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.

Asking the Right Question

Since September started the drive home has been murderous. I mean just unreal stupid. If there was an index fund for automotive repair for the Northeast Massachusetts area I would commit my entire net worth to it as this month it seems everyone is hell bent on wrecking their cars (right at 4:30pm of course) and causing a mess of every road in the state. If things are this bad now, when the snow starts I may have to quit my job and daytrade! That said, super short post tonight as I have no time at all to do anything.

Why I Stopped Buying Metal Miners
I hate to make blanket statements, so understand I am speaking for myself. There are much better investors out there that can pick and choose the best metal miners and they do great, I was never one of them! I did have a few winners, but mostly what happens is you get a nice run up in gold or silver, the miner you have exposure to moves up a little, then management makes a monster acquisition, blows a earnings quarter, or some other calamity and while the metals are up 15% your miner is down 20%. It gets annoying fast.

The Golden Truth has a tale of such a firm today:
AngloGold Ashanti Throws In The Towel On Its Massive Gold Hedge
Punch up AU versus GLD and you will see what I mean. I am not knocking all miners, just saying I stopped buying them a while ago.

Asking the Right Question
Jake over at EconomPic asks the most pertinent question about government interventions (in this case currency, but in reality across all interventions).

First off, a little color.

The Bank of Japan massively intervened in the Yen causing by selling around 20 Billion dollars worth of them, and of course Economic Disconnect does not play fiat currencies either because of extreme volatility!

For fun, check out the dueling headlines:
Japan intervenes to weaken yen; more to come
versus
U.S. industry and lawmakers urge action on China's yuan

And if you want more fun, what if China was forcing Japan to devalue? (via Tim Duy):
Yen Intervention, or Why Japan is Now Carrying China's Water?

Now I have always been clear I am not an FX man, I don't like to deal in the imaginary too much. Whether Japan's move today can work will depend on how much follow through they continue with and how much traders want to go with them. Early reports (since changed tremendously) reported that Japan did this in concert with several central banks knowledge and help, but the story now is that Japan did this all alone and told nobody. I leave it to the reader to figure out for themselves which to believe.

Ok, back to EconmPic's question:

First of all... I am many things and a currency expert is not one of them...

With that said... I completely understand why Japan is intervening in the currency markets for economic purposes (a strong yen is hurting exports), BUT isn't the ability to literally print an overvalued piece of paper the ultimate prize?

For years, counter-fitters have printed worthless paper in the hopes of using it to buy things of value, but with Japan they can do this legally! Why not open up the printing presses and use that new currency to buy goods of value from abroad (I'm not talking other currencies, I'm talking REAL assets)?

To me this will result in at least one of the following (though, I'm sure there are 1000 more):

-A weaker Yen (i.e. the goal)
-Inflation (i.e. the best thing that could happen to Japan so that monetary policy would actually work)
-Nothing to the Yen or to inflation, which means you got a bunch of real assets... for free.
What am I missing?

Oh man what a great way to frame the question!

If you have been reading this site over the years I have covered this question (not quite in this form) many times. Rather than offer it again, I would love to see the readers answers in the comments here or over at Jake's site. I may give a written form of my answer in tomorrow's post. I think this question is of the utmost importance if you want to understand the way the world works. I know I can count on some good stuff.

Have a good night.