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|10-YR Yield||+0.03 to 2.34%|
|Gold||-$27.20 to $1,171.40|
|Crude Oil||-$0.51 to $80.61|
Forget fundamentals, we’ve got the Bank of Japan!
That’s the cry you could hear up and down Wall Street this morning after the BOJ dropped a QE bomb on the markets. Specifically, the Japanese central bank dramatically boosted the size of its QE program to 80 trillion yen (about $712 billion) per year, up from a previous range of 60 trillion to 70 trillion.
Barely anyone expected the move, according to separate Bloomberg and Wall Street Journal surveys. The BOJ also said it would triple its purchase of Japanese stock ETFs and REITs, increasing the proportion of money that’s directly going into equities and real estate rather than just bonds.
|Japan expands stimulus to drive recovery.|
Not only that, but Japan’s Government Pension Investment Fund (GPIF) said it’s going to boost holdings of domestic and foreign stocks to 25 percent each, from 12 percent currently. It will cut its allocation to Japanese bonds to 35 percent from 60 percent, and boost its foreign debt holdings to 15 percent from 11 percent.
The GPIF fund manages 127.3 trillion yen ($1.14 trillion). That makes it the biggest pension fund in the world. So as you might expect, the move is levitating stocks around the world.
|Click chart for larger version.|
It’s also absolutely crushing the Japanese yen. You can see in this chart how far the country’s currency is plummeting, and how it just hit a seven-year low:
If there’s any irony in these moves, it’s that they come on the very same day that the BOJ announced that both inflation and growth will miss previous forecasts for this year and next. In other words, they’re announcing even more of the same type of measures that have already failed — and expecting different results.
This clearly shows that the Global Money Tsunami remains in play, with only the sources and destination of that money changing. Or stated another way, while the U.S. Federal Reserve is now exiting QE entirely, the BOJ and the European Central Bank (ECB) are picking up the torch.
|“The BOJ and the ECB are picking up the torch.”|
That’s spiking the U.S. dollar further, hitting the euro in addition to the yen, and otherwise distorting all capital markets even further. That can’t be a good thing in the long run, even as it is spiking asset prices in the here and now.
So what do you think? Is this latest move a reason to back up the truck and buy? Do you surf this global liquidity wave for all it’s worth? Or is caution warranted in the wake of the BOJ’s bombshell?
Will we ever get back to a market where actual fundamentals, like corporate earnings and economic growth, matter more than central banks? Hop on over to the Money and Markets comment section to add your voice to the debate.
|Our Readers Speak|
The comments are coming fast and furious at the website about the latest economic data, the Fed’s QE exit, and more!
Reader Dan took a skeptical view of strong GDP data, saying: “I find it amusing the government includes their spending as part of the GDP and then declares the private economy as improving. They could print another trillion, spend it, and then declare the economy grew another 8 percent. They make no effort to hide the fact that inflation is foremost in their policy.
“Higher prices and higher revenue streams are great, but any business person can tell you that is only part of the equation. If your costs rise faster than your sales revenue, you are losing. In America, our costs are rising faster than our sales revenue, we are losing. Just ask 100 households in America if they have more left over at the end of the year. I’m sure the overwhelming response will be, they have less.”
With regards to QE, at least one poster stepped up to defend it. Reader Mike P. said: “It appears that many posters here are of the opinion that doing nothing would have led to a better outcome, primarily for savers. Need I say look at Europe or the U.S. in the 1930s as examples of what the outcome could have been in the U.S. without QE, TARP, ZIRP, etc.
“IMHO government intervention saved the US economy. Now the question remains as to what the future holds. Nobody can definitely answer that question.”
But Reader F.B.L. said the economy is in worse shape than the numbers show — and that QE has been a disaster for the average American. The comments: “Most Americans are NOT better off. I know several people who no longer have 40-hour work weeks or health insurance. They are just above the income level to get government help and so they go without any insurance. Yes, they had group insurance before.
“One of these folks is losing their home. How many more are going to go down that path? QE has not helped us little people. The banks and the banksters, yes, of course they are better off.”
As you can see, there are some lively conversations going on at the website. So if you want to join them, here’s where to go.
|Other Developments of the Day|
Coffee anyone? Starbucks (SBUX, Weiss Ratings: C) probably wishes you would drink more, after the company missed sales estimates in the fiscal fourth quarter that ended Sept. 28. Analysts attributed the weakness to increased competition from the likes of McDonald’s (MCD, Weiss Ratings: B-) and Dunkin’ Donuts (DNKN, Weiss Ratings: B).
Fugitive Eric Frein was finally captured after seven weeks on the lam. Police had been searching for the 31-year-old after he allegedly shot and killed a Pennsylvania state trooper.
The debate is continuing over whether nurse Kaci Hickox should be allowed out of a 21-day quarantine. But she’s not waiting for a final answer — she’s out biking in Maine! Her incubation period for possible Ebola exposure expires on November 10.
Has it really been 25 years since the Berlin Wall fell? Hard to believe, but true. This interesting Washington Post story looks at some of the ways Germany has changed since then. I’m looking forward to visiting Berlin myself in just over a week.
Until next time,
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