The Financial Media Must Think We Have The Memory of a Slug!
Nikkei tumbles 6% on central bank fears – CNN/Money
Why markets are shaking – MSN Money
Compare these headlines to the headlines that were dominating our financial news less than two weeks ago (see Headlines Galore, May 29, 2013).
So what is our counter to all these negative vibes? And just in time for the opening of our markets here in the States and prior to the close of the European markets, “Jobless Claims Fall; Labor Market Healing Ongoing.” (That should be good for a positive opening in our financial markets.)
I think that should trump all the above negative headlines, don’t you?!! Am I suggesting headline rigging? Of course not — only whenever possible.
NIKKEI 225 (^N225) 12,445.38 -843.94(6.35%)
Mr. Dow: Come on Nikkei, you are doing it again! Snap out of this or you are really going to bring this party down!
Mr. Nikkei: Listen Dow, I don’t think more drinks are helping me get over this hangover. I’m starting to feel really sick…
Mr. Dow: Oh Nikkei!!!! You didn’t just throw up all over my shoes again! Listen, you are becoming a real embarrassment. Pull yourself together, man! You have Ms. Europe over there watching you make a fool out of yourself and beginning to doubt that this party is real! Listen, you leave me no choice but to pretend that I don’t know you. In fact, I’m going to have to tell others you are an uninvited guest! Can you just leave quietly so the rest of us can enjoy ourselves?
Regardless, all this monetary manipulation will ultimately prove to be very caustic for good, sound fundamental economic growth. While a stock market gaining 70 percent in six months (Nikkei) may have a favorable “wealth effect” on some, I cannot interpret these developments as the signs of a healthy economy. We should watch Japan and learn. – The Economic Contrarian, May 13, 2013
So, if you recall the Uh-oh! post, do not go looking for “Uh-oh!” parts 2–4 because they don’t exist. However, it could have been a whole series of developments that run contrary to the recovery theme so dominant in the current financial news. It might have been about how the Nikkei is now down nearly 17 percent from its highs just over a month ago. Or maybe it could have been about Greece reemerging as a problem after the experts put their stamp of approval on their debt problems being fixed only to recently discover that they are in need of another bailout (gee, what a surprise!). Or, might the crumbling bond markets be worthy of an “Uh-oh” update?
Here is the lead explanation for why the US markets were opening sharply lower this morning (even though we seem to once again be able to shrug off this news and have erased most of our losses in early trading this morning, 6/11/13). Maybe by the end of the trading day we will return to our winning Tuesday ways:
“The BOJ’s decision not to follow up its $1.4 trillion stimulus program announced in April at its latest policy meeting with measures to ensure bonds yields stayed low rattled mainly foreign investors who had expected further action.
The decision unnerved investors already highly sensitive to any signs of a lack of commitment from global central banks to the ultra-loose monetary policies that have fuelled rapid gains in asset prices this year.”
That is worth a second read!!! “Signs of a lack of commitment from global central banks to the ultra-loose monetary policies…” It is amazing that our financial gurus can make this a public confession from one side of their mouth and then from the other side claim we are in a recovery! Someone needs to explain this to me: If the only way we can stay afloat is to adopt ever-increasing stimulus programs (monetary easing, ZIRP, QEs, etc.) from our central banks, what makes us think we are recovering? It seems perfectly clear to me that our recovery is only a product of their ‘ultra-loose monetary policy.’
Come on guys, this party ain’t over!!!
I have two very quick items today. Last night, I watched the Japanese stock market soar and imagined a conversation between two completely disconnected and dislocated financial markets. Let’s call one Mr. Nikkei and the other Mr. Dow.
Mr. Dow: Mr. Nikkei, do you realize you are being a real downer — why all the doom and gloom?
Mr. Nikkei: I think I am suffering from a liquidity hangover. I’m sorry I threw up all over your shoes, but this is too much liquid to hold down!
Mr. Dow: Pull yourself together man! You are beginning to make this party look questionable. Now pull up to the bar and have another drink. You need to let the world see that this party isn’t over yet!
Mr. Nikkei: Do you think I could get your pal Goldie (aka Goldman Sachs) to give us a thumbs up (a buy signal)?
Mr. Dow: That’d be no problem. I will have my friend Bernie (Bernanke) give them a call. Now drink up!
Mr. Nikkei: I’m feeling much better, Dow. How does a 636 points-up day sound?
Mr. Dow: Like a party! Come on, I’m buying! Drink up!
One other note: The 10-year treasury is moving above 2.2 percent this morning. This is going to create quite a squeeze on Bernanke. That space between a rock and a hard place is getting a little tighter! Imagine what would happen if rates ever normalized.
All credit to Zero Hedge for visualizing what “taper’ might look like. Taper is in reference to what has gotten our world financial markets all in a tizzy; will the Fed cut back on their ongoing additions to their balance sheet? Zero notes that the consensus is that if the Fed happens to taper their spending (reduce the speed at which they are adding to their balance sheet, not reduce it), it will be around 25 percent. Hence, the growth of new money printing will go down from its current level of $85 billion per month to $65 billion per month. Here is what that would look like in a chart:
The red dotted line represents consensus taper.
Pretty scary looking, huh? Justifies all the drama in the markets I guess! “Oh my, will the Fed taper?” Seriously, if our financial markets are this sensitive then we are in for a world of hurt. Or, might I suggest — again — maybe all this taper scare has to do with the real question about whether the Fed policy is the actual problem and not the fix. After tens of trillions of dollars of liquidity, both newly printed money via the Fed and ever-increasing debt via our federal government, the economy still is not close to being able to stand on its own two feet after six years of this experiment. Any wonder we are finally having some doubters?
Stocks rose on Monday as weaker-than-expected factory activity last month supported views that the Federal Reserve will need to keep economic stimulus in place
This is the lead sentence in explaining why the U.S. stock market keeps rising while other markets (Japan mostly) have figured out that the gig is about up. So, today it was the old replay of “bad news is good news,” in that this will be more justification for the Fed’s continued intervention (maybe at some point the news will be so bad that that it will justify increased intervention— can you imagine how high the market would go with really bad news?!?). I think this is the definition of being stuck between a rock and a hard place — maybe several hard places! The Fed has argued that their monetary policy is working. If that is the case, then why would there be such a negative reaction to weaning us off the Fed’s stimulus? If the Japanese have lost confidence in their own bigger and better intervention, why do we think our manipulation is different? If there is no danger in the Fed policy, then why are treasury rates increasing so rapidly? If the Fed policy is working, then why does all the hard empirical evidence suggest that is not the case?
Watching all the players in this financial dance is like watching a pathological liar who is the only one who believes his own lies. I want to clearly proclaim, “Sorry, but I’m not buying!”
So, I open my computer early this morning and see that the futures for the U.S. equity markets are well into the green (positive). I see no reference to how the Nikkei did overnight, so I assume they must have at least applied a temporary tourniquet to their bleeding markets. Not so — the Japanese markets were down over 700 points, or more than 5 percent, overnight.
So, one can only conclude that there is something other than their terrible monetary policy causing this, since the world’s central banks have done the same thing they have done to a slightly lesser extent. There are a lot of incredible disconnects in the financial markets these days, but this is one of the biggest, in my opinion. This should be viewed as a vote of no confidence in the central banking policies in Japan. But if it was reported that way here, then wouldn’t one have to ask, “What about our own monetary policies and our own record-setting markets? Might they be subject to the same fate?”
You know, we need a really good distraction at this point — or maybe some bad economic news — to justify our continued stimulus programs and stop all this nonsense talk about when the Fed might have to “taper” their spending spree. Remember, bad news is good news because it justifies more liquidity! Party on!