Stocks Rise As Japan Lowers Interest Rate To Zero

Financial Market Report for October 5, 2010

Japan in a unilateral action, went nuclear in the currency war that started September 15, 2010, when it intervened in the currency markets and sold Yen.

Today, October 5, 2010, Japan took the ultimate action: In a unanimous vote, the Bank of Japan’s nine-member policy setting board set its interest rate at zero, in an attempt to stop the rise in its currency and to appease political dissent with ongoing deflation.

EconomicPolicy Journal relates that the Bank of Japan announced that it may buy J-Reits and J-ETFs as well, in an attempt to appease Japanese politicians who relate they have had enough of deflation.

Shaun Richards relates: “In addition it stated that it would look at establishing a temporary 5-trillion-yen ($60 billion) fund to purchase various financial assets such as government securities, commercial paper and corporate bonds in an attempt to stimulate the economy by lowering longer-term interest rates or what are more commonly called asset purchases or Quantitative Easing. The central bank will offer another 30 trillion yen ($359 billion) through its loan program.”

The Euro, FXE, jumped to 137.85; the Yen, FXY, rose to 118.91; and the US Dollar, $USD, fell lower to $77.81, as currency traders went long the EUR/JPY, which traded up to 115.08, seen in the chart of FXE:FXY, trading at 1.16, causing the Nikkei 226, ^N225, Japanese shares, EWJ, EZJ, as European shares, VGK, UPV, and the most speculative of assets, to rise strongly.

The liquidity injection by the bank of Japan, stopped, at least for a day, the deflationary downturn that started yesterday, October 4, 2010, when fears arose over projected earnings. Junk bonds, JNK, rose on today’s flow of carry trade liquidity.

Bonds, BND, traded basically unchanged. California Municipal Bonds, CMF, fell heavily.

The 30:10 US Sovereign Debt Yield Curve, $TYX:$TNX  jumped higher to a historic level, at 1.50, as the Zeroes, ZROS, fell heavily, and the 10-20 Year US Government Bonds, TLT, fell somewhat lower.

The interest rate on the 30 Year US Government bond, $TYX, rose. I believe it will continue to rise from here on out as investors shun the longer out debt.

The longer out leveraged US Treasury ETFs,TMF and UBT have likely peaked out.

In continuation of the likelihood of the US Federal Reserve coming out with QE 2, the 7-10 year US Government Debt, IEF, and the 2 year US Government Notes, SHY, rose.

TIPS, TIP, rose and the 15 Year TIPS, LTPZ, rose even more strongly.

Liquidity flowed into the shorter duration corporate bonds, LQD; but not the longer duration ones, BLV.   

I do not see investors buying longer out maturity debt of any kind from now on out into the foreseeable future — too expensive and too risky to do so.

The chart of the Ted Spread, $TED, blasted higher.

Commodities, DBC, soared. The Bank of Japan’s liquidity injection inflated Crude Oil, UCO, Base Metals, DBB, Tin, JJT, Timber, CUT, and Lead, LD quite strongly.

Stocks soaring included Spain, EWP, Junior Gold Miners, GDXJ, Gold Miners, GDX, Sweden, EWD, Turkey, TUR, Wind Energy, FAN, Energy Service, OIH, Banks, KBE, Copper Miners, CU, BHP, Nordic, GXF, Airlines, FAA, Metal Manufacturing, XME, European Financials, EUFN, Energy Services, OIH, Austria, EWO, Semiconductors, SMH, Small Cap Consumer Discretionary, XLYS, Leisure and Entertainment, PEJ, Dow Jones Internet, FDN, Small Cap Pure Value, RZV, Nasdaq Internet, PNQI, Russell 2000, IWM, Nanotechnology, PXN, Brazil Small Caps, BRF, Nasdaq Community Banks, QABA, Chinese Real Estate, HAO, Retail, RTH, RETL, Internet, HHH, Software, SWH, Nasdaq Biotechnology, IBB, Solar, TAN,

Industrial and Office Real Estate, FIO, and Real Estate, PSR, traded up to its September 20, 2010 value.  

Personal computer semiconductor manufacturer Intel, INTC, barely rose; it failed to attain 20 day moving average.

The traditional canaries of the stock market coal mine, International Dividends, excluding Financials, DOO, and International Consumer Discretionary, IPD, roared higher.

Safe haven investments far away from the US, strengthened. These included Singapore, EWS, Frontier Markets, FRN, such as Peru, EPU, and Indonesia, IDX, Emerging Markets Small Cap Dividends, DGS, India Earnings, EPI.

World shares, ACWI, and the S&P, SPY, rose.

Exxon Mobil, XOM, rose to 200 day moving average.

American Express, AXP, fell for the fifth straight day.

Volatility, VXX, plummeted. And inverse volatility, XXV, rose.

Tax managed Buy Write Opportunities, ETW, traded unchanged.

Gold, GLD, and Silver, SLV, soared on the debasement of Japan’s currency.

It is quite a stunning thing when a central bank goes to zero; the central bank of Japan in effect became the unitary, and sole provider of capital and money in Japan crowding out all bank lending.  It has in effect integrated banking and government into a state corporate combine; and effected a bloodless coup, establishing state corporatism, that is state corporate rule over the people of Japan.

The bank of Japan became Financial Regulator and Seignior, that is Credit Boss, overseeing money, lending, credit banking and, investment in Japan.

The currency traders and the central Bank of Japan, have “scorched the investment skies” and have taken the “global currency war”, to an all new level, with the result being the US Dollar, $USD, going down in flames. The Yen Dollar ETF, JYN, like the Yen, FXY, rose.  

And gold, $GOLD, became ever more, the sovereign currency and storehouse of investment wealth.

Today a whole new chapter in investment history has been written; we are living in an age like no other.  

The widely expressed expectation is that the Federal Reserve will announce a policy to buy US Government debt on November 3, 2010. But anything that Ben Bernanke could do or would do November 3rd, 2010 in a QE 2 announcement, would be anti-climatic to what Japan did today.

A Bennie Put may not be well received by the markets, and could actually cause the US Dollar, $USD, to really loose even more status in the world and send gold, $GOLD, and commodities, especially food commodities, FUD, rise awesomely higher. EuroIntelligence reports: “The Institute for International Finance says Fed policy would lead to rise in capital flows to emerging countries, and raises its flow projections from $709bn to $825bn. IIF also warns that the dollar could crash if the Fed pursued another round of quantitative easing.” And Gavyn Davies, writing in the Financial Times, says likewise, that the advent of QE2 would drive up equity markets in the emerging economies.

Investors took flight to the emerging market currencies, CEW, today which caused emerging market bonds, EMB, to rise strongly.

When the stock market does turn lower, heavily indebted Ireland, EIRL, and dollar entombed America, with its small cap Russell 2000, IWM, shares, will be ground zero for austerity and hardship.

Those invested in carry trade based investments such as the Euro – Yen and the Brazilian Real – Yen carry trade, profited. For those long in carry trades, it was “paradise for a day”, thanks to the Bank of Japan; their gravy train came in so as to speak.

Brazil, EWZ, and UBR; India, INP, and Mexico, EWW, rose strongly.

In today’s news:

PDF transcript of Herman.Van Rompuy speech More Effective Global Financial And Economic Governance courtesy of ConsiliumEuropa at 8th Asia-Europe, ASEM, Summit held in Brussels.

StockMarketNewsAustralia reports Chinese Premier Wen Jiabao said at the Europe Asia Summit:  We must explore ways to establish a more effective global economic governance system.  

Conclusion

The HELOC Syndrome is the phenomena where those taking out mortgages leverage their indebtedness to obtain mortgage equity withdrawals, MEW, which finally results in borrower bankruptcy.

The Yen Carry Trade Syndrome is the phenomena where the ruling class in Japan encourages continual leveraging of borrowed funds to make global investments which finally has resulted in a Zero Interest Rate Policy causing currency debasement and soaring commodity prices and will cause eventually, worldwide debt servitude.

Today, October 5, 2010, Japan took the ultimate action. In a unilateral action, it went nuclear in the currency war that started September 15, 2010, when it intervened in the currency markets and sold Yen. In a unanimous vote, the Bank of Japan’s nine-member policy setting board set its interest rate at zero, that is, it established a Zero Interest Rate Policy, ZIRP,  in an attempt to stop the rise in its currency and to appease political dissent that has risen over Japan’s ongoing deflation.

EconomicPolicy Journal relates that the Bank of Japan announced that it may buy J-Reits and J-ETFs as well, in an attempt to appease Japanese politicians who relate they have had enough of deflation.

Shaun Richards relates: “In addition it stated that it would look at establishing a temporary 5-trillion-yen ($60 billion) fund to purchase various financial assets such as government securities, commercial paper and corporate bonds in an attempt to stimulate the economy by lowering longer-term interest rates or what are more commonly called asset purchases or Quantitative Easing. The central bank will offer another 30 trillion yen ($359 billion) through its loan program.”

It is quite a stunning thing when a central bank goes to zero; the central bank of Japan in effect became the unitary, and sole provider of capital and money in Japan crowding out all bank lending.  It has in effect integrated banking and government into a state corporate combine; and effected a bloodless coup, establishing state corporatism, that is state corporate rule over the people of Japan.

The bank of Japan became Financial Regulator and Seignior, that is Credit Boss, overseeing money, lending, credit, banking and, investment in Japan.

The currency traders and the central Bank of Japan, have “scorched the investment skies” and have taken the “global currency war”, to an all new level, with the result being the US Dollar, $USD, going down in flames. The Yen Dollar ETF, JYN, like the Yen, FXY, rose.  

And gold, $GOLD, became ever more, the sovereign currency and storehouse of investment wealth.

Today a whole new chapter in investment history has been written; we are living in an age like no other.

Out of recognition of impending currency and financial crisis, other nations, and regions, where economic governance has been established, such as the Eurozone, and the ASEAN trading region, will announce publicaly or decide in secret meetings to establish a Financial Regulator and Seignior, that is Credit Boss, overseeing money, lending, credit, banking and, investment. And in the further out future, a global sovereign, and a global seignior, will arise to govern the world.

Keywords

ZIRP, Currency Intervention, Zero Interest Rate Policy, Yield Curve, Ted Spread, Financial Regulator, Credit Seignior, Global Governance, EUR/JPY, Carry Trade Investing, Global Currency War, BoJ, Bank Of Japan, QE 2 QE2,  Global Economic Governance

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