Central banks ‘have lost credibility’

Many share markets may be riding higher on hopes of European stimulus this week and overlooking plunging oil prices, and even lower global growth targets, but experts say its time that investors woke up to the fact that central bankers aren’t doing a great job.

The Australian share market rose 0.7 per cent in early trade on Wednesday joining a global rally on expectations that the European Central Bank will announce a 1 trillion bond buying program to help revive economic growth. Continue reading

Mario Draghi: Goodbye ECB, Hello Italian Presidency?

While the entire financial world is hanging on to every Mario Draghi word in hope Europe finally improves the market’s (if not the economy’s) “fundamentals” to new record highs, and joins the rest of the “developed” world’s central banks in injecting trillions of liquidity into the Div/0 P/E stocks “whatever it takes” (because in a world where only multiple expansion is left, the ECB is the last wildcard at least until the US is dragged right back into the global recession and the Fed admits any pipe dreams of a rate hike in 2015 were just that), something far more different may be taking place behind the scenes. According to at least one journalist, the Fiscal Times’ Patrick Smith, “Draghi appears set to leave Frankfurt and return to his native Italy the first chance he gets.”

Has the former Bank of Italy exec and Goldman employee had enough of fighting Germany tooth and nail over every proposal, if mostly for dramatic media consumption? “Impossible” most would say, and yet…

[Draghi’s departure] could be as soon as January, depending on a variety of circumstances in Frankfurt and Rome, according to well-placed sources who include a prominent private investor and a senior journalist in Rome. “Draghi wants out, fed up and stymied by Berlin,” one of these sources wrote in a note just before the weekend. In a subsequent message: “I am hearing from several [official] sources that he is entirely fed up with the monetary politics he confronts.” Continue reading

Central Planners Are In A State of Panic

The central planners are in a state of fear and panic.  They are trying everything and anything to create market validation for their policies, watching with trepidation as their favored economic metrics fail to respond to all of their frenzied efforts.

They are so far over the tips of their skis right now that there’s nothing they won’t do. They’ve summarily thrown granny under the bus because they have this idea that negative real interest rates are the cure.  The cure for what?  The massive amounts of debts and imbalances their prior policies caused.  So savers are punished in the pursuit of policy.  You know, ‘for the greater good’ and all that.

They’ve spurred the greatest wealth gap ever in US history, greater even than at the extremes of the Great Depression, apparently without the slightest concerns for Plutarch’s ancient admonition that “An imbalance between rich and poor is the oldest and most fatal ailment of all republics.”

They’ve even gone so far in Europe as to now force negative nominal interest rates on savers, dispensing with their usual slight-of-hand of letting inflation steal from each unit of currency in their system.  When you’re panicking, there’s no time for subtlety.

They look the other way as “someone” dumps huge amounts of gold contracts into the wee hours of the night, seeking one thing and one thing only: lower prices.  But that’s okay because the central banks destroyed price discovery a long, long time ago. First by invalidating the price of money itself (by driving interest rates to zero), and then in everything else — most importantly risk. Continue reading

U.S. Returns Fire in Saudi Arabia’s Oil War

One day after Saudi Arabia declared war on U.S. oil producers by lowering prices in an attempt to dump cheap crude in the United States (US) market, the White House and private oil companies responded.  White House spokesman Josh Earnest said that the U.S. is monitoring the global oil supply and demand situation but has no comment on whether it might look at replenishing the Strategic Petroleum Reserve. Then, later in the day, the Wall Street Journal reported that BP is going to export ultra-light crude without the permission of the U.S. government in a move that not only starts to breakdown the US export ban, but also is a direct challenge to OPEC and other producers for market share.  Both of these developments temporarily gave support to the petroleum complex, but it still was not enough to overcome the perception of overwhelming supply and Bank of Japan Gov. Haruhiko Kuroda’ s prescription against the disease deflation. Continue reading

Japan may add $30 billion in U.S. stock purchases by end of 2015: Citi

NEW YORK (MarketWatch) — Bank of Japan’s plan to expand its bond-purchase program, on Friday, delivered a big dose of euphoria to stocks around the world, including in the U.S.

However, the Government Pension Investment Fund’s plans to increase stock purchases in addition to the expansion of the central bank’s bond-purchase program, likely will be a boon for U.S. stock markets over the longer term, said Citigroup chief equities strategist Tobias Levkovich, in a note to investors. Continue reading

Aussie under pressure amid new currency war

The Australian dollar came under renewed selling pressure on Tuesday as the consolidation of global imbalances continues to fuel a rally in its US counterpart.

The Aussie dropped briefly to touch a four-year low around  $US86.5 cents on weak trade data and an upward revision in unemployment, before recovering to around $US86.9 cents as the market took heart from strong retail sales figures.

However, the main driver of more general weakness is a new surge in the US dollar, spurred by another bout of extreme monetary easing by the Bank of Japan.

The BoJ on Friday caught markets off-guard by announcing a larger-than-expected boost to it quantitative easing program, less than 48 hours after the US Federal Reserve confirmed a halt to its own six-year stimulus scheme. Continue reading

Japan to keep printing money for years to come, so learn to enjoy it

There are no one-way bets in global finance, but Japan’s stock market comes close. The authorities are about to funnel large sums into Japanese stocks openly and deliberately under the next phase of Abenomics, both by regulatory fiat and by purchasing the Nikkei index directly with printed money.

Prime minister Shinzo Abe is unshackling the world’s biggest stash of savings, the $1.3 trillion Government Pension Investment Fund (GPIF). Officials say the ceiling on equity holdings will rise from 12pc to around 20pc as soon as August, opening the way for a $100bn buying blitz. Continue reading

Veteran fears ‘beginning of the end’ for Japan as bond market buckles

Yields on 10-year Japanese bonds (JGBs) have doubled in a month and spiked dramatically to 1pc on Thursday, triggering a 7.3pc crash in the Nikkei stock index. It was the biggest one-day fall since the tsunami two years ago, comparable with wild moves seen at the height of the Asian crisis in 1998.

Richard Koo from Nomura, an expert on Japan’s Lost Decade, said the sell-off in recent days has shown that the BoJ may not be able to hold down yields “no matter how many bonds it buys”. This could lead to a “loss of faith in the Japanese government” and the “beginning of the end” for its economy, if handled badly. Continue reading

Japanese bank governor Haruhiko Kuroda makes history with monetary blitz

The Bank of Japan has launched the most daring monetary experiment of modern times, aiming to double the money base within two years to overpower deflation and catapult the economy out of slump.

The blast of money is expected to reignite the yen “carry trade” and flood global markets with up to $2 trillion (£1.3 trillion) of pent-up savings, giving the entire world a shot in the arm. Continue reading