Posts Tagged ‘JGBs’

Notes From Underground: Areas of Global Macro Concern

July 24, 2018

President Donald Trump’s continuous tweeting creates volatility in the markets but the impact lessens as participants become hardened to the vagaries of the tweets. An area that does concern me, though, is the amount of insider trading I suspect is taking place.

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Notes From Underground: Will the Year of the Rooster Deliver a Wakeup Call?

December 18, 2016

In a September 11 post, I criticized the Japanese Central Banks’s policy for its technical approach to attempt to steepen its 2/10 yield. I wrote the following:

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Notes From Underground: Oh, When Will They Ever Learn?

November 28, 2016

This is a tough POST to write  for I will criticize a newspaper I have read every day for at least 30 years. (In fact, I still have it delivered on my doorstep and read most of it online in the evening before the hard copy arrives.) The London Financial Times had a front page story, “Troubled Italian Banks Face Fresh Risk of Failing If Renzi Loses Vote.” This is a deplorable headline for it harkens back to the days of the mainstream media warning of dire consequences if Brexit passed and the Trump was elected president. THIS IS SCARE MONGERING. It raises the question: When will the Davos crowd EVER LEARN?

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Notes From Underground: The Paroxysms of Brexit Polls, Or Lies, Damn Lies and Statistics

June 13, 2016

This is a week loaded with data. The U.S. retail sales numbers are reported tomorrow and it will take a tremendous increase in consumer purchases to put any pressure on the June FOMC meeting to raise rates. Currently, the market consensus is for a 0.4% increase in core sales and I would venture a guess that it will take an increase of more 1.0% to move the needle on any talk of June being on the table. There are several British inflation numbers released tomorrow morning but with the Brexit vote next Thursday and a Bank of England meeting this Thursday there will be no change in BOE policy. Wednesday of course brings the FED and again the retail sales number would have to be very robust to move the FOMC. It ain’t going to happen. Wednesday night and Thursday morning brings the Bank of Japan and the Swiss National Bank into focus. These two banks are more interesting as the recent strength in the Swiss franc and the Japanese yen provide some rationale for each of these banks to increase monetary stimulus to drive the respective currencies lower . However, both the BOJ and SNB will be careful not to roil the markets ahead of the BREXIT vote. Yet the Japanese seemed to be perturbed over the G-7 signaling its anger at the Japanese for its previous efforts to weaken the YEN. The Japanese authorities are not happy with the recent cut in Korean interest rates which have resulted in a weakened Korean won.

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Notes From Underground: Your Cash Ain’t Nothin’ But Trash, Take 36

January 31, 2016

Here we go again. Bank of Japan Governor Kuroda “shocked and awed” the markets by taking BOJ deposit rates into negative territory in a HYBRID sort of way as it is a three-tiered methodology that does not apply to money already being held at the BOJ in reserve. Also, money that is deemed regulatory-type capital will receive ZERO interest and won’t be punished with a surcharge, but any new funds making it onto the reserve balance sheet of the BOJ will receive NEGATIVE INTEREST RATES. Kuroda-san delivered this shock after promising last week that the BOJ would not go negative on its deposit rate. Kuroda will learn hat if you keep intentionally pumping the markets with disinformation the markets will have their time when the BOJ needs it the most, like maybe selling off the massive JGB portfolio on its balance sheet. But through the power of negative compounding of interest earnings Kuroda has brought Stevie “Guitar” Miller’s words to life:

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Notes From Underground: The Significance of Japan’s Monetary Action

November 11, 2014

A Reuters story today (“Kuroda Sprang Easing Surprise to Head Off Damaging Inflation Forecast”) suggested that the move by the BOJ was a rapid and expedient effort by Governor Kuroda to prevent the markets from believing that the previous Japanese actions to “ignite” inflation had been a failure. The BOJ had been trying to target 2 percent inflation but the recent fall in oil and energy prices was placing downward pressures on inflation, calling into question previous attempts by the Japanese authorities to raise inflation expectations.

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Notes From Underground: What Has the Bank Of Japan Wrought?

November 2, 2014

Late Thursday night, the BOJ surprised the markets with an acceleration in the pace of increasing the monetary base. The bank will increase its asset purchases to 80 trillion yen from a previous annual amount of 50-60 trillion yen. The bank will also purchase ETFs and J-REITs at an added 3 trillion yen a year, a massive amount of increase of its balance sheet. In Japan the BOJ‘s program is referred to as QQE for it is both a quantitative and qualitative program. As it is pointed out, the BOJ will wind up owning 75 percent of the JGB market as banks and pension funds unload BONDS onto the ultimate buyer of last resort. When Japan was in a deflationary economy, owning BONDS made perfect sense as negative prices gave rise to REAL HIGHER YIELDS.

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Notes From Underground: The Swiss Finally Realize They’re the Ones Holding a Zero Hand

September 10, 2014

After the newest moves by the wily fox Mario Draghi last Thursday, NOTES raised the issue of what the Swiss National Bank would do in response to the negative vibes emanating from the guardians of the EURO currency. The SNB has supported the EUR/CHF cross at a floor of 1.20 to “prevent” the Swiss economy from slipping into a deflationary spiral. The SNB has accumulated a massive foreign exchange portfolio as it has bought hundreds of billions of euros to ensure the floor holds on the. The massive buying of euros has been somewhat successful  as 1.20 holds but the market still puts pressure on the Swiss as the cross is trading between 1.2050 and 1.2100. All that buying and the CROSS is a mere 0.8% off the floor.

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Notes From Underground: Does Tapering Lead to a Narrow PEG of a Pant Leg?

May 13, 2013

Now that the FED has provided the U.S. and world financial system with a suit of liquidity, it is trying to figure out how to reduce the amount of material. The word “TAPER” is not my favorite for it fails to define what I believe is the goal of the FOMC. Who cares if the FED reduces it security purchases? That is not the problem. If the economy has any real traction the current balance sheet of more than $3 TRILLION should be quite sufficient to keep interest low. The dilemma is how to remove the LIQUIDITY without causing a collapse in Bernanke’s beloved PORTFOLIO BALANCE CHANNEL.

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Notes From Underground: Back To the Sixties–Output Gaps or Phillips Curves?

September 20, 2012

The FED hounds were unmuzzled after last week’s FOMC and “The Line it Is Drawn. The Curse It is Cast.” Bob Dylan must have been anticipating the difference of opinion that is developing within the Federal Reserve bank. In a speech last night, Dallas Fed President Richard Fisher said: “There are many superb PHD theorists among the 19 members of the FOMC and support staff. There are only a handful of us–four, to be exact–who have worked as bankers or in the financial markets.” Fisher  discussed holding back from further QE based on evidence from his business contacts. The Dallas Fed President was dismissed when,”Some suggested that perhaps my corporate contacts were not sophisticated in the workings of monetary policy.” (Hat tip to Professor K.W. for sending the piece). It seems that the collegial attitude is eroding at the FED if the ivory tower is not the place of residence. Today, it was the Minneapolis Fed President Kocherlakota who delivered what I consider to be an outlandish speech.

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