360 Horizon: Bank of Japan

Showing posts with label Bank of Japan. Show all posts

09 April 2013

Kyle Bass Interview With Bloomberg TV: "If Monetary Policy Is The Only Game In Town, Then We're In For A World Of Trouble"

Kyle Bass, whose Dallas-based hedge- fund firm Hayman Advisors LP made $500 million in 2007 betting against U.S. subprime mortgages, said the Bank of Japan's recent doubling of money is "the beginning of the end" for Japanese Government Bonds.

Bass has been short - long term - the JGBs for three years already and announces he's only betting 1-2% of his capital to possibly make 300 times his wager. This bet has been a loser so far, and it is called the "Widowmaker" bet by wags on Wall Street. Despite this, Bass is now more firmly committed to his view the JGBs will blow up sooner than later.

He thinks when the Japanese Government Bonds finally crash and burn, that it will happen rapidly and because they have 20 years of "buildup" behind them.

Bass made one observation which rings true: "The whole world is chasing yield." He points out the US stock market is being led by formerly big dividend paying utilities which are not the normal stocks to lead a rally. As he said, "Things that don't typically lead us into new highs, it's because of their dividend yields."

Another notable quote: A host asks Bass about other instruments with yield which are popular at this time. He observes, "With Bernanke pinning rates at zero," . . . "structured credit, and even mortgage credit, they're one of the most liquid areas of the marketplace today. People can't get enough of them. And think about sub-prime credit . . . 97% of the 20,000 line items are still rated below investment grade, they're still junk. The ratings based buyers aren't even there yet! The money is being mis-allocated by the printing press."

On Gold

On gold, Bass admits his firm has always had a position in gold. "Monetary policy is the only policy in town. I am perplexed as to why gold is as low as it is."

". . . The global monetary base is north of $70 Trillion, all the gold in existence is only $7 or $8 Trillion, there's only $2-$3 Trillion of investable gold . . . at some point in time, I'd rather own gold than paper. I just don't know when that time is."

Bass goes on about gold, "They can't print any more. They can mine some more. They can't (produce) at the rate the Central Banks are printing money. I just view gold as another currency, it's that simple. I don't view it as a commodity."

"If Monetary Policy is the only game in town, then we're in for a world of trouble."

On Housing

"We're not expecting housing to get materially better, but we're not expecting it to get materially worse."

"We think it (housing market) will marginally improve going forward.

On Interest Rates & Quantitative Easing In The USA

"One of my underlying beliefs is that the US rates can't go up. For a long time Bernanke said low for a long time, then he said low for two years. I think he means low forever, as long as he can keep them there. Every point of interest rates, every full one-hundred basis points of interest rates represents another $150 Billion in interest rate payments."

"It is crazy to think we can raise interest rates by 100, 200, 300 basis points." Bass suggests the Fed might only be able to raise rates 25 to 50 basis points tops, and says, "I don't think we can raise interest rates."

He explains because of his views on interest rates, he believes ". . . housing will have a bid."

". . . If rates go higher, all bets are off on my perspective in housing."

05 April 2013

New Bank of Japan Governor Haruhiko Kuroda tells nation, “We are here to pump you up!”

In an astonishing display of throwing all caution into the crematory, the new Bank of Japan Governor, Haruhiko Kuroda, pledged to inject $1.4 Trillion of stimulus into the Japanese economy in the bold move can stop Japan’s decades old deflation.

Kuroda announced this audacious move, Thursday, April 4th and Japanese markets responded by going on a financial tear. From Reuters:

Financial markets liked what they saw.

The Nikkei stock index jumped 2.2 percent, finishing just shy of a 4-1/2-year closing high, while on Wall Street, U.S.-traded shares of Toyota Motor rose 4.6 percent.

The yen fell more than 3 percent against the dollar and 4 percent against the euro, while the 10-year government bond yield hit a record low.

In an economy which is 1/3 the size of the US Economy, Kuroda’s fearless move will double the monetary base of Japan’s economy in hopes this will stoke lending and investment. And instead of focusing on interest rates, Kuroda has pledged to fine tune the Japanese economy by centering on the monetary base:

New Governor Haruhiko Kuroda committed the BOJ to open-ended asset buying and said the monetary base would nearly double to 270 trillion yen ($2.9 trillion) by the end of 2014, a dose of shock therapy officials hope will end two decades of stagnation.

The policy was viewed as a radical gamble to boost growth and lift inflation expectations and is unmatched in scope even by the U.S. Federal Reserve's own quantitative easing program.

The Fed may buy more debt, but since Japan's economy is about one-third the size of the economy, Kuroda's plan looks even bolder.

"This is an unprecedented degree of monetary easing," a smiling Kuroda told a news conference after his first policy meeting at the helm of the central bank.

"We took all available steps we can think of. I'm confident that all necessary measures to achieve 2 percent inflation in two years were taken today," he said.

One of those steps was to abandon interest rates as a target and become the only major central bank to target primarily the monetary base - the amount of cash it pumps out to the economy. It adopted a similar policy in 2001-2006, but not on this scale.

Putting this $1.4 Trillion BOJ stimulus into perspective by comparing it to the US Federal Reserve’s stimulus:

Adjusting for gross domestic product, Japan's program will be twice as large as the Fed's asset purchases, said Stephen Jen, managing partner at SLJ Macro Partners in London. "Investors were justified in feeling shocked and awed," he said.

America’s bond king, Bill Gross, adds some color commentary on this big swing for the fences:

"It may not work but they will go down swinging," added Bill Gross, founder and chief investment officer at giant bond fund PIMCO, via his Twitter account.

Stealing some notes from the US Federal Reserve game plan of Ben Bernanke, and adding some wildcat plays of his own, Kuroda has pledged to buy government bonds while adding purchases of shares of ETFs and REITs in the Nikkei.

The BOJ will buy 7.5 trillion yen of long-term government bonds per month, roughly 70 percent of bonds sold in markets. It combined two bond-buying schemes, its asset-buying and lending program and the "rinban" market operation, to buy longer-dated government bonds, including those with duration of 40 years.

The central bank will also increase purchases of exchange-traded funds (ETFs) by 1 trillion yen per year and real-estate trust funds (REITs) by 30 billion yen per year.

"I can say that the BOJ came up with a perfect answer in response to market expectations," said Junko Nishioka, chief Japan economist at RBS Securities.

"Kuroda made good on his promise of boosting monetary easing in terms of both volume and types of assets that the bank purchases."

Kuroda said the BOJ wanted to push down bond yields enough so that investors will start buying riskier assets, such as property and stocks, and to prompt households and companies to spend now rather than later on expectations of rising prices.

Will this desperate move of Kuroda’s be too much for the bond markets to absorb without jacking up long term rates? Will this huge injection of stimulus finally ignite investor confidence for riskier investments in the Japanese Nikkei? Only time will tell.