Falling markets: can yer see whadditis yet?

PART ONE OF A TRIPLE-HEADER ABOUT LOST CONFIDENCE IN MONETARIST SOLUTIONS

Not that many of you are interested, but the Yen is strengthening against the Dollar. This now lumbers Japan not just with the biggest debt in the world, but also one of the strongest – ie most expensive – currencies in that very same world.

This has happened because, from having previously been simply Nips, the Japanese central has been taken over by the Nirps….followers, that is, of a negative interest rate policy. To the best of my knowledge, only one commentator (an American journalist) saw the move coming; and since it was introduced, almost everyone underestimated the immediate effect it would have. This means that if you and I are confused by the varietal illogic involved in all this, it’s OK: so is everyone else.

Or perhaps, the confusion is far from OK.

¥¥¥¥¥¥¥¥¥¥¥¥¥

When everything is connected, everything has unpredictable consequences. This fact alone should be enough to consign globalism to a footnote in history. Were it my decision, I’d insist on digging up Ted Levitt’s remains and scattering them across the oceans of the world. But in reality, Levitt was just another half-baked Ivory Tower Ivy League intellectual whose potty (and provably wrong) ideas about a Global Village were eagerly taken up by economic colonialists everywhere. He should’ve been universally discredited decades ago, but the reason his theory remains the planet’s default business model is that he was spouting exactly the kind of codswallop greedy multinationals and banks wanted to hear.

Globalism makes it easy to evade tax, move jobs offshore, pay slave wages in Asia, claim they didn’t know about stuff, move sovereign spies in under cover, bribe poor governments, amass illegal power, price-attack local competition until it goes to the wall, and cut production costs by insisting that one size fits all.

But unfortunately for everyone outside the 3%, it makes everything far too complex and interdependent to grasp, let alone control. Worse still, bamboozling business journalists and analysts becomes easier than falling off a log….and hiding the real financial condition of a business.

Overall, a globally connected econo-fiscal planet diffuses focus and catches even very smart people off guard.

The ‘idea’ of Nirp is to incentivise banks to lend to companies, so companies can invest more. It’s the same objective as QE – to get banks to do what they don’t want to do, or business doesn’t want in the first place: In Japan, a few banks are wary of lending, but mostly there is little or no demand for their loans. The main problem with most monetarist tosh is that it doesn’t ‘get’ the anthropology of business any more than communism does.

The theory goes that only an idiot would keep their money in a central bank where they have to pay for the dubious privilege: so better to lend it to business. That idea is flawed  first because it’s trying to solve a problem that isn’t there, and second because of the lind spot about human emotions: Japan’s problem is complex and longstanding; but the two biggest factors are confidence among business/consumers and motives among banks.

Divorced as monetarism is from humanity, it also can’t grasp that if you pauperise the population, they will buy cheap. Japanese export product quality is very high, but so too are its prices.

Finally, doing something extreme without warning may indeed catch the competition out, but they soon retaliate…. so this kind of banking ‘trick’ becomes a zero sum game.

Add to this the complexity of an idiotic theory like globalism, and you then also have to try and factor in unforeseen consequences.

¥¥¥¥¥¥¥¥¥¥¥¥¥

The main effect of full-on Nirp upon the Yen has been, at best, marginal: for two days after its shock introduction, the Yen/Dollar rate rose from 119 to 121. But for a week now, the Yen has been strengthening….and is now, at 114.8 as I write, a more expensive currency than it was before Nirp started.

This is actually the diametric opposite of what the BoJ wanted and most ‘experts’ predicted: the “additional benefit” of Nirp, they felt, would be lots of money moving out of Japan – thus pushing the yen down (and increasing inflation) to make Nipponese exports cheaper.

These are some of the observations being made:

  1. Investors prefer the Yen over the Buck as ‘a safe haven’.
  2. Actually, it’s mainly that the Buck is weakening.
  3. Geopolitical skullduggery is in play.
Japanese Finance Minister Taro Aso said yesterday the yen’s recent moves were “rough” and issued a warning to markets (about pushing up the currency too much) in what sounded like a threat to intervene directly in the Forex markets.

So just putting all this together, the Bank of Japan and its political mentor Mr Abe have tried two extreme forms of monetarist policy, and neither have achieved anything other than reducing confidence in their competence. Now Aso is talking about buying the very currency he wanted people to sell. Finally, I’ve yet to be convinced that investors will want to buy the biggest debt (to gdp) on the planet when they have to pay for the privilege.
For some reason, words like arse, elbow, pissup and brewery spring to mind. I think those words are also in the minds of BSD investors, and that – way above any other factor – is why we’re seeing a step by step correction down the tarnished steel of the helter-skelter towards Crash2.
When banks feel unsure about central bank competence, they start to get nervous – and more on the lookout for signs of fellow bankers in trouble. When businesses don’t feel at all good about the consumption outlook, they don’t borrow….a situation exacerbated by the track-record of banking perfidy when it comes to loans and valuations – see RBS et al. And when consumers don’t feel confident about their future earning potential, pensions, or job security, they consume less.
That penultimate paragraph is about real life for normal people. Those in the bubble don’t get it, and until ejected from the bubble, they never will.

51 thoughts on “Falling markets: can yer see whadditis yet?

  1. Can I see whadditis yet?

    Let me think…..

    It walks like a duck, quacks like a duck.

    Is it a healthy global economy?

    Send my prize to the local ducks home.

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  2. I’m sure you’re right. My guess is that even the Deutsche Bank situation is an attempt to distract people about the state of the American economy, which is rapidly unravelling.

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  3. Related…

    http://www.zerohedge.com/news/2016-02-09/deutsche-bank-terrified-here-what-needs-be-done-its-own-words

    Summary:
    Words of a Deutsche Banker (Konstam). implied threat: “don’t do these things, and if Deutsche Bank and its $60 trillion in derivatives blow up, it will be on you.”..

    Recognize the problem. It is not oil, it is not in the banks..it is a run on central bank liquidity, especially dollar based and there needs to be much more ($) liquidity. Keynes said to deal with overinvestment boom you cut you don’t raise rates. QE is impractical but getting the dollar down would greatly lift dollar based liquidity. So for a starter Fed should stop raising rates and clearly signal an extended time out.
    Draghi shd follow up with a one 2 punch, not to get rates down but open the refi spigot to banks and ease liquidity concerns.
    China needs to come clean. Devalue, stabilize reserves and then allocate 1 tn+ to short up strategically important institutions. Stop intervening in equity markets.
    And Basel 3 (?4) should be delayed specifically regarding leverage ratios and threat of higher. As a token move there shd be deemphasis of the SSM/bail in rules until there is clarity from the ECB on liquidity sources for stressed banks.
    how about some fiscal stimulus
    on negative rates — instead of making them punitive on the banks allow the banks to earn the spread, make them punitive to savers.. Cash should be charged interest — put the micro chip in large denom notes/tax cash withdrawals.. encourage spending not saving .. mortgage rates can be negative and banks can still earn a spread. The spread is the problem not the rate.

    Quickly followed by JPMs forecast:
    http://www.zerohedge.com/news/2016-02-10/jpms-striking-forecast-ecb-could-cut-rates-45-boj-345-fed-13

    ECB Could Cut Rates To -4.5%; BOJ To -3.45%; Fed To -1.3%

    Seems the banksters really love the idea of sticking it to the savers with negative interest rates and to the taxing of cash withdrawals!

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  4. John why do you say we don’t care?! Personally speaking I do care. I really appreciate your blog. I only understand about 40% of it, nirps, nips, strong is bad, market sentiment ; none of it is concrete to me, but I keep.reading because you are funny and because SOMETHING is going on and I might get a bit of a heads up if I stick with it. Anyway thanks.

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  5. Falling markets. Nothing wrong with that in normal capitalism. But, what we have here is ‘casino capitalism’,where the House gives you the chips to gamble, or QE in today’s language. Thus, the day to day price of yen/dollar or an equity against a gilt has no foundation whatsoever, as the rate of interest is not determined by the market,in any shape or form. With limitless almost free cash to borrow, the clever boys got stuck into buying assets of a strictly fixed supply(hint not oil, not gold) but city centre residential property and crap art hustled by Jay Jopling, and,whoosh, the price goes up.QE has another interesting side affect: it enables the government to bribe poor voters with welfare payments, whilst the 1percent buy the inflating assets.In markets distorted by QE and ‘casino capitalism’, it is no surprise that, absent Adam Smith’s invisible hand, the 1 percent win at every turn.

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  6. From what I see the markets are all up, CAC 1.6%, DAX 1.6%, FTSE 0.65%..Trouble is, there is no rhyme or reason to any of it.
    BDI is 291 but, according Forbes, global trade is not collapsing, WTF is it doing then?
    Still all the time everybody believes……

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  7. Ah, this explains nicely….’The Baltic Dry Index is an index of the price of shipping (specifically, of large bulk dry cargoes like grain and iron ore, there are other similar measures for oil, containers and so on), not an indication of the volume of shipping or trade. It’s then that we have to recall that prices are about the interplay of supply and demand, not just demand itself.’

    See, we had it all wrong…nothing to worry about folks, business as usual..

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  8. @KFC
    Irrespective of the BDI No’s
    What of the ever fluctuating TEU “Spot” container rates from Asia to Nth Europe. This has been fluctuating (primarily down even with several GRI’s from carriers themselves) for quite some while, as carriers themselves have blanked certain sailing and fear for this to continue so as to keep rates up with reduced capacity as the ever larger ships come on line?

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  9. Every nation connected to a printing press is using it to fight a war of perceived value for their money v. other peoples money. This is called hyperinflation, and this stage of the game is what they call ‘the end’. The intent is to impoverish anyone that breathes, let alone complains. There is much talk about a reset to the system, but not by those printing money and making all you have worth less every day. The day will come again when ‘worth less’ is combined into one word for a better description of reality.
    So you are along for a ride that has no stops planned. Your only chance is to get out at a bump, roadblock or an accident and walk perpindicularly away from the highway into the frightening future where you get to choose. Stock markets rarely gyrate as they did yesterday, and as they did in 1929. The printing press people opted for war on the whole world when nothing else worked. Time to starve the beast to death before it eats us.

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  10. I use feedly to follow rss updates for various sites.
    This morning it lit up with yesterdays negative content on ZH regarding Deutsche Bank and just DB. (20+ stories)
    So how comes I didn’t get to see my instant feed updates when they were published yesterday?
    Why did it matter that they should be delayed then and not now?

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  11. Tell me this: is it a problem if Japan has an expensive currency? After all, in a world where without Japanese components, we’d have no high-speed internet, military grade silicon and we’d not be able to start our motorcars. It seems that they have the industrial world by the throat.

    That they don’t charge the industrialized western world more for their components is the surprise here.

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  12. @Richard

    The worlds largest shipping line, Maersk, knows full well what is happening. Last November their CEO said this

    “The world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting.”

    Their yearly profits have fallen 84% from $5.02 billion in 2014 to $791 million in 2015. Maersk CEO is now saying “it is a little bit more pessimistic than most forecasters”. The company is being battered by supply-demand gap. The BDI confirms their pessimism.

    My guess is that the global Central Bankers have only a single tool left in their tool bag to prevent global recession.

    Print Trade.

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  13. Hermione, the irony of you comments has forced me to answer your question. They do charge the industrialised western world more for their components but due to the high value of the Japanese yen nobody buys them. Everyone goes and buys the cheep Chinese crap instead of the quality Japanese component. Simples.

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  14. This strengthening of the Yen has happened before but looks like a symptom of what’s happening in the US.
    Deflation is taking hold now and as that deepens they will have to pursue a weaker dollar policy, meaning no more rate hikes.
    US stocks are plunging, not because of the prospect of a rate hike, but to prevent it.

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  15. Stevie (the real one) I don’t think you realize the full significance of Japanese products.

    As mentioned in my comment, China is the last to receive Japanese technology. That means if you want third-rate touch screens for your iPhone, go to China – but please don’t expect Apple to, because they want the newest and best. The Japs don’t give that away, and nobody else can produce them.

    Now if Boeing really wanted to trash its image, it would buy second rate US carbon fibre wings; it doesn’t buy Chinese (which is worse) – Boeing has to buy Japanese wings because nobody else can make them. The same goes for the motor manufacturers, at least, the credible ones like the European ones.

    Can you see where this is heading? Or is this going to be a repeat of yesterday where you say that “China undercuts Japan because it’s cheaper, and I told you so, so believe it”?

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  16. @Gemma

    “Whoosh” was heard by all as the thought flew right over her head.

    I won’t bite.

    I won’t bite.

    I won’t bite.

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  17. Gemma,

    In an open forum, discussing global trade and the value of sovereign currencies, you ask the question “tell me this; is it a problem if Japan has an expensive currency?”

    You are George Osborne and I claim my £5.

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  18. KFC, in 1929 most countries were part of the Gold Standard, so no, they could not just print money. It was only with the advent of fiat currencies that printing was an option. Do you want to know what a fiat currency is?

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  19. spot on JW. and a good comment Brian. “kfc… after 1929 they got over it by abandoning the gold standard.. and in the usofa making it illegal to own it. everyone had to immediately sell their gold to the govt. at one price which afterwards was raised 40% or so. Everyone else went onto a sea of pure fiat.. and it worked to begin with sort of…. Maybe one yen will be worth one $ sooon.

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  20. Stevie,

    In an open forum, discussing global trade and the value of sovereign currencies, you ask the question “tell me this; is it a problem if Japan has an expensive currency?”

    In a world where you hold the market in your hands, does it matter what it costs? The Japanese can name a price and nobody can complain because they literally cannot buy it anywhere else. Somehow, this seems to have escaped your ability to think, and you imagine Japan has to abide by Western thinking…

    But then, repeating “lalalalala” loud enough means that most westerners can’t hear the logic…

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  21. @KFC

    A fiat currency is any legal tender that is not backed a physical commodity, like gold or silver.

    The name “fiat” comes from Latin fiat meaning “let it be done” or “it shall be”. In other words someone somewhere made a decree saying “this is a £ or $ or €”

    Immediately after the decree bankers all over the world could be heard cheering and rubbing hands.

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  22. I love it…….LOST CONFIDENCE

    The only lost confidence they have is that their ponzi scheme days are numbered and they have nowhere to run.

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  23. “In a world in where you own the market in your hands, does it matter what it costs?”

    It only matters if you

    a) Want to cover manufacturing costs
    b) Want to make a profit

    That Gemma, is today’s lesson in economics.

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  24. John . your use of the English language ..must really piss them off! (troles) .. They know you know better …it’s like being spoken to , as if they are some bloke in the gutter.

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  25. “The theory goes that only an idiot would keep their money in a central bank where they have to pay for the dubious privilege: ”

    ???? Banks are paid interest on surplus reserves. Its only 0.5% but even so. QE was a nice money earner for UK banks After almost £400 billion of QE = almost £2 billion extra interest revenue.

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  26. Pingback: Falling markets: can yer see whadditis yet? | Machholz's Blog

  27. All of this is all very well – BUT – where’s the revolution? Where’s the fight back? Are we to just accept this murder, robbery and brutality because it’s good for us OR are we to stop it because it’s only good for the few? I’m sick of the propagandist press media. I’m sick of the tv media. I’m sick of people just going along with it all. Sick of the trolls and non-thinkers. But, seriously are we to just sit back and be beaten to death again? WHERE IS THE ALTERNATIVE? WHERE IS THE FIGHT BACK? Banks and governments out of control is not good for anyone

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  28. Globalism is the only way the elite can continue to enrich themselves and the corptocracy will roll on driven by the empire of chaos. Subdue nation states into fractured fiefdoms and proceed with the international trade agreements that over ride national interest. The future is here and you are a mere pawn to be exploited.

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  29. @Ron
    NVE is the new polite term for the awakening of the masses. Which is why the powers that be (TPTB) will soon be banning anything and everything they consider NVE.

    You will no doubt be aware of how the UK media has attacked, without pause, Jeremy Corbyn since the day he was proposed in the leadership race. This is one way TPTB are dealing with any possible threat to their plans.

    The next big shock wave to democracy will be seen with Bernie Sanders in the US. TPTB see him as a threat so even though Bernie may win each remaining local state election, he will not win the Democrat nomination due to the undemcocratic little known “super delegate” who can choose any candidate and ignore every vote cast against their candidate. In other words it will be a shoe in for Hillary.

    I am quite concerned about the future of this lovely little planet and it’s mostly friendly inhabitants.

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  30. Well all happy Well the breaking news down here in Bavaria – probably the same in Spain and France – is that the telly signal we used to enjoy until about 2 years ago is suddenly back! For those in the UK you have no idea – I also didn’t know until an hour ago – how much we miss British language TV.

    Technically it means the Astra 2g satellite is now in operation. Happy days are here again and my kids missed Cbeebies so much. German TV is too serious..

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  31. Has anybody heard of the Pure Gold Company? Someone has put me on to them as I am looking to buy some gold. They are based in London.

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  32. “I am quite concerned about the future of this lovely little planet and it’s mostly friendly inhabitants.”

    And to my simple mind, there is the nub of the problems WE face. I would have written:-

    “I care for our future & our only home, this lovely small planet & all that we share. We have nothing else.”

    I still rather think that our perspective has become skewed & we live inside our own self aggrandised bubble of ego, as to who & what we are, such is the force of the concept of competition. Detachment & blaming seem to waste all our, & this planets energy. Strikes me that it would be time for our think to “Come home”.

    1+1 > 1-1

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  33. 2> Jeremy, Are you sure that it’s not just a “Ramping Up” in a harts & minds propaganda (pre) war? Got to get the people on side.

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  34. BG – I’ve spent enough time in this Rabbit Hole of the Third Media the last 2 years to believe you may be right.

    1st media – Paed Paed Cee and Graun
    2nd media – the well-funded Internet TV shows like Alex Jones
    3rd media – Craig Murray and John’s blog.

    There is truly something in the air. Feels like a huge flushing sound in the distance. House of Saud is the big one to watch.

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  35. It was to some degree a little humour. 8^)

    Simple awareness, my friend. You have to save judgement for the things you can change. With the way things are at the moment, everything is complex. Some will see it as “Smoke & Mirrors”, to my mind it’s a sea of expediently reactive “Jerking Knees”.

    Fortunately John has a wonderful, & hard earned skill, at observing & communicating the important bit’s that jiggle the knees beneath the fashion trousers & skirts.

    You can’t do nothing, thinking time is much under ratted in my view.

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  36. “I still rather think that our perspective has become skewed & we live inside our own self aggrandised bubble of ego, as to who & what we are, such is the force of the concept of competition”

    It is by visiting the noosphere, and I think more of us educated ones are going there – I visit it every day in the form of my now 7-month-old Qi Gong (Taoist yoga9 routine – that we are discovering that creation and collaboration are the healthy counterparts to competition.

    A few days ago thanks to the miracle of the Internet I found someone in Florida who needs a decently designed website for her charity. She will get that from me. From that I will maybe find another then launch into dynamic website building.

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  37. Hope that goes well. You don’t have to live them, it’s enough to know, that others do. The more perspectives you get the more connections you make. Eventually you start to see yourself, in the light of what we share…My curse is seeing patterns everywhere & in everything. Mid 50’s & just waking up. Have fun.

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  38. I saw the yen spike 220pips against the pound as I watched my forex screen yesterday. It took under 2 secs. No news. No announcements. Whether this was CB intervention as ZH automatically assumes is moot. The fact that such moves can happen shows how fooked the system is. Sovereigns have been playing beggar thy neighbour for years and in a global depression a cheap currency is their only survival mechanism. That’s why I posit we will see blanket global nirp as they break their bloody finger nails trying to get out of the box they nailed themselves into

    Like

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