Now, whether you think GMO will be the cause of all health problems going forward — or you believe that it’s simply a harmless and valuable progression of biology — really doesn’t matter. Suppressing information is never a good idea and Monsanto’s bare knuckle tactics have certainly generated much deserved criticism.
Yet the market already has an answer to Monsanto’s cloak of secrecy. As I was eating a bag of pistachios this morning, I noticed a very bright, big label that stated the product was NON-GMO. So while Monsanto can prevent products from being labeled GMO, it can’t do the opposite. And in the marketplace, that amounts to almost the same thing: Those consumers who abhor the notion of GMO foods will simply buy products only labeled NON-GMO. And the grand big plan at suppressing information will once again be thwarted by market forces.
|Market forces prevail in the GMO debate.|
The bag of pistachios made me think of the Bank of Japan (BOJ): Another, colossal, monolithic entity that has tried to control the market and so far, failed miserably.
Japan has been in the throes of deflation for the better part of the past two decades. Japanese monetary authorities have tried every trick in the book to stimulate the economy without much success. What’s worse is that despite all these woes, the yen has strengthened, exacerbating growth problems for export-driven Japanese economy.
Economic Tidal Waves Act Just like Tsunamis
According to the National Geographic, the enormous energy of a tsunami can lift giant boulders, flip vehicles and demolish houses. But from a financial standpoint, the K Wave will be even worse: Millions could lose their homes. Millions more could see their lifesavings wiped out in an instant. Businesses, large and small, could close their doors. Even the bare necessities of life — food, water, clothing — might become scarce. That’s why it’s so important that you get your free copy of “STOCK MARKET TSUNAMI” right away, click here to download now! – Larry Edelson.
A few months back, the BOJ decided that it would take the ultimate monetary policy action and take short-term rates negative. The thinking was that banks would be forced to lend out money rather than see the value of the asset depreciate. But like many market manipulators before them, the BOJ did not foresee the unintended consequences of their action. Negative short-term rates drove longer-term bonds into negative territory as well, flattening the yield curve. Banks who make most of their money by borrowing-short and lending-long, saw their profits evaporate. With no profits on the books, banks’ lending standards got even more stringent: They lent less and wound up with the greatest hoard of cash in Japanese history. In short, the opposite of what the BOJ intended.
|“Last night the BOJ essentially had to admit defeat.”|
Which brings us to today.
Last night, the BOJ essentially had to admit defeat and announced to the market that they will no longer practice standard quantitative easing (QE). Instead they will focus on yield targeting. They still intend to buy Japanese bonds and stocks, but now will focus on making sure that the yield on the benchmark 10-year Japanese Government Bonds (JGB) remains above the zero level. In short, the BOJ realized that in order for QE to have any impact on the market, they need to manufacture a steepening yield curve, so that the finance sector could implement the monetary transmission mechanism. The BOJ promised that there was “no limit” to their willingness to keep 10-year rates above zero.
In the wake of the announcement, the JGB yields did pop above the zero line for about two hours. And then the market proceeded to pound the rates right back below zero. So much for BOJ’s “limitless” ability.
If the policymakers can’t get a hold on the market and push rates back up within the next two weeks, they will lose whatever shred of credibility they have left and USD/JPY — which is already closing in on the 100 level as I write this — could drop below post-Brexit lows of 98.00 within a few days. That would completely unwind the stimulus of the past three years, keeping Japan trapped in deflation for as far as the eye can see.
To just about no one’s surprise, the Fed kept rates unchanged today. In a statement following this week’s meeting, the Fed said, “the committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” But keep your eyes peeled: A boost in the key lending benchmark may come in December. Stay tuned.
Retailing behemoth Target has authorized another $5 billion share repurchase program. The buyback comes on top of a current $10 billion program, which should expire before the end of the year. The new program gives management the wherewithal to purchase shares into 2017. Good news? In general, yes. Share buybacks reduce the number of outstanding shares, which is a positive for earnings, assets, and cash flow. After all, with fewer shares in the open market, shareholders have a bigger piece of the pie. However, keep an eye out: Repurchases can signal that management is short on other investment opportunities, which could dampen growth.
No doubt about it: Earnings forecasts can be tough going. After all, pretty much everyone from Wall Street to Main Street takes note of how much a company’s bottom line is likely to grow down the road. But with earnings expected to get a 13.4% bump in 2017 (according to FactSet) — following what’s expected to be little growth in 2016 — we’re getting a bit optimistic. It’s no wonder, then, that UBS is calling the forecasts “irrationally exuberant.” The bank joins a similar chorus echoed by Goldman Sachs and Deutsche Bank. Take-away: Always take earnings forecasts — and forecasts of just about every ilk — with a grain of salt.
Mortgage applications took a 7.3% hit last week — according to the Mortgage Bankers Association — as mortgage rates inched up. Refinance apps took the biggest hit, falling 8%. That now puts refinancing applications at their lowest level since June. And while home buyers are not as sensitive to rate increases as those wanting to refinance, the bump in the 30-year fixed mortgage is having its effect on mortgage activity.
The Money and Markets Team