Friday, January 29, 2016

They Only Know One Thing

The central banks only have one button.  It is the buy button.  There is no sell button, and they don't need it.  They can buy as much as they want.  Those who think the central banks have limited ammunition don't know a thing.  The central banks can theoretically take interest rates to negative 100%.  to negative 1000%.  They can buy up all the financial assets in the world by printing money.  Everything.  In these crazy times of negative interest rates proliferating, you have to recognize that the central banks will do anything they can to pump up asset prices.

In the past, they used to exercise caution using these potent weapons: QE and negative interest rates.  Now it is almost as if they are expected by the market.  This is setting up extremely high expectations (very warranted) that the central bank will always have the market's back and will not allow any of the big 3 financial assets to fall much (bonds, stocks, real estate, etc).  If they continue these policies, the markets will be ok, but if they discontinue it and see that the risks outweigh the rewards, then they will crush both bonds and stocks.  That is a financial holocaust with no hiding places.  Maybe then investors will hide out in gold and bitcoins.

The BOJ NIRP policy just makes it that much tougher for the Fed to do another rate hike.  The dollar will strengthen to the point where the Fed cannot hike for fear of a dollar being too strong for the US economy.  The market loves this.  However, it doesn't eliminate the overvaluation, lack of earnings growth, lack of global demand, and China financial panic risk.  I give this BOJ rally 2 days tops.  You have to sell the rally if this takes the ES anywhere around 1910.  And these crude oil OPEC cutting rumors used to happen all the time back in the 1980s.  They usually led to nothing.  Even when OPEC did cut, they never had the discipline to maintain it and prices ended up jumping only to go right back down.  I would also short crude oil if it can get to 35.

BOJ NIRP just reconfirms that 2016 will be the year of bonds.  You have to buy bonds on any small dips.  There will be no big dips.  I would be surprised if the 10 year yields didn't get down to 1.60% later this year.  The short end of the yield curve is the place to be.  Expect further curve steepening as the investment community realizes that the Fed is one and done and that the next move is more likely to be a cut than a hike.


Anonymous said...

Here let me write my next post for you:

I was wrong to be bearish, the market is too strong, Japan cut rates, the sentiment has shifted.

I'm getting long, bears are dead for now. I'll look to get short higher, maybe SPX 2050.

Blah blah blah, more anecdotes about 2009, 2009, or 2011, some more patronizing about certain people, maybe other traders, economists. BTFD is back for now.

Whack whack whack, (masturbating motion and more bullshit pontificating whilst standing on bullshit ivory tower)

Market Owl said...

Got short at the close. We'll see what happens. Nothing is 100 percent in trading, but like my odds for next week being short at these levels. I remain a bear. I guess you are a bull, thats what makes a market.