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.

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.

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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.

I'LL START TOMORROW

OK, OK, I said I would get off this kick but I have to put in this short note before we move on to other things...and this time I REALLY promise that we will start tomorrow.

The headline will be markets slump as investors flee to quality.  As part of the discussion, the dollar.Yen relationship will be mentioned in the sense that the dollar continues to slump against the Yen which terrifies everyone.  Why is the Yen so strong?  Not a clue and you will not find the answer in any of the reports and it is precisely this phenomenon that is scaring people, because you see, the Yen, with all of the QE activity of the B of J piled onto negative interest rates the Yen is supposed to weaken.  OK, you say, so what?  Well, a strong Yen does nothing for the Japanese economy; inflation stays low and exports go down.  But we've gone through this before, haven't we?  Yep, but times are a bit different.  You see, everybody (the Central Banks) is, in one way or another trying the same thing.  And slowly, but with increasing frequency, people are beginning to ask if they have gotten the whole thing wrong.  That perhaps--just perhaps--the result will not be economic stimulus and higher inflation but stagflation, and that is not a very good thing at all particularly when both the public and private sectors are up to their eyeballs in debt.  It is a very bad place indeed,which, by the by, has been what this has been all about.  Preventing the world from getting there.

But all is not lost.  Tomorrow, we will discuss how Argentina is poised to save us all.  $12,500,000,000 coming next week.  Get your check books out guys.  Can't miss this one.  It's your duty.

WE

Wonderful number, super number, best imaginable number.  What?  The jobs report silly.  Not to low indicating that the economy is still in the tank and thank God not too high which might make the Fed rethink QE III.  If that were ever to happen...oh the horror of it all.

Funny part is the stock market was waaaaay up at the open and stayed up all day to close up 200+.  Helicopters for everybody out to the Hamptons.  But the big surprise of the day was the Yen/Dollar trade with the Yen coming out waaaaay on top which nobody really expected.  A new day dawning?  Not really.  With the number the Yen short positions got unwound and hence the big move to the strong side.  I suspect it will be temporary as the position of the Abe government is clear; he is determined to inflate the economy and the quickest way is through import price rises which if one stops and thinks for a minute must occur as the one critical import is oil and gas.  So I suspect that for those with staying power a short Yen position is the way to go.

Now I could care less one way or the other but I find it fascinating how we have suddenly plunged ourselves into a currency war in which the major economic players in the world are all on the same side and following the same hymnal.  Some might argue that if that is indeed the case then there is no currency war but ignore the fact that if one asks Brazil or Mexico or Thailand or Singapore the answer might be very different indeed.  A rapidly devaluing Yen plays havoc in Exporting Asia (everyone) and a falling dollar cross rate make life very difficult for a Brazil in attempting to control money flows.  Is the export scenario the only idea left to increase the economic outlook for what are supposed to be developed economies?  I hate to sound like a broken record but it should be even more apparent to everyone ( save perhaps Little Paulie) that we have been trying some version of this for the past 5 years and it hasn't worked very well.  What it has done is to place ourselves in an increasingly awkward position on which Alan Greenspan actually commented today as to whether the implied Fed target were reached or not to begin the scaling back of QE III, perhaps we should begin to do so in any case to avoid what will probably be a greater need at a more accelerated pace in the future.  An interesting comment from one who rarely has any comment on present Fed policy.

But today was "just right" as the story goes and we all went home happy.  Here's to more days like today.  But let us remember that out there in the 100 acre wood there are three bears some where none of which is named Shelia.  A wonderful forecast for the next few days in the fly-over zone.  I'm going to enjoy it.