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Deutsche Bank Discovers Kuroda’s NIRP Paradox

March 7, 2016

Deutsche Bank Discovers Kuroda’s NIRP Paradox

Last October, BofA looked at Europe’s €2.6 trillion in negative-yielding debt and discovered something “stunning”: Savings rates were going up not down.

Don’t believe us, just have a look at these three charts:

But how could that be? By all accounts – or, should we say, by all conventional Keynesian/ textbook accounts – negative rates should force people out of savings and into higher yielding vehicles or else into goods and services which “rational” actors will assume they should buy now before they get more expensive in the future as inflation rises or at least before the money they’re sitting on now yields less than it currently is.

Well inflation never rose for a variety of reasons (not the least of which was that QE and ZIRP actually contributed to the global disinflationary impulse) and nothing will incentivize savers to keep their money in the bank like the expectation of deflation.

Well, almost nothing. There’s also this (again, from BofA): “Ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.”

Why that’s “perverse,” we’re not entirely sure. Fixed income yields nothing, and rates on savings accounts are nothing. Which means if you’re worried about your nest egg and aren’t keen on chasing the stock bubble higher or buying bonds in hopes that capital appreciation will make up for rock-bottom coupons (i.e. chasing the bond bubble), then as Gene Wilder would say, “you get nothing.” And that makes you nervous if you’re thinking about retirement. And nervous people don’t spend. Nervous people save.

Deutsche Bank has figured out this very same dynamic. In a note out Friday, the bank remarks that declining rates have generally managed to bring consumption forward.

…click on the above link to read the rest of the article…

HSBC Looks At “Life Below Zero,” Says “Helicopter Money” May Be The Only Savior

February 27, 2016

HSBC Looks At “Life Below Zero,” Says “Helicopter Money” May Be The Only Savior

In many ways, 2016 has been the year that the world woke up to how far down Krugman’s rabbit hole (trademark) DM central bankers have plunged in a largely futile effort to resuscitate global growth.

For whatever reason, Haruhiko Kuroda’s move into NIRP seemed to spark a heretofore unseen level of public debate about the drawbacks of negative rates. Indeed, NIRP became so prevalent in the public consciousness that celebrities began to discuss central bank policy on Twitter.

When we say “for whatever reason” we don’t mean that the public shouldn’t be concerned about NIRP. In fact, we mean the exact opposite. The ECB, the Nationalbank, the SNB, and the Riksbank have all been mired in ineffectual NIRP for quite sometime and the public seemed almost completely oblivious. Indeed, even the financial media treated this lunacy as though it were some kind of cute Keynesian experiment that could be safely confined to Europe which would serve as a testing ground for whether policies that fly in the face of the financial market equivalent of Newtonian physics could be implemented without the world suddenly imploding.

We imagine the fact that equity markets got off to such a volatile start to the year, combined with the fact that crude continued to plunge and at one point looked as though it might sink into the teens, led quite a few people to look towards the monetary Mount Olympus (where “gods” like Draghi, Yellen, and Kuroda intervene in human affairs when necessary to secure “desirable” economic outcomes) only to discover that not only has all the counter-cyclical maneuverability been exhausted, we’ve actually moved beyond the point where the ammo is gone into a realm where the negative rate mortgage is a reality.

…click on the above link to read the rest of the article…

Revolt against NIRP Breaks out, Bank of Japan “Baffled”

February 19, 2016

Revolt against NIRP Breaks out, Bank of Japan “Baffled”

Meanwhile, exports collapse at fastest rate since 2009.

This would be hilarious, if it weren’t so serious: Frazzled politicians, during a parliamentary session, lambasting the governor of their central bank over its new negative interest rate policy. But this is what happened in Japan.

Central-bank imposed negative interest rates have caused a lot of financial mayhem. Since they’ve contaminated much of Europe, they’ve dragged most major stock indices into a bear market. In the US, stocks fell hard as well. The Nasdaq sidled up to a bear market before bouncing off and is now down “only” 14% from its peak. The Russel 2000 is in a bear market, down 22.4%.

In Japan, stocks have gotten mauled since the Bank of Japan inflicted the idea of negative deposit rates on the land three weeks ago, after Governor Haruhiko Kuroda had repeatedly assured parliament that he wasn’t even considering the idea. Despite a bounce earlier this week, the Nikkei is down 24% from its recent high.

It doesn’t matter that, under the BOJ’s three-tiered system, no deposits qualify yet for the special treatment. It’s the idea that counts. It’s all a mind-game.

And so on Thursday, Kuroda stood before Parliament to be lambasted from all sides. According to DJ Business News, he “found himself dodging a concerted attack in Parliament from lawmakers who charged the policy was victimizing consumers and sending a message of despair.”

Opposition lawmaker Shinkun Haku needled Kuroda: “Can you deny that banks will put an additional burden on average depositors” by charging fees or interest on deposits? “If you can’t deny it, don’t. It’s a yes or no.”

Kuroda dodged the jab the best he could, refusing to speculate on fees but said that “there’s no chance that deposit interest rates will turn negative.”

…click on the above link to read the rest of the article…

“Stimulus Hopes” – a Dog that Ain’t Hunting no More

February 17, 2016

“Stimulus Hopes” – a Dog that Ain’t Hunting no More 

A Rebound in Stocks Begins 

Given that a very sharp downturn in so-called “risk assets” is well underway globally, but not yet fully confirmed by US big cap indexes, we are keeping an eye out for confirmation. This is to say, we are looking for events, market moves, positioning data, even newspaper headlines, that will either confirm or refute the notion that a larger scale bear market (as opposed to just a deep correction) has begun.

Bank of Japan Governor Haruhiko KurodaHaruhiko Kuroda will stimulate us back to Nirvana! Hurrah!  Photo credit: Yuya Shino / Reuters

Readers may recall an article we posted earlier this year, discussing historical examples of the stock market swooning in the seasonally strong month of January (see: “Stock Market Suffers Worst Start to the Year Ever” for details). When the market does something like this, it is more often than not sending a message worth heeding. Chart patterns of course never repeat in precisely the same manner, but such historical patterns are nevertheless often useful as rough guides.

As a reminder, here is a chart of the DJIA from 1961 to 1962. Both the distribution period preceding the sell-off, as well as the timing and pattern of the sell-off itself show many similarities to what has so far occurred in 2015 to 2016:

1-DJIA-1961-1962The DJIA from 1961 to 1962. We may be at the beginning of the period equivalent to the one in the green rectangle – click to enlarge.

In keeping with this, we would now normally expect the market to rebound from the initial sell-off and retrace a portion of its losses over a period of several weeks before resuming the decline from a lower high. Last week the bond market delivered a technical signal on the daily chart, which based on well-known inter-market correlations suggests that such a rebound has likely begun.

2-TNX

…click on the above link to read the rest of the article…

Benn Steil: Could China Have a Reserves Crisis?

February 16, 2016

BENN STEIL: COULD CHINA HAVE A RESERVES CRISIS?

China reserves
Last summer, U.S. lawmakers were condemning China for pushing down its currency, arguing that it was still “terribly undervalued.” But those days may be long gone.  Chinese and foreigners alike have been stampeding out of RMB, leaving the Chinese central bank struggling to keep its value up and prevent a rout.

The People’s Bank of China has been selling off foreign currency reserves at a prodigious rate to keep the RMB stable.  At $3.2 trillion, China’s reserves still seem enormous.  But they are down $760 billion from their 2014 peak, and $300 billion in just the past three months.  As shown in the figure above, at the current pace of decline China’s reserves will, according to the IMF’s framework for reserve adequacy, actually fall to a dangerously low level in the spring.  This means that China would be at risk of a balance-of-payments crisis, unable to pay for essential imports or service its dollar debt payments.

China has for years been pursuing what has been called the “Impossible Trinity”: controlling interest and exchange rates while leaving the capital account significantly open.  Chinese residents are permitted to send up to $50,000 overseas annually – this is enough to allow trillions in outflows.  So what can China do to staunch the rapid decline in reserves?

It could impose tighter capital controls, as Bank of Japan governor Haruhiko Kuroda controversially urged it to do.  As shown in the figure, this would allow China to operate safely with fewer reserves.  But it would also put a halt to China’s plans to transform the RMB into a major reserve currency.

China could also raise interest rates, which might encourage capital inflows and discourage outflows, but this would hurt growth in an already sinking economy.

…click on the above link to read the rest of the article…

Haruhiko Kuroda – The Pressure to “Do More” Rises

November 1, 2015

Haruhiko Kuroda – The Pressure to “Do More” Rises

BoJ Leaves Policy Unchanged, but What Comes Next?

The Bank of Japan has employed QE programs since March of 2001 (in February of 2001, it still claimed that “QE will be ineffective” – it was right then, for the last time). These have had no effect apart from making a Keynesian government spending orgy possible that is unique in terms of its size in the post WW2 developed world. It is also unique insofar as it hasn’t yet blown up.

QE was briefly interrupted in 2006, when the BoJ reduced the monetary base by 25% within a few weeks (this barely affected the money supply, although we have to add the caveat that Japanese money supply data are not directly comparable to Western ones).

2 percent kurodaKuroda demonstrating the loony-tunes 2% fetish of modern central bankers to journalists
Photo credit: Haruyoshi Yamaguchi / Bloomberg

After the GFC, governor Masaaki Shirakawa (白川 方明) reluctantly restarted QE; he was essentially convinced that monetary policy flim-flam of this sort would be useless, but a lot of pressure was exerted and he ultimately gave in. Following Shinzo Abe’s election, it was clear that a more pliant BoJ leadership would be appointed, and not surprisingly, under governor Haruhiko Kuroda (黒田 東彦), the BoJ has essentially decided to “go all in”.

1-BoJ assetsThe earlier QE programs that began in 2001 were considered “radical” at the time. We’re not sure what kind of adjective would be most fitting to describe the current exercise. “Completely lunatic” will probably do – click to enlarge.

Yesterday, the BoJ decided not to add to its existing monetary pumping program, but voted once again to maintain the parabolic pace in asset purchases already underway. The entire exercise is based on the widely accepted, unproven, and utterly absurd neo-Keynesian shibboleth that the purchasing power of money must decline by 2% per year, as anything less is not considered “price stability”.

…click on the above link to read the rest of the article…

Jeffrey Snider: Kuroda’s Rebuke Came Awfully Swift

October 25, 2015

Jeffrey Snider: Kuroda’s Rebuke Came Awfully Swift

There must be a universal speech template included in the monetary textbook that is shared among the various central banks. On September 28, 2015, Haruhiko Kuroda, Governor of the Bank of Japan, delivered a speech that wasn’t just similar to the press conference Janet Yellen had endured only a week or so before, it was a close enough replica that if stripped of geographic references would have made it impossible to determine who was giving the speech. Kuroda did as Yellen did, making a specific point to emphasize how “robust” the Japanese economy was showing itself in 2015 before trying his best to explain away all the ways in which it was not.

Saying, “First, domestic private demand has continued to be robust” Kuroda then listed factors that were only slightly related to “domestic demand.” Rather than find specific economic accounts performing as he suggested, the Governor was instead reliant on surveys. “Firms’ positive fixed investment stance could be confirmed by various survey results.”

For Japanese households, Kuroda followed as his American counterparts by leading with the declining unemployment rate, assuming its validity and meaningfulness, and then trying to explain why household spending (demand) wasn’t following all that.

In terms of household spending, private consumption is somewhat sluggish recently, reflecting bad weather in the April-June quarter. Nevertheless, as the employment and income situation has continued with its steady improvement and consumer sentiment is on an improving trend, private consumption seems to have remained resilient on the whole.

Consumer “demand” remains “robust” except that it is easily distracted by Japanese weather (obviously not the same storms and snow apparently afflicting the US in the quarter before) and can only charitably be described as “resilient.” As nice as all that may sound, couched carefully as always improving, it doesn’t quite explain the steady and growing chorus expecting and now demanding still more QQE.

– See more at: http://www.cobdencentre.org/2015/10/jeffrey-snider-kurodas-rebuke-came-awfully-swift/#sthash.8lsl2pab.dpuf

QE Breeds Instability

June 6, 2015

QE Breeds Instability

Central bankers have promised ad nauseum to keep rates low for long periods of time. And they have delivered. Their claim is that this helps the economy recover, but that is just a silly idea.

What it does do is help create the illusion of a recovering economy. But that is mostly achieved by making price discovery impossible, not by increasing productivity or wages or innovation or anything like that. What we have is the financial system posing as the economy. And a vast majority of people falling for that sleight of hand.

Now the central bankers come face to face with Hyman Minsky’s credo that ‘Stability Breeds Instability’. Ultra low rates (ZIRP) are not a natural phenomenon, and that must of necessity mean that they distort economies in ways that are inherently unpredictable. For central bankers, investors, politicians, everyone.

That is the essence of what is being consistently denied, all the time. That is why QE policies, certainly in the theater they’re presently being executed in, will always fail. That is why they should never have been considered to begin with. The entire premise is false.

Ultra low rates are today starting to bite central bankers in the ass. The illusion of control is not the same as control. But Mario and Janet and Haruhiko, like their predecessors before them, are way past even contemplating the limits of their powers. They think pulling levers and and turning switches is enough to make economies do what they want.

Nobody talks anymore about how guys like Bernanke stated when the crisis truly hit that they were entering ‘uncharted territory’. That’s intriguing, if only because they’re way deeper into that territory now than they were back then. Presumably, that may have something to do with the perception that there actually is a recovery ongoing.

…click on the above link to read the rest of the article…

 

 

 

It’s Official: The BoJ Has Broken The Japanese Stock Market

May 14, 2015

It’s Official: The BoJ Has Broken The Japanese Stock Market

As those who follow such things are no doubt aware, The Bank of Japan often says some very funny things about inflation expectations and monetary policy. Essentially, the bank is forced to constantly defend its QE program because as it turns out, monetizing the entirety of gross JGB issuance and amassing an equity portfolio worth just shy of $100 billion on the way to cornering the ETF market comes across as insanely irresponsible even in a world that is now defined by insanely irresponsible central banks.

Perhaps the best example of the BoJ’s absurd rhetoric came in late March when Governor Haruhiko Kuroda said the following about the bank’s 10 trillion yen equity portfolio:

  • KURODA: BOJ’S ETF PURCHASES AREN’T LARGE

As we noted at the time, either we don’t know what large means, or Kuroda is simply making things up as he goes along. Meanwhile, the BoJ continues to provide Nikkei plunge protection on an almost daily basis. Here’s what we said in March:

The world has now officially given up any pretensions that Japan’s elephantine QE program isn’t underwriting the rally in Japanese stocks. Not only is the Bank of Japan buying ETFs, they’re targeting their purchases to (literally) ensure that stocks can’t fall by stepping in when things look weak at the open. Unfortunately, Kuroda looks set to run up against the extremely inconvenient fact that while, in his lunacy, he can print a theoretically unlimited amount of money, the universe of purchasable ETFs is limited and so eventually, the BoJ will own the entire market.

…click on the above link to read the rest of the article…

 

 

Kuroda Says BOJ to Mull Fresh Options in Case of More Easing

January 23, 2015

Kuroda Says BOJ to Mull Fresh Options in Case of More Easing

Bank of Japan Governor Haruhiko Kuroda signaled the central bank may need to look at fresh options if more stimulus is needed to propel inflation to levels unseen since stagnation set in two decades ago.

“If, really, our possible path to 2 percent inflation is significantly affected, then of course we can make adjustment to our monetary policy,” Kuroda said in an interview with Bloomberg Television in Davos, Switzerland, on Friday. Asked whether the BOJ will have to get more creative, he said “yes, I think so.” He declined to specify the options available.

Kuroda, 70, spoke days after the BOJ cut its inflation projection for the coming fiscal year, a move that reinforced forecasts for further stimulus by October. While Kuroda’s unprecedented scale of asset purchases has pulled the world’s third-largest economy out of 15 years of entrenched deflation, he’s confronting — like his European counterparts — mounting pressures depressing price gains, and subdued growth.

Kuroda and his colleagues have channeled most of their purchases into the government-bond market, sending yields on 10-year notes to a record low of 0.195 percent this week. The BOJ’s program also include exchange-traded funds and real-estate investment trusts.

…click on the above link to read the rest of the article…

 

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