The ramifications of last week’s Halloween raid by the Bank of Japan have only just begun. Japan is leading the grand monetary experiment and this was a new acceleration in central bank policy, which will have ramifications far beyond Japan itself.
The time for subtlety is surely over for the central banks. The plan and direction are as clear as the mantra. Alternatives are unthinkable and any deviation must be met with an overwhelming response. So at odds with natural reality, central bankers are beginning to appear like actors in a bad play, erratically exhibiting bipolar responses.
It can take just one week for Fed Governor Bullard to shift from supreme confidence in his outlook to his subsequent “a central bank cannot abide” policy reversal. Now Bank of Japan chief Haruhiko Kuroda, who had also been expressing great confidence in his forecasts, suddenly decided he wasn’t.
As reported by Bloomberg, Kuroda highlighted his determination to stoke inflation in the world’s third-biggest economy, saying there’s no limit to measures he could take to reach its price target. Last week’s stimulus was “a true display of the Bank’s unwavering commitment,” Kuroda said in a speech in Tokyo. “As for measures for additional easing, I don’t think there is a limit, including on bond purchases.”
The frequency of policy changes and the magnitude of the response have been increasing. Yet the patient still refuses to respond “appropriately”. Central bankers can not admit that they are now stuck in a mind trap as is so well described by David Stockman:
http:// davidstockmanscontracorner. com/ritual-incantation-the- economic-gibberish-of-the- keynesian-apparatchiks/?utm_ source=wysija&utm_medium= email&utm_campaign=Mailing+ List+AM+Wednesday
However, central bankers do seem to have become “masters of the universe” when it comes to commanding the markets. Now that Japan is printing astounding amounts of new money with the clear intention of devaluing the Yen with “no limits”, it was a great week for yen based investors. However, mysteriously this would not have been their experience if they were invested in the oldest currencies in the world.
The normal rules of supply and demand obviously can not be allowed to prevail when it comes to gold and silver. GYEN, gold priced in yen, moved dramatically in the opposite direction. This may challenge intuition, but as ever there is a reason as is very well explained in this article and very valuable links explaining the extraordinary activity over the week :
www.zerohedge.com/news/ 2014-11-06/gold-yen-central- banks-and-endgame
To achieve a fall in GYEN over the last week was a testimony to the influences on markets today. So much so that I believe that GYEN has now become a key bellwether of the power and degree of market intervention. Temporarily, at least, the price of gold seemed entirely disconnected from its underlying substance. Butchered like some worthless paper by the naked shorts on Comex, who for some reason now seem to prefer to trade around half an hour after midnight when there is almost no liquidity.
This has become a crucial part of how to trade and invest in today’s unusual circumstances. If GYEN is trading down, trend is all that matters, markets are reflecting the imperatives of the ritual incantation. Fundamentals need to take a back seat. If GYEN ever rallies perhaps things may change. Until then your allocation better reflect current trends first.
The rapidly expanding techniques for doing this come under the umbrella of Adaptive Allocation. The great benefit of this approach is that it can be a powerful tool regardless of the underlying drivers of the trends or even changes in those drivers. New products and new techniques are responding to the need and demand.