It’s difficult for many to see what’s “going on globally” when all you’ve got day to day is “canned news” via the mainstream media. A casual glance at the T.V and it’s pretty easy to just assume “everything is up” – everything is moving along just fine.
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Lets take a look at the chart:
GDOW_Forex_Kong
The Nikkei looks like a double top here around 17,125 after the massive “blast higher” brought on by The BOJ’s surprise announcement of even further “further” QE, now causing considerable political concerns in Japan.
I’ve considered this as a “last ditch effort” as opposed to a meaninful contributor to further fuel global appetite for risk, as we have all now clearly come to understand – QE does absolutely nothing to better an economy. It hasn’t worked in Japan – and it won’t work for The U.S either.
Nikkei_Forex_kong
The current pattern playing out in U.S Equities ( commonly known as a “Megaphone”) has now reached its upper levels of resistance, and will likely be turned back here as of today, and if there is still “some semblance of reality in markets as we know them” – The U.S Dollar should now follow suit.
Kong, from your point of view could it be possible that the market tanks and the Dollar rallies at the same time?
NO. Impossible.
Yet that’s what happened in 2008
Not now though….
Yen needs to “come home first” as you’ll see in the “crash” of 2007
Not here….not now as……the flow “back to Yen” must occur first.
There will be a time ( in the not so distant future ) when YES – USD will rise and equities will still fall ( offical raising of interest rates in The U.S being the catalyst ) but that’s not the dynamic we are seeing play out now.
Now we have “a gazillion Yen” fueling the last gasp at keeping this thing afloat….and those Yen MUST flow back to their place of origin ( and with it , a complete purging of this ridiculous money printing bonanza ) before prices are reset and markets are allowed to move freely.
There is nothing that can stop this.
Nothing.
Sorry but just don’t agree with your point of view, for now. Sure we MAY have a pullback in the short term, but 2-3 months out, we’ll be much higher. I have yet to hear a sold argument as to why this may be a top, apart from the usual repackaged thesis (Russia, money printing etc…) The day will come no doubt, but now is not the time
Make your trades accordingly Leonardo….I’m not one to argue.
This is what makes a market no?
I’m not interested in “selling you the thesis”.
Best of luck – and to all good luck.
I like your “thesis” Kong, as it makes perfect sense, but now that Japan’s Pension Fund, the worlds’ largest, is going to double the amount of equities in its investment portfolio, won’t that keep a constant bid under the market and a sell on the YEN?
It just seems like the rules of the game have been changed too much to allow this market to “sell off”; it can only “dip”, if even that now.
I hear you….believe me….and yes…it would “appear” that The BOJ’s contribution could “buoy” markets longer…although…
The other side of the coin suggests that “holy shit! – this is ridiculous!” – Can we imagine “the entire planet” resting their investment principals / decisions on the the back of the most outrageous / desperate / outlandish BOJ?
I can’t see this being the case…..granted – the timing is near impossible.
The “timing” is what’s been thrown off with respect to The BoJ’s move, and ya….trading “directly against it” looks like short term suicide…..
I’m not jumping on it…I’m waiting for confirmation in both USD as well Yen….
It’s the only thing that matters to global markets at the moment.
So the million dollar question is what exactly will cause YEN to return home?
At present, I can’t see anything that bodes well for the YEN to warrant a return home ie.
+ Abe remains in power, QE continues and more Yen weakness.
+ Abe calls a snap election – Yen weakens on political instability.
+ Abe calls a snap election and wins – yen weakens as Abe’s policies of meeting inflation target and QE to continue
+ All economic figures out of Japan have been weak and atrocious so again, why would anyone want to buy Yen?
+ If Japanese are deliberately weakening their currency, why would anyone invest in Japan knowing they will lose money when they repatriate any income in Yen back to their domestic currency. Why would anyone invest in Japan when there are some any economic and social problems there?
Only a serious threat of ending the latest QE would help Yen strengthen but I can’t see anything to cause this this year (only really 6 weeks of trading left this year)
I agree with you that until we see YEN strength, there will be no serious risk off but at present, I am just not seeing the spark that will light that fire.
Perhaps a currency war and an Asian currency crisis akin to 1997 may help but again, this is maybe 3-6 months away.
Without a major catalyst, there is now way too much technical support for any meaningful rise in Yen to warrant a serious risk off. Against USD, 115/114/112/110 will act as major support and it will take an awful lot to break these levels down.
Look at the US markets today, took hours to fall a mere 0.25% and within 10 minutes of Europe closing and on the back of pure Yen selling, US equities are back up to near flat on the day. This US market is a long way from rolling over. Bears are petrified of taking any meaningful short positions. In the absence of real selling, low volume melt up is the order of the day.
Plus why would any funds start to sell ahead of closing their books in 6 weeks? Their bonuses depends on markets being up. If funds aren’t going to sell, who on earth will want to hold short during the low volume holiday period?
All in all, as I said, agree with you in that we need Yen strength for a correction but I just can’t see what will cause this?
You’ll have to pardon my general scepticism but….isn’t that “the exact right time for it”?
When no one can possibly find / understand a reason for it?
Complacency at all time highs/extremes….generally leads to one thing no?
ie….selling?
Under, “normal”, market conditions, yes. But never in the history of the past 100 years, have so many Central Banks and politicians invested so much they simply cannot afford to let the system crash.
Imagine the US and Europe going all in as per BOJ in a final act of desperation? This market could well remain at these elevated levels (or even higher) for months to come.
i would not call even a 5-10% correction from current levels anything meaningful. In fact, the US markets have rallied that much since the Oct lows so unless it breaches those lows, we can’t really consider anything has changed.
As someone commented, with the Japan’s Pension Fund acting as buyer of last resort, markets can go even even higher knowing full well that the Japanese will step in to support prices as any crash will have serious re-precautions on their portfolio. Imagine the pensions of the Japanese being wiped out by 25%-40% as well as a country which is heading towards economic collapse. You think the powers that be in Japan would allow this to happen? They can’t control economic growth but they sure as hell can support the pension fund.
Take away the implied and actual support from Central banks and we’d crash tomorrow. But unfortunately we are in a time when all the worlds major Central Banks focus is on the equity markets as this is the source of perceived economic success and financial worth. They will not let this crash without putting up one hell of a fight. They can remain solvent way longer than we can. In fact they don’t need to remain solvent, they need to just print and imply they will buy anything and everything irrespective of fundamental value.
As I mentioned, would love to be proved wrong but I just can’t see anything substantial happening until after New Year. No one wants to give up their profits for the year – their bonuses depends on it.
The Central Banks have no control over “wether the market crashes or not” as…..the bond market itself “dwarfs” the contribution via BOJ / FED 50 times over.
When it comes “time to sell” – the amount of Yen borrowed at “0%” coming back in “a flood” easily buries the tiny pea shooter The BOJ calls “QE”.
The only thing keeping it afloat is the “retail belief” that The CB’s will keep things going.
In reality….this is the “non- reality” of it all.
It’s only a “confidence game” – as the CB’s continue to push and the media continues to push – while retail investors ( a couple grand at a time ) get sucked in further.
They are “already” putting up the fight….the fight that they soon will lose.
i have been following you for a long time however I think the comment re. “Central banks have no control comment” is rather naive. FED 6 years ago stepped in and the S&P rallied from 666 to 2038 today. Draghi two years ago said, “will do whatever it takes” resulted in Euro periphery bonds yields touching all time lows. BOJ two weeks ago instigated more QE which has resulted in a near 3000 point rally in the Nikkie as well as a near 8 handle fall in Yen since. These are hardly the result of institutions that have no power/control.
A month ago markets were falling and Bullard stepped in with a simple comment, “More QE”, and US markets are now up over 10% in less than 20 trading days. Who on earth wants to take any meaningful short positions on the back of such Central Banks intervention rhetoric?
Are you honestly saying the bond markets are free from the control of the Central Banks? Central Banks are now the bond market (Fed owns over 40% of all treasuries with maturity of more than 5 years). How much of the issuance have been purchased by Central Banks themselves? If Central banks are intent on holding their holdings until maturity (which they intend to do), where is the bond collapse going to come from?
If Japanese pension funds and CB’s are purchasing equities, again their strategy is buy and hold. Where will selling in equities come from?
As I said, if it was anytime of year besides November, I would say yes, markets have a chance to fall but I cannot see the major funds causing any meaningful fall until after the New Year, they need to lock in performance fees and bonuses,
Just look at US futures this morning, up 6 handles on the back of nothing. It can’t even close down 0.1% yet we are looking for a 10% plus fall?
I do hope you are right, I am simply sitting on my hands. Don’t want to buy anything at such hefty highs but at same time, can’t see as a single sign of a meaningful correction in risk. All the reasons for a collapse are present but at the moment, I can’t even see a reversal on any hourly bar let alone a daily bar.
In response to your commments.
It would appear that The CB’s most certainly “have control over you”! Hence ( as with the majority of small time / retail traders )…..the goal is attained! You’ll have to do some math but I can assure you…..the bond market “itself” can / will crush The Fed in a heartbeat…if not for the “confidence factor”. When the “sell buttins get pushed” – The Fed / BOJ are 100% completely powerless.
I too have been sitting on my hands a good part of the last year, and am not suggesting you “jump in / go all in short” but if you want to talk naive…..read your latest post over again.
It’s about as “naive as it gets”.
Lovely!
Not really sure where you have managed to ascertain that CB’s have control over me? As I mentioned, I am not long any risk and am simply sitting on my hands waiting. I see absolutely no justification for taking any risk off positions and then waiting from weeks/months for them to be realized, that’s just madness.
No matter how small a position you take to start building a position, if markets rally against you 600 points, fact is your timing has been well and truly off. Better to wait for some sort of rejection on a higher time frame before entering with small lots and then increasing exposure as markets go in your favor. When was last time you saw a rejection of sorts on a higher time frame?
Just look at US equity markets today. Bad data out of Japan/China/Jolt yet it can’t even manage to remain flat, it positively flying. I know many who started to build small short position when it went back over 17000. Yet 700 points later (and with no real end in sight) they still hanging on. They may well end up being right but the mental anguish of watching markets continuing to rally day in day out on the back of nothing can be demoralizing.
The sort of crash you are looking for in risk doesn’t happen overnight. It starts with a catalyst and as I mentioned, there are many reasons for them out there but none of these has yet been ignited. In the absence of the spark, i most certainly wouldn’t bet against an 18000 Dow or a 20000 Nikkie.
Naivety is neither here nor there. I’m asking for the reasons for YEN to come home? At present, all reasons that I can think of have a time frame of 3-6 months plus in which they will take place, not next week or even this year.
Central banks now own the majority of all Govt bonds. DO you think they will exaggerate the problem should there be a bond sell off by selling what they hold? In fact, if the catalyst is geo-political, I would expect even more Bids in US bonds.
wow, incredible – you’re still at it. gotta laugh. smile so you don’t cry.
did you know the global Dow is equal weighted? not market cap weighted, each company in the index counts the same. what a joke of an index to latch on to.
Ya I’m “latched onto it”.
I can only imagine you’re not thrilled with it – as it’s headed down.
As well The DAX, The FTSE etc…so ya…just ignore these too.
You’ll do great.
Reblogged this on Forex Trading with Kong and commented:
Anyone had a look at the recent chart of $GDOW??
I will post it for your viewing pleasure.