Wednesday, September 21, 2016


                                    One bright day in the middle of the night,
                                    Two blind boys got up to fight;
                                    Back to back they faced each other,
                                    Drew their swords and shot each other.
                                    A deaf policeman heard the noise
                                    Ran up and shot the two dead boys.

The Bank of Japan and the Federal Reserve Board met today.  The above is the result. The BOJ decided that they would hold their 10 year note at essentially 0.00% by buying (or not buying) sufficient amounts of debt to make it happen but at the same time it committed itself to the purchase of 80 trillion Yen of government as had been previously announced.  Hold on, you might ask, how the hell can they do both at the same time?  Beats the hell out of me I would reply and as it seems, so would everybody else.  This they think will steepen the yield curve and drive inflation up to the magic 2% level.  I suspect what it will really do is the convince the remainder of the world who still doesn't believe that the Japanese really have no policy in which they believe or that makes sense to fall in line.  Nevertheless, the Yen strengthened--I suppose because of the lack of action on the short end and Janet & Co. actions--or lack of them--later on in the day.

As predicted the Fed did nothing although the vote was a rather contentious 7-3.  It probably was really 6-4 in philosophy and belief but Stan Fisher would never vote against the Chair if she would still be the majority.  Janet then gave a rather folksy press conference in which it seemed that the only reason that the Fed didn't move was to preserve the momentum in the job market which has seemed to replace all of the other criteria to justify a rate rise.  It was amusing to hear her with great passion (as much as you get from her) to emphasize that the Fed is totally non-political and all discussions are devoid of politics which if anyone didn't believe her they could read the transcript of the meetings which will be released in five years.  Thank you Ms. Yellen but I think I'll pass.  The ONLY reason you didn't raise rates was the upcoming election and the effect a rate rise might have on the most visible--from a public sense--economic indicator of them all, the stock market.   Right on cue the markets closed way up for the day on the continuing lust for free money.  So there we have it.  The continuation of policies that for either nation have not worked as though this was planned and coordinated which I don't think it was.

Of course there could be another explanation:  they are simply are out of bullets and are beginning to realize it but are not yet prepared to admit it.  In any case, today was truly Mundo Bizzarro; a global fizzle, that in a sense makes life harder for everyone.  By far, Japan's actions have the greater chance of causing mischief as the BOJ is now locked into an impossible strategy.  Again, let me say that it is the FX markets that bear watching.  Heading into the end of the year is always a frothy time.  With so much policy uncertainty it could get downright gnarly.

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