Japan’s Yield Curve Control Regime is Coming to America

Posted on November 22, 2019 by MN Gordon

Earlier this month, Bank of Japan (BOJ) Governor Haruhiko Kuroda commented that Japan’s central planners are considering a 50-year government bond issue as a long-term means of putting a floor under super-long interest rates.  How this floor would be placed is extremely suspect; we’ll have more on this in a moment.  But first, the dual benefits – according to Japan’s central planners…

One, the 50-year government bond would allow the government to lock in cheap long-term funding.  Two, it would give yield-starved investors higher returns.  Cheap funding.  Higher yield.  What’s not to like?

Kuroda, if you didn’t know, is a certifiable madman.  Following a cheap credit induced bubble and subsequent bust of Japan’s property and stock market in the late-1980s, Kuroda and his cohorts at the BOJ have tried anything and everything to re-inflate asset prices.  After nearly three decades they’re still at it.

There’s not a deranged monetary policy idea the BOJ hasn’t pioneered in the name of saving the nation from itself. Continue reading →

Posted in Government Debt, MN Gordon | Tagged , , , , | 1 Comment

Is the Fed Secretly Bailing Out a Major Bank?

Posted on November 15, 2019 by MN Gordon

The promise of something for nothing is always an enticing proposition.  Who doesn’t want roses without thorns, rainbows without rain, and salvation without repentance?  So, too, who doesn’t want a few extra basis points of yield above the 10-year Treasury note at no added risk?

Thus, smart fellows get after it; pursuing financial innovation with unyielding devotion.  The underlying philosophy, as we understand it, is that if risk is spread thin enough it magically disappears.  In other words, the solution to pollution is dilution.

With this objective, new financial products are fabricated into existence.  The risk free reward of several extra basis points are then packaged up into debt instruments and sold off to pension funds and institutional investors.  The search for yield demands it.

Yet as an economic expansion progresses, especially one that has been extended and distorted with the Fed’s cheap credit, these derived financial securities are polluted with more and more toxic waste.  Spreading the risk ultimately pollutes the entire pool of liquidity. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | 4 Comments

Riding the Type 3 Mega Market Melt Up Train

Posted on November 8, 2019 by MN Gordon

The decade long bull market run, aside from making everyone ridiculously rich, has opened up a new array of competencies.  The proliferation of ETFs, for instance, has precipitated a heyday for the ETF Analyst.  So, too, blind faith in data has prompted the rise of Psychic Quants…who see the future by modeling the past.

For the big financial outfits, optimizing systematic – preprogrammed – delta hedges is an essential aptitude of the 21st century.  Our guess is that many of today’s high flyers will crash and burn during the next bear market.  But what do we know?

As far as we can tell, the stock market, circa November 2019, is an absolute fantasy.  The Dow Jones Industrial Average (DJIA), S&P 500, and Nasdaq have little connection to the underlying economy.  Rain or shine, they go up.

Market watchers, eager to explain the fantasy, employ creative nomenclature as they attempt to classify the state of the stock market with discerning acumen.  Is it a bubble?  Is it a melt up?  If it’s a melt up, what type and gradation is it? Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , | 2 Comments

The Federal Reserve is a Barbarous Relic

Posted on November 1, 2019 by MN Gordon

“We believe monetary policy is in a good place.” – Federal Reserve Chairman Jerome Powell, October 30, 2019.

The Sky is Falling

Ptolemy I Soter, in his history of the wars of Alexander the Great, related an episode from Alexander’s 334 BC compact with the Celts ‘who dwelt by the Ionian Gulf.’  According to Ptolemy’s account, which survives via quote by Arrian of Nicomedia some 450 years later, when Alexander asked the Celtic envoys what they feared most, they answered:

“We fear no man: there is but one thing that we fear, namely, that the sky should fall on us.”

Today, at the risk of being called Chicken Little, we tug on a thread that weaves back to the ancient Celts.  Our message is grave: The sky is falling.  Though the implications are still unclear.

The sky, for our purposes, is the debt based dollar reserve standard that’s been in place for the past 48 years.  If you recall, on August 15, 1971, President Nixon “temporarily” suspended convertibility of the dollar into gold.  The dollar  became wholly the fiat money of the Treasury. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | 4 Comments