3 years; others have moved their money into bonds, the list goes on. I don't think a higher stock market will carry as much punch as believed. I could be wrong.

After being welcomed to the recovery by Tim Geithner, praise for saving the world up to our ears, constant news of the recovered stock market, and victory laps all around I cannot help but think more expanded accommodative policy should not be needed at this point. Unless all that other stuff is pure crap.

For the final evidence of how messed up things are in the world, this was making the rounds today:
Lend Mexico Money at 6% for 100 Years
There is no bubble in bonds and credit, none at all.

Have a good night.


Dave in Denver said...

Yo my precious metals brother from another mother. Love those statments from Evans. We're gonna get a big QE/Govt spending stimulus program probably right after the elections!

I think there's a chance we'll see much higher metals prices between today and 12/31/10

getyourselfconnected said...

Hey man!

Almost scary how aggressive they are going about this.

getyourselfconnected said...

Meant to post this, Todd Harrison has this graph showing where gold is in relation to other "bubbles":

Room to run!

getyourselfconnected said...

try this link:

scharfy said...

Crazy world we live in.

FYI I'm gonna try and catch a fallin knife and short gold here for a short term play (cautiously, though) Dollar sentiment is all time low right here..

And the Pats showed some heart last night, congrats.

Miami played hard but really choked and the Pats capitalized on it. Solid road win.

watchtower said...

I would love to see a graph like Todd Harrison's featuring Ag as well as Au.

watchtower said...


Do you personally think the Au/Ag ratio will revert to it's mean before this is all over?

getyourselfconnected said...

good luck, a pull back would not be unhelpful here after such a run. Careful of overnight headline risk though!

the silver chart would look very similar. I think IF (big IF) gold and silver become in some way tied to money (after an implosion of fake money and assets) I think that ration will come about. Many a slip tween a cup and a lip before then.

Geeman said...

Its official, Moss to Minnesota!

sedintary state said...

I was reading somewhere that all loans are 'a race against time', because given enough time, all loans go bad. That's why longer time horizons demand higher rates. (sorry, it's new to me)

Yeah, 100 year bonds at 6%. You're right, no bubble here.