Explain to me how this could possibly not end in disaster? Pretend that I am a moron baby, unable to decipher the difference between a lion and a glass of milk. If you can convince me that my dire and gloomy outlook for Japan is both overzealous and too grim, I will reverse my position and buy NIKKEI futures tonight.
Since the Bank of Japan added ETF’s to their shopping list of goods to be purchased by their imaginary Kuroda money, they’ve quickly come to dominate the Japanese equity markets–being a top five holder in over 80 stocks listed on the NIKKEI 225. Very soon, and at the pace they’ve been buying ETFs, they will become a top 5 shareholder in every single company in the NIKKEI 225, all by printing money that never existed before and then transferring those digits into the open market to buy said shares.
Currently, they are the #1 shareholders in over 55 companies.
This is the ultimate socialization of markets. Gone are the days when good companies with solid metrics went up in value, based upon merit. In Japan, and coming soon to a western market near you, all companies domiciled in a targeted index are subject to misallocations and purchases of shares for reasons unrelated to company fundamentals.
“The increased BOJ purchasing provides a very favorable demand environment for listed equities,” said Michael Kretschmer, chief investment officer at Pelargos Capital in the Hague. “Nevertheless, in the long run we strongly doubt these type of monetary gimmicks aimed at price setting of risk assets can have a sustained positive impact on economic growth.”
The BOJ decided on July 29 to expand this stimulus by increasing its annual purchases of ETFs to 6 trillion yen ($60 billion) from 3.3 trillion yen.
With foreign investors largely staying away, disappointed at the lack of progress in Japan’s structural reforms, the BOJ is almost sure to be the biggest buyer on the Tokyo Stock Exchange for the foreseeable future.
“The market is driven completely by the BOJ’s buying rather than views on each companies’ earnings,” said a fund manager at a Japanese asset management firm.
ENTER A TRUE FRANKENSTONIAN MARKET
“The rise in share prices may seem desirable but it causes harm as well,” said Shingo Ide, chief equity strategist at NLI Research Institute. “Even if companies need to improve their management, shareholders may not take them seriously if share prices are not falling.”
So extrapolate out and try to imagine what their markets will look like in 10 years. How will the BOJ unwind these positions? They cannot. If they continue to purchase stocks and corner the market, based upon all of the books in my library that tell tales from the Robber Baron era when cornering markets went bad, they’re in for a very rude and stark rebuttal– whenever people wake up and reject the notion that markets aren’t simply a binary exercise of buyers and sellers.
Historically speaking, gauche plans like this one rarely produce the mechanized gilded results desired by its authors. Speculators have been drawn and quartered for far less. This will end, in my estimation, in utter catastrophe–an unseasonable theatricality never seen before in modern times.
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I will have to go check my notes, but I think I read that BoJ only has a Constitutional Limit to the total amount they can buy. YES, IT IS SO SO SO UGLY. US bears have to look at this every day and go OMG when will it all fall apart. AND lol, the market still wants more out of the BoJ as the Yen falls under 100 with the USD. Bottomline, Japan had an elections a few months ago and it was a Massive landslide for the Abe Govt. Everyone said, we really don’t want you to do anything more…no fixing things….but we just don’t want to risk anyone new. IMHO that gave Abe and Kuroda the Golden Ticket to sit and do nothing at all. No more experiments in Neg Interest Rates, No more Fiscal Policies….just sit and collect their pay checks. Japan went all crazy in 2015 and earlier this year….they are done. Long USD! Oh, btw Fly on your Copper Piece last night (I lost my password and was too lazy to look it up to post). Main reason why copper has just sat there, China put in controls into the commodity market and Copper Speculators have been leaving. There should be a even bigger fall when USD rallies. IMHO Central Banks have really made a big mess of everything.
Checking my notes, it was HELICOPTER money that they can’t constitutionally do, http://www.ft.com/fastft/2016/04/28/kuroda-helicopter-money-is-illegal/ . BoJ really already did very little in July, I really expecting them to rest.
Well long DXY except for USD/JPY trade of course.
It’s been to watch you become A Tyler from Zerohedge in real time. The transformation process has been fairly swift. You tried to play it suave with some TLT, but alas Karl Denninger like rants are in your future, sir fly.
been interesting*
Never Blue Blazer Karl. I just call it as I see it. If you think this shit is kosher, explain to me how.
Blue Blazer Karl ????
???= cry face hahaha
Old school ibc lingo. Back in the day, when things got real bad, Karl did YouTube vids wearing a blue blazer. That’s when you knew shit hit the fan.
Your best post of 2016 in my book. Really insightful and why I love reading this blog.
Why wouldn’t the fed raise rates again? They raised a little while ago, and now markets are at all-time highs. They got what they wanted.
National debt is $21 trillion. In 2000 it was about $3-4 trillion. There is a problem with paying higher interest rates on such a large amount of debt. We already pay enough interest to China to fund their entire army’s budget.
It hasn’t been kosher since the first QE. The normal laws of business and economics were thrown out the window long before this year.
The economic blogging has been great lately. Thanks.
I assume BOJ is planning as they go. They’ll probably do some kind of buyback with their shares being tendered. Who knows.