Bret Rosenthal's  Instablog

BOJ Flaunts Unwritten Rule

Filed under the category 'Things that make you go hummm' I would like to submit the following story regarding the actions of the Central Bank of Japan. Apparently we have entered a brave new world of centralized control. In rather Orwellian fashion, the BOJ has decided to directly support the Japanese equity market. Said support in and of itself is not that dramatic. We all know Central Banks have had an ever increasing heavy hand in direction of equities around the world since the 2008 crisis. However, other central banks have had the courtesy to attempt to hide the manipulation. There seems to be an unwritten rule among central bankers that manipulation is ok and encouraged as long as lying and misdirection are concurrently employed to dupe the sheepeople.

Now, however, the BOJ has decided to flaunt the unwritten rules and manipulate openly in a desperate attempt to change market direction. Duping the Sheepeople is apparently now a mistake and instead leading by the nose to slaughter is preferable….

Submitted by ZeroHedge:

Bank Of Japan Goes Full Tilt, Buys Record Amount Of ETFs And REITs To Prevent Market Crash

One can call the BOJ inefficient, slow and for the most part utterly worthless, but one can certainly not accuse them of lying, and beating around the bush. Because unlike all other central banks, with the BOJ at least it has been fully public knowledge that this particular central bank unlike all others (wink wink), is actively engaged in buying equity products, among them REITs and broad equity ETFs (which provide much explicit tail-wags-dog leverage and explains why the FRBNY's red phone hotline goes directly to Citadel's ETF trading desk). And buy stocks on full tilt and in record quantities is precisely what the BOJ just did, only as one can expect, with absolutely no impact on the broader stock market. Because once even the central bank is exposed as participating in the market, the element of surprise is gone, and the central bank becomes just one mark (if one with a largish balance sheet). As MarketWatch reports, "The Bank of Japan stepped back into the stock market Monday, making its largest single-day purchase of exchange-traded funds to date…The Japanese central bank said it spent 39.7 billion yen (about $500 million) buying up stock ETFs as part of its ongoing asset-purchase program, breaking a previous record of ¥28.5 billion, set on April 16. In addition to the ETF buys, the Bank of Japan also acquired ¥2.3 billion in real-estate investment trusts Monday." Too bad that this latest outright bull in a Japan store (sic) intervention had zero impact: "the move failed to prevent a sharp fall for the Tokyo equity market." But at least they are honest. Imagine the shock and horror (and complete lack of apologies to all those who have predicted just that) when the world finally gets a trade confirm-based proof that Brian Sack was indeed buying (never selling) SPYs and ES. Why everyone would be truly shocked, SHOCKED, that the Fed is nothing but another two-bit gambler in a rigged and broken casino.

For those who are unaware of Japan's explicit but at least forthright approach to asset price manipulation, read on:

Japan's monetary authority is almost unique among its peers in the major developed economies, in its high-profile purchases of ETFs, which it began in December 2010 as part of aggressive easing measures.

Since then, the Bank of Japan has bought almost ¥1 trillion worth of ETFs - along with another ¥78.9 billion in REITs - and has an additional ¥642 billion to spend on the stock funds after raising the program's size at it last policy meeting in April.

The central bank emphasizes that the program has only broad goals such as supporting interest rates and reducing risk premiums, rather than supporting financial markets.

Jefferies Japan's head of Japanese strategy Naomi Fink says that while the ETF purchases are really part of the broad push to reflate asset prices in the deflation-plagued country, they do "provide a bit of a backstop, when they think they can curb the downside" for the market.

"Still, it's a very small amount," Fink said of the ETF purchases. "It's more designed to bolster sentiment … [and] it works best when sentiment is fragile."

As a tangent here, do these "strategists" even listen to what they sound like? "Very small amount"… "designed to bolster sentiment." Oh ok. That makes everything so much better. It is just too bad that a Martingale strategy where one has an infinite balance sheet is not all that available to everyone in the world, except to 5 or 6 market participants of course, all of whom are incentivized to destroy their currencies and ramp their "inflation-sensitive" assets ever higher. Surely that according to Jefferies is perfectly acceptable.

Sentiment was certainly fragile Monday, as investors returned from a four-day holiday weekend to find the yen considerably stronger - a negative factor for Japan's export-focused corporations - U.S. employment growth weaker than expected, and European election results raising more uncertainty for the euro zone.

And while investors don't find out about the Bank of Japan's market operations until after the close of trading, "there's a market assumption that when the Topix falls more than 1%, that triggers ETFs," according to Fink.

Still, Fink advised against trying to front-run the central bank by jumping into the market whenever the Topix - Japan's key broad-market index - drops 1%.

And whatever you do kids, remember: frontrunning central banks is not to be tried at home…

"I wouldn't exactly call that my favorite strategy," she said, adding that since the ETF-buying program isn't meant to be a "price-keeping operation," it offers little in the way of trading opportunities.

… After all that's what Primary Dealers are for: and since they make sure that no bond auctions can ever fail (courtesy of the $30 trillion custodial asset cloud, which desperate economists have pegged fancy post-modernist theories to explain how infinite supply can generate infinite+1 demand without having the faintest clue of how the shadow banking system works) there naturally has to be some kickback in it for them. Because otherwise one of them might even speak up and tell the rest of the world just how much of a fraud the system truly is.

And yes, the BOJ IS completely open about what they buy and how much: Click Here for Chart Details

Credit Update: As always I adhere to the belief that 'Credit Leads Equity'. So in the midst of equity market mayhem over the last two weeks a review of credit volatility is in order. A conversation with the oft accurate always eloquent MJ reveals some telling insights. To date, credit market volatility appears normal and not a repeat of MF Global 2012 action. Credit, as judged by the CDX IG18 index, remains in a trading range between roughly 101 and 89. A move dramatically above 101 would be cause for concern as of now no sirens are blaring.

MJ Credit Guru: Morgan Stanley Not MF Global

The potential rekindling of the European sovereign crisis has generated numerous bearish headlines and strategy reports over the past month. This weekend's elections and the outright stupid comments by some of Greece's politicians were interpreted as "events" that meant last year's successful trades (short banks and sovereign risks) are being given a second chance to prosper. Given the performance of last year's short sellers, even as the US economy grew and credit expansion broadened, this trading reaction is to be expected.

However, in order for this year's sovereign crisis to become a short seller's dream it needs to find a way to destabilize the global financial system. This will be much more difficult this year due to the launch of the LTRO and the likelihood that another LTRO will be launched if bank funding concerns begin to mount.

Nevertheless, we believe the real reason for US equity market weakness is not Europe…but fears that Morgan Stanley might suffer the same fate as MF Global. MS' potential counterparty collateral increase associated with credit downgrades is causing many investors to remember the AIG's 2008 demise as well as last year's MF Global implosion.

The number of people asking if firms are cutting their trading exposure to MS spread like wildfire yesterday and it seems likely to accelerate today. However, investors need to remember that MS is not MF Global and the economy is much stronger today than it was in 2008.

Additionally, banks that fall under the supervision of the FED are not going to cut their credit lines to MS. Why? Cause the FED will fire and replace their boards almost instantaneously. When BAC's board was rumored to be considering cutting MER and CFC loose at the height of the credit crisis BAC was publicly warned that such actions would hurt the US and global financial system. Some FED members went so far as to say that such actions would decrease the safety and soundness of Bank of America. Code words for "No!" you cannot do that and, by the way, you are fired!" Next sentence.."Now that your calendar has been freed up; Congress would like you to answer some questions in front of 400 cameras." There is no reason to believe anything has changed.

MS also has strong client driven franchises with built in profitability and do not appear to have a huge concentration of risk. MS also has a huge amount of liquidity and can borrow from the FED. The Volcker rule has also materially decreased the amount of credit market liquidity, almost forcing many clients who need to trade credit to trade with MS

A major difference between the MF Global situation and MS is that MF Global was never a systematically important firm. MF Global was also highly leveraged to one basic trade based on a traders EGO, MS is a systematically important firm with a global business.

MS will not fail, but its negative credit migration and a drop in its equity price could cause a surge in systematic risk that causes the VIX to rise.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

STORIES LIKE THIS ADD TO THE 'AAPL IS TOPPING' THOERY: The Cody Word: How Apple can get from $500 to $1,000 a shareon.mktw.net/yICQud

BretRosenthal11:41am via HootSuite

Treasuries are back on their worst levels of the session as the long bond now holds a loss of almost one point

BretRosenthal11:41am via HootSuite

Today's selling has dropped the 30-yr to 98 17/32 and has made for a jump of almost 6 bps in yield to above 3.20%

BretRosenthal11:41am via HootSuite

TLT looking more and more like a great short

BretRosenthal9:31am via HootSuite

PBOC cuts Reserve Requirement Ratio by 50bps to 20.5% over the weekend. THIS IS VERY BULLISH FOR MARKETS. CHANOS BEWARE…

zerohedge8:32am via TweetDeck

How many EU officials does it take to change a light bulb? None. There's nothing wrong with the bulb; its condition is improving every day

GoldCoreFeb 20, 7:51am via Web

Gold Demand in India 'Quite Likely' to Gain This Year, UBS Says - Bloomberg see goo.gl/qiMQZ

GoldCoreFeb 20, 7:50am via Tweet Button

Oil and Gold Surge 1% on Open in Asia - Iran "Military Action Likely" bit.ly/xMbjJU via @addthis #oil #iran #currencywars#gold

BretRosenthalFeb 17, 5:15pm via HootSuite

Trouble Brewing Behind Facade Of Bull Rallyow.ly/98TSu

BretRosenthalFeb 17, 2:45pm via HootSuite

12 Scary Debt Facts for 2012 ow.ly/98IcC

BretRosenthalFeb 17, 10:12am via HootSuite

I'd be remiss if as a fund manager I drank the CB Kool-Aid and stopped analyzing market behavior ow.ly/98hiM

BretRosenthalFeb 16, 2:26pm via HootSuite

While You Were Sleeping, Central Banks Flooded The World In Liquidity ow.ly/97f8k

BretRosenthalFeb 16, 12:01pm via HootSuite

Major breakout higher for the carry trade aud/jpy hits 84.78 on positive Greece headlines. Let's see if it holds

BretRosenthalFeb 16, 10:51am via HootSuite

DOW transports in consistent decline since Feb. 3rd. Not good

BretRosenthalFeb 16, 10:11am via HootSuite

aud/jpy carry trade approaching highs of yesterday. A break above would suggest consolidation for mkts a double top = correction

BretRosenthalFeb 16, 9:46am via HootSuite

Global Gold Demand in 2011 Rises 0.4% To $200 Billion - Central Banks, Asia and Europe Diversifying Into Gold: … bit.ly/wlkBnZ

BretRosenthalFeb 15, 2:23pm via HootSuite

2 recent distribution days for the NYSE not a good omen either

BretRosenthalFeb 15, 1:21pm via HootSuite

RT @zerohedge: Newton Is Back As Apple Finally Falls tinyurl.com/7o2a5mm

BretRosenthalFeb 15, 10:51am via HootSuite

Fed President Fisher: "Excessive" easing may only fuel inflation fears" Yah think? This guy is full of insightful comments this morning

BretRosenthalFeb 15, 10:42am via HootSuite

Fed's Fisher says QE 3 is a fantasy of Wall Street; says no need for further QE unless deflation or unexpected shock. QUE UNEXPECTED SHOCK

BretRosenthalFeb 14, 4:11pm via HootSuite

Carry trade (AUD/JPY) makes new HoD at close 83.88. Close above 84 key for continued rally

BretRosenthalFeb 14, 2:53pm via HootSuite

CDX IG17 trading near top of range(100-92) a break above to new wides would make this equity selloff more than simple pullback. Stay tuned

BretRosenthalFeb 14, 12:08pm via HootSuite

RT @zerohedge: "Any Israeli stupidity will be answered with massive retaliation" Iran's Mehr agency…. But what about Israeli brilliance…

BretRosenthalFeb 14, 11:39am via HootSuite

It's Not Just Gasoline Consumption That's Tanking, It's All Energy ow.ly/945TF

Disclosure: I am short TLT.

RT @zerohedge: Yup: the revisions are here: New Orders down from 57.6 to 54.8, Employment from 55.1 to 54.8. NFP to be revised lower next

BretRosenthal10:02am via HootSuite

January Consumer Confidence 61.1 vs 67.0Briefing.com consensus; December 64.8 Econ #s weak explains Ben B. Dove comments last week.

BretRosenthal9:53am via HootSuite

PMI figures released to a limited group 3 min before public release,explains mkt move prior to 9:45 official release.Isn't that inside info?

zerohedge7:37am via ZeroHedge Publish

Silver Surges 21% in January - Silver Demand Is "Diminishing A Supply Surplus"tinyurl.com/77gfac9

GoldCoreJan 30, 8:13am via Tweet Button

Why Are the Chinese Buying Record Quantities of Gold? - Forbes onforb.es/zjWmWL #china#chinese #gold #goldprice#goldprices

GoldCoreJan 30, 7:49am via twitterfeed

Chinese 'Gold Rush' -Year of Dragon First Week Sees Record Sales- Up 49.7%: bit.ly/xdiGXa

zerohedgeJan 30, 8:25am via ZeroHedge Publish

Third Aircraft Carrier Group Coming To Irantinyurl.com/7kyump3

BretRosenthalJan 30, 3:29pm via HootSuite

RT @GoldCore: Is the bell tolling for the current London Metal Exchange? - ow.ly/8LFCj

BretRosenthalJan 30, 1:51pm via HootSuite

MJ Credit Guru: US bank credit profiles would dramatically improve further if it became apparent that…

BretRosenthalJan 30, 1:51pm via HootSuite

…the VOLCKER rule and the recent regulatory overreach was going to be walked back.

BretRosenthalJan 30, 1:43pm via HootSuite

Some 500,000 barrels arrive in Europe every day from Iran, with southern European countries consuming most of it….

BretRosenthalJan 30, 1:43pm via HootSuite

…Greece is the most exposed, receiving a third of all its oil imports from Iran. Can it get any worse for Greece?

BretRosenthalJan 30, 1:26pm via HootSuite

Must listen to This Interview!! ow.ly/8Lush

BretRosenthalJan 30, 1:22pm via HootSuite

Chinese 'Gold Rush' -Year of Dragon First Week Sees Record Sales- Up 49.7%:fxstreet.com/fundamental/an

BretRosenthalJan 30, 9:56am via HootSuite

RT @zerohedge: Everything You Need To Know About Europe In Three Chartstinyurl.com/6uv96k6

BretRosenthalJan 27, 4:35pm via HootSuite

RT @zerohedge: Biggest Week For Gold In 3 Months tinyurl.com/7w5dwn4

Months After The MF Global Bankruptcy, We Find That $1.2 Billion (Or More) In Client Money Has "Vaporized" tinyurl.com/7o8f679

BretRosenthalJan 27, 3:27pm via HootSuite

RT @zerohedge: Obama will punish mort servicers for fraudclosure, at the same paying them incentives to lower mort principle.Banana republic

zerohedgeJan 27, 8:30am via TweetDeck

Q4 GDP +2.8%, Exp 3.0%

BretRosenthalJan 26, 3:13pm via HootSuite

China gold imports reached a record of 102 tons in November 2011, 50% of the world's production on an annualized basis ow.ly/8HF7y

BretRosenthalJan 26, 3:12pm via HootSuite

Guest Post: The Demise of the Petrodollar by Casey Daily Dispatch ow.ly/8HF3M

BretRosenthalJan 25, 2:48pm via HootSuite

CDX IG17 Index is now trading at the tightest spread since its Sept 2011 launch

BretRosenthalJan 25, 2:44pm via HootSuite

Ben "won't think of hypothetical situations in the future" Correct me if I'm wrong but isn't that what this whole speech is about?

BretRosenthalJan 24, 11:25am via HootSuite

RT @WSJ: Romney made $21.7 mln in 2010 and $20.9 mln in 2011, beating out the bosses of BofA and Goldman Sachs. Is that a bad thing?

BretRosenthalJan 24, 11:29am via HootSuite

Being a successful business man is not a crime….

BretRosenthalJan 24, 11:31am via HootSuite

…Why don't we just hand the country over to a mentally disturbed homeless person who lives out of a shopping cart….

BretRosenthalJan 24, 11:32am via HootSuite

…This person will have paid no taxes have no income and if we are lucky will be saddled with debt….

BretRosenthalJan 24, 11:33am via HootSuite

…Will that put an end to all this leftist innuendo?