A Litany of Failures
It was widely expected that the BoJ would announce something this week after it promised to perform a comprehensive review of its monetary policy. It certainly did deliver a major tweak to its inflationary program, but its implications were seemingly not entirely clear to everybody (probably not even to the BoJ).
This picture was taken back when the BoJ first introduced NIRP, but it has the appropriate horror movie atmosphere. Kuroda’s press conferences with these nifty little placards remind us a bit of school. As an aside, the term “quality” evidently got there by mistake. One cannot improve a money’s quality by increasing its quantity and enforcing negative rates (these are a particularly dangerous abomination).
Photo credit: Yuya Shino / Reuters
Distortions and Crazy Ideas
We have come across a few articles recently that discuss some of the strategies investors are using or contemplating to use as a result of the market distortions caused by current central bank policies. Readers have no doubt noticed that numerous inter-market correlations seem to have been suspended lately, and that many things are happening that superficially seem to make little sense (e.g. falling junk bond yields while defaults are surging; the yen rising since the BoJ adopted negative rates; stocks rising amid a persistent decline in earnings growth; bonds, gold and stocks moving in unison, etc., etc.).
Unknown veteran trader experiences another WTF moment.
Photo credit: Everett Collection
Bond markets are certainly displaying a lot of enthusiasm at the moment – and it doesn’t matter which bonds one looks at, as the famous “hunt for yield” continues to obliterate interest returns across the board like a steamroller. Corporate and government debt have been soaring for years, but investor appetite for such debt has evidently grown even more.
The perfect investment for modern times: interest-free risk!
Illuustration by Howard McWilliam
Mark Carney, Wrecking Ball
For reasons we cannot even begin to fathom, Mark Carney is considered a “superstar” among central bankers. Presumably this was one of the reasons why the British government helped him to execute a well-timed exit from the Bank of Canada by hiring him to head the Bank of England (well-timed because he disappeared from Canada with its bubble economy seemingly still intact, leaving his successor to take the blame).
This is how Mark Carney is seen by the press. A few decades ago no-one would have thought that the drab bureaucrats inhabiting central banks would ever get this much attention, and yet, here we are. It’s like living in a really bad B-movie.
Cartoon via theguardian.com
Another Strong Payrolls Report – is it Meaningful?
This morning the punters in the casino were cheered up by yet another strong payrolls report, the second in a row. Leaving aside the fact that it will be revised out of all recognition when all is said and done, does it actually mean the economy is strong?
Quo vadis, economy?
Image credit: Paul Raphaelson
Anecdotal Skepticism vs. Actual Data
About one month ago we read that risk parity and volatility targeting funds had record exposure to US equities. It seems unlikely that this has changed – what is likely though is that the exposure of CTAs has in the meantime increased as well, as the recent breakout in the SPX and the Dow Jones Industrial Average to new highs should be delivering the required technical signals.
The bots keep buying…
Illustration via carolublog.wordpress.com
The Sharp Move in the VIX Accelerates
In Monday’s trading session, the upward move in the volatility index VIX (which measures the implied volatility of SPX options) continued unabated, vastly out of proportion with the move in the underlying stock index. “Brexit” fears continue to grow, which has apparently been the driving force behind this move.
Photo credit: Neil Hall / Reuters
European Stocks Look Really Bad…
Late last week stock markets around the world weakened and it seemed as though recent “Brexit” polls showing that the “leave” campaign has obtained a slight lead provided the trigger. The idea was supported by a notable surge in the British pound’s volatility.
Battening down the hatches…
Pros and Cons
The recent rally in commodity prices has surprised many market participants and has greatly supported the stock market’s rebound. It has also made bulls out of a number of former stock market bears, as one of its side effects was to cause an improvement in market internals. But does the rally actually make sense?
The original Bethlehem Steel Works in Bethlehem, Pennsylvania.
Photo via leggendaurbana.it
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