POETRY IN MOTION

                                    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.

TWTWTW

Gotta be my age to remember that one.  Anyway, this is what happened.

The Democrats had their convention.  Big whoop.

The Fed did nothing (and will do nothing).  Bigger whoop.

The Bank of Japan did bery little.  Bit of a surprise, leading some people to believe that it has decided that it has run out of bullets.  The Yen strengthens.  Ouch!

The ECB announced the results of their stress test which wasn't really a test at all because there were no markers set up and no one really knew or understood what was being tested.  Therefore, nobody failed except that Monte di Paschi (there's a shocker), DeutscheBank (another mind-blower) and Barclays (Hummm) were cited as not being in the best of shape capital-wise.  Quality of assets?  Sorry, don't look at those things.  Portugese and Greek banks?  None of your business.  We'll keep that among us boys.  In short, a complete nonsense.

And the U.S. economy...absolutely worse than anyone expected with the first quarter revised downward to 0.9% and the second quarter coming in at 1.2%  It was so bad that some were taken to argue that things were really looking up because inventories fell meaning that when rebuilt, up will go the GDP again.  Of course missing from this piece of economic genius was the fact that this was the fifth consecutive month in which inventories fell...a feat unmatched in about 70 years.  Somehow, consumer spending looked quite good which may bode well for the future...or may not if incomes remain relatively flat and the job participation rate stays in the crapper.  I'm sure Little Paulie Krugman will have an answer for this next week.  I hope someone does.  

Yale University announced that they are going to begin a Masters Program in systemic risk.  Among the "faculty" will be Tim Geithner and just about everybody else from the good ol' days.  Now some of us  were confused at all of this as there are clearly people around who must have at least one if not more Ph.D's in systemic risk having contributed so much to the creation of the  same over the years but I guess this program is designed to keep it from happening again...and to generate oodles of cash for old Eli.  Might I suggest that a Masters in Critical Thinking and Analysis might be of more lasting value?  Want to know how to prevent systemic risk?  Stop doing stupid things.  Like setting up systemic risk Master's programs and thinking you have contributed to the solution.  Or flooding the world with money, destabilizing markets and demolishing any basis for the pricing of risk.  Oh, the 10 year closed at 1.45% today.  Flat yield curves are just great.

                                                 ---------------------------------------

On Monday we are going to take a look at the remarkable internal report from the IMF regarding it's actions in Greece which has received absolutely no review Over Here and practically none anywhere else except for the Telegraph in London.  It is devestating.  In the mean time, we here in the Fly Over are trying to dry out.  We got two inches in an hour yesterday afternoon and more expected today.  

And That Was The Week That Was.

Have a great weekend.

STILL SUNNING

Popped in this afternoon for a little hydration and turned on the TV.  It's the only source of information these days what with Europe shutting down for August and nobody working full hours on the street.  Nothing.  Well, not quite true.  The dollar was down against pretty much everything as it seems traders fell into sink with yours truly as to the prospects of a rate rise in September.  Once again...it's not going to happen.  This is a totally politicized Fed and a rise in interest rates will not be viewed favorably by the party in power.  End of story.

On the other hand, it seems that helicopter money is still on the table in Japan even after the comments of the BOJ which now appear to have been written at some earlier date but not disclosed until yesterday.  I have given up trying to understand the Japanese.  I think the Japanese have given up on trying to understand the Japanese.  It's too soon in the day in Asia to find out what's going on but at least that gives me tomorrow and something for which to look forward.  Oh yeah, all the conventions are over tomorrow so we can all get back to the important stuff like summer re-runs.  The Hil speaks tonight...I wonder what The Donald has up his sleeve to wreck the reportage tomorrow?  I almost can't wait.

Fly Over Zone Thunder storm just starting.  The highlight of the day if I don't lose another tree.  Later, dudes.

WORKIN' ON THAT TAN

Another beautiful day today.  Few more of these and I'm going to look like George Hamilton helped immeasurably by Janet & Co, doing exactly what everybody thought they would do; leave everything in place, say there is less risk out there (translation: we got BREXIT all wrong) and hold out a bit of hope for a rise in September.  On the latter point, forget it.  There is absolutely no chance of a rate rise two months before the election from this Fed.  None.  So we cruse along without a care in the world-- except for around here because the Cubbies are beginning to slip.  Somehow, I don't think the world order will be affected.

The big news today, just breaking I might add, is hat the new stimulus program widely expected...and in some quarters feared...from the Bank of Japan apparently will not happen.  I just glanced at exchanged rates in Asia a moment ago and the Yen was surprisingly strong yet again based it seems on the BOJ expressing that there is no need for a new stimulus package.  Caught me out as I would have been short but as I don't have two Yen to rub together no harm done.  Tomorrow's markets will be interesting.

                                               ------------------------------------------------------

It's politics, but I have to comment on this.  Just when the news cycle was heading into top speed in covering Bill Clinton's speech at the convention last night..."In 1971 I met this girl..." up pops The Donald and kills the entire story line with an absolutely beauty:  "Russia, if you can find those 30,000 Emails, you'll make some real friends among these press people (pointing) here"  WELL!  All hell broke loose with the NY Times accusing Trump of asking Russia to spy against the United States and that was the gentlest of the criticism.  Trump plays these guys like a tin drum.  Never for a moment did the Times consider that among all the nations in the world that own a computer the only one that might NOT have the Emails is the United States.  Of course they have been hacked...even the FBI has much admitted that.  But that raises another question for this most extraordinary of all elections.  If the Emails do contain damaging information on Mrs. Clinton as many suspect, is she now and could she be compromised in the future by a foreign power who has that information.  It is the electronic generation version of the oldest intelligence ploy existing, the HONEY TRAP.  If anybody figures that out and brings it up, let me know would you?  I'll be in the sun.  Until November.

THE BEST ONE OF THE MONTH

GDP for the first quarter was released today. Growth of 0.05%.  That's really bad...really bad.  There was not a single item in the report that could be seized upon to create confidence or enthusiasm.  What does one do then?  Well, you make one up as one of the brilliant talking heads did this morning which qualifies as the Best of the Month.

"I really do question some of these numbers because the jobs reports have been so strong I can't see how the GDP number can be so weak.  I'm sure we will find seasonal adjustments in April."

Well, let me try to help out there, my son:  THE JOB NUMBERS MAY BE (ARE) CRAP!!! THEY'RE COOKED!

There, wasn't that useful?  Always there when you need me.

Of course what this does is to lay ruin to a rate hike in June which would have usually been the cause for great joy on the Street, but Carl Icahn came down from the mountain to announce he no longer owns Apple which tanked the stock, tanked tech and sent the DOW down 210.  Such is our world.  A 900 year old man sells one stock and trillions are lost in five hours.  Oh yeah, the Bank of Japan put on a hell of a head fake and did absolutely nothing which sent the Yen soaring, and over the sounds of positions in FX being unwound it was almost impossible to hear the sage explanations as to why this unexpected event had occurred from those who had been squeezed shorter than a Japanese midget.  Methinks there might have been a small reassessment at work along the lines of "Let's stop hitting ourselves in the head.  It might not hurt if we stop."  Or, "Maybe Abe-nomics was wrong."  Then again, what do I know.

Well, that's not true: I know this.  If there isn't a dramatic improvement in the economy in the next quarter, this election in the U.S. is going to take on a far different complexion and (hopefully) that will result in a meaningful discussion of what are future economic policies will be rather than the electioneering b.s. one usually gets.  As the intelligent side of the Clinton family once put it, "It's the economy, stupid." and that will never be more true than in this election year.  One lives in joyful hope at least.  And for the perfect segue in reverse: part of that discussion had better be what is the future of the American banking system which we touched upon yesterday where the conclusion may hopefully be reached that the Volkswagen full of clowns overseeing this industry gets a grip on what produces economic growth and success.  It is not a gaggle of hedge fund managers, "wealth management" practitioners who dabble in capital distribution on the side or governmental agencies that pick winners and losers based on political preferences.  0.05% ain't gonna get it done, and waiting for the seasonal adjustments isn't going to either.

WHAT ELSE MATTERS?

Nothing, apparently.  The Fed released the minutes of its last meeting today and it is now clear that the doves are in charge.  With the clear signal that "normalization" is no where in the picture, up went everything today and with Sr Draghi speaking in Lisbon tomorrow we can probably look forward to another good day unless he does a 180 which no one expects.

It's all about the central banks; even more about them that in the near-past.  We now clearly have a "Fed Put," to go along with the "Draghi Put," to go along with the "Abe Put," to go along with...hell, there has to be another "Put" out there.  How 'bout "The Riksbank Put?"  Surely the Swedes qualify.  I think we have covered this before but it is really quite shocking to realize how much sovereign debt is held by these guys.  The Fed--19%; the BOJ--30%; the ECB--over 20% PLUS corporate debt on top of that.  Even in the U.K. the Bank of England owns 22% of all Gilts outstanding.  I guess the argument is that these guys own the printing presses so what can go wrong (Little Paulie Krugman's position) and the debt seems to sell so hey, let's party!  Except that, at least in Japan where there is perhaps the biggest party, nobody has showed up.  Hope springs eternal and as such, ever tiny positive sign is greeted with abounding enthusiasm.

The oil numbers released today show a larger than expected draw-down, so up go the futures.  That energy companies are going broke all over the place, that you can buy damn near all of Midland Tx. for a song, that the towns surrounding and in the Bakken a really hurting and that cap spending is zilch seems to have no effect on the optimism nor the fact that more and more, the traders are whipsawing this market just like in the good ol' days  The spread is just between $30-$40...not $125 to $160.  Except for the Permian Basin (in spots) and some place in Oklahoma know as "the Stack," my guys say you better have $60 a barrel coming in or else you are underwater with shale.  Problem is companies have to keep operating to help pay the bills, even at a loss, and hope...pray, really...that things tighten.  Of course when the Saudis say "screw it" as to reduction in production unless Iran stops ramping up...well, what do I know.  Let's just listen to the world's central banks.  Nothing but joy from them.  Makes ya feel good.

OK, I promise that I'm off this kick tomorrow and broading the scope of interest for the next few days.  Maybe I'll get into Puerto Rico which I think is getting less attention than it should.  Or back to Argentina whose Senate just approved the settlement which supposedly has to be accomplished by the 14th.--except that they don't have any money.  Or the Panamanian Papers...I have some experience with off-shore corporations in tax havens.  Come to think of it, there's a lot out there that might matter.  Huh.  Things are looking up.

WHEN ELEPHANTS DANCE

...But before we get to that, today's economic numbers were dismal in regard to GDP with the fourth quarter coming in at 0.7%, considerably below earlier estimates.  Depending on whether you are an optimistic or a pessimistic economist, comments were all over the lot.  One optimist blamed it on lower oil prices and the weather, promising an uptick as both change.  Of course thanks to El Nino the weather in most of the country was the mildest it could be and oil ain't going no where, but I guess that's what makes markets.  On the other hand, manufacturing figures, while not great, were better than expected surprising many people including me, and Consumer Sentiment held relatively steady.

In the face of all of this equity markets went screaming upwards everywhere.  Overshadowing all the economics was the fact that the Bank of Japan stunned almost everyone by introducing negative interest rates overnight, mirroring the ECB, Switzerland and independent Euroland countries.  The move leaves the Fed hanging out to dry as it is the only Major--heck, the ONLY--central bank in the world whose stated policy is to gradually increase interest rates; whether they follow through with this is another story, but I wouldn't look for another upward move in March as has been suggested.

The move is clearly designed to stimulate the Japanese economy by encouraging the banks to take money out of the central bank and put it to work in the economy.  (Curiously, in the classic Japanese manner of consensus and compromise, not all deposits were made subject to negative rates).  Now some may question whether this is going to work or not--it hasn't worked anywhere else save Denmark--but what cannot be questioned is that it will certainly reduce the value of the Yen and aid Japanese exporters who, by the by, have been doing rather nicely, thank you very much.  Japan is a big, BIG Export nation.  In Asia it is the second largest next to...China.

The Chinese have yet to comment on the BOJ's move but they cannot like it one bit.  However, if the Chinese are disturbed, think of the rest of the Asia.  The fear is of course that the Chinese will once again move to devalue the Yuan in order to stay competitive which will force competitive devaluations across the region, loss of markets, inflation and currency collapse.  But those are not the greatest fears.  At some point, some currency is going to become a target of the George Soroses of this era---or Georgie himself--and with the resources available to this lot these days no smaller county can withstand a concerted attack.  China, yes.  Japan, probably, but they are the elephants and if they dance the "Bugger your neighbor's currency polka," someone is going to get crushed.

These things rarely end well.  The crash of '87 if one recalls had its genesis in mass over-liquidity followed by currency collapses.  Funny, those two element are here today along with a good deal more worrisome signs which have been around for a while.  Emerging markets, which have been dreadful for the past year may become positively toxic and there is little doubt that capital flight will accelerate.  The 10 year closed today at 1.92% with the price of the Note moving up a full half point.  That is an enormous move...a true flight-to-quality move...an 'I'm scared as hell" move.  The surge in equities--about which I say again I know nothing--had to have had a goodly element of short covering.  And so comes the weekend.  50 degrees in the fly-over zone.  Down-right tropical for the end of January.  Grass is green, water holes are full.  A lovely time in the middle of the veld.  One can almost hear the sound of trumpeting.  Be interesting to see what Monday brings.

THE EARLY BIRD

Well not exactly.  I couldn't sleep last night so there I was, up at 5:00am with a cup of Joe and nothing to do as it was too early for the newspaper delivery.  Naturally, I turned on the TV and what do I find but the futures indicating a DOW opening of 188 points higher.  OK, the ending of QE III was met with a yawn and things went up yesterday, but this?  Ah ha!  QE did not end!  It simply slipped across the Big Pond to Japan.

In a surprise move, the Bank of Japan announced today their own version of Quantitative Easing involving trillions of Yen of asset purchases.  Ben and Janet have nothing on these guys when they want to make a move.  Of course the markets loved it and doubly so because the common thinking is that it would force Sr. Draghi to pull out his ol' bazooka and this time finally shoot it when the ECB gets down to brass tacks next week.  Guess what?  Anyone who believed that there is no connectivity in markets just got schooled.  The other lesson is all QE is fungible.  Right on schedule, the Dow opened damn near what the futures indicated as of 5:00am.

I was still trying to come to grips with all this when the other part of the day's doings that I had missed popped up again.  Not only had the Bank of Japan stepped in with QE but the MOF announced that pension fund's allocation to equities and especially foreign equities would be dramatically increased to nearly 500 billion dollars.  I watched equities all day which I never do (makes me cry) and the damn number didn't move.  Oh sure, it dipped a bit and rose a bit but just now the DOW closed up 195.  It was as though ALL of the buying followed the announcement from Japan.  Damndest thing.  Economic numbers were pretty good too, but they didn't influence the opening level one bit through the entire course of the day.  Thank you BOJ.

Then I got to thinking.  Janet shuts down her program and up pops Tenaka with his.  Mario is on tap next week and the betting is now that you hear a boom from Frankfurt, so do you think that the three of them have been talking?  Sure looks like it and mind you, I don't think that's a bad thing.  Only problem is if the effect in Japan and in Euroland is the same as it was Over Here, what's plan B guys because plan A didn't work--or as we have said it didn't work enough to notice.  The U.S. is slowly coming out of our economic malaise but that's because of the incredible restructuring of the American  marketplace in spite of every obstacle the government has managed to set up along the way not the least of which has been the assault upon the banking system as we knew it which is being rapidly replaced by other sources of unregulated capital providers which in the long run may NOT be a good thing.  Japan and Euroland with the exception of the UK have not restructured and had better take this opportunity to do so otherwise we're going to face this mess again, once there is no more Yen or Euros to print and the U.S. gets sick and tired of watching it's trade balance go to hell again despite our near energy independence because of of a world filled with central bank devalued currencies.  In case you missed it, the Yen was down three points today--not three pips...POINTS!  Tora...tora....tora.

Have a great weekend.

ODDS & SODS

Another day at the office.  On both sides of the pond the news that dominated was that of the "Fiscal Cliff" and whether the drag-racing Leader and Speaker would engage the brakes fast enough to prevent what the majority seems to believe is an impending disaster.  Frankly, it seems to me that The Leader would much rather a compromise not materialize (he's never been interested in draws)  and that the Speaker just wants to get it over with at this point.  Fun to watch the stock market, however, move in hundred-point intervals depending on the mood of the moment.  Clever these guys.

Over there, the Brits caught a lecture from The Leader's boys about how bad it would be if they left the EU.  You can imagine their reaction beginning with, "Sod off," and getting a bit more pithy from there.  It would appear that we can expect the same sort of relationship building in the second term as in the first.

Berlusconi, bless him, mused out loud that Italy might be better off outside the Euro Zone which of course did no one any good muting the call only in so much as it referred to what might happen if Germany did not give up it's objection to the ECB acting as a lender of last resort to everything that walks or crawls in the Eurozone.  You can imagine the reaction beginning with, "Sodden off," and getting more pithy from there.  But it plays in Perugia and that is all Silvio cares about.  Oh, he also announced he's marrying his 12 years old...sorry, she's 26...girl friend just as soon as he can finalize his divorce.  When asked was his health an issue in regard to the age difference, he replied, "If she dies, she dies."  It was very colloquial...I may not have translated his response correctly.

S & P UPGRADED Greece from simple (?) to B-, that's 6 grades sports fans.   Whoopy damn dooo.  Yields fell, prices rose and a couple of hedgies made fortunes on the debt they were still holding.   They also upgraded the outlook to stable in the midst of a 24 hour strike and rioting in the streets with a couple of people dead.  Good job S & P.  Got any newly minted AAA CMOs hangin' about?
Not to be left in the dust, the ECB announced that Greek debt was now available for collateral once again.  Why not, they own most of it anyway.

Finally, something not to be missed is the new P.M. of Japan announcing to the head of the central bank that he now works for him.  You can imagine the reaction being, "Honto Yo,"---which is not quite "Sod off" in Japanese but depending on the inflection could certainly mean, "Are you #%&((^*@ me?"  New Honcho wants more liquidity in system and inflation up around 3%.  Don't laugh, this is an important development that will certainly have global ramifications depending on who wins.  If there is a clear loser, say Sayanora to that guy.  All about face you understand.  I think I may spend more time watching that part of the world next year.  Later.