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"the Tokyo Whale Is Quietly Buying Up Huge Stakes In Japan Inc."


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No it isnt. BoE are very clear and specific which assets they purchase for their balance sheet.

£375bn in UK government gilts specifically as part of their QE prorgam.

Ditto ECB.

They precisely DO want to broadcast which assets theyre buying else it rather defeats the point of buying them.

here is the BoE b/sheet in all its glory:

http://www.bankofengland.co.uk/markets/Pages/balancesheet/default.aspx

That's the stuff that they admit to - not they stuff that they like to keep secret and off balance sheet. Then there's the stuff they don't like audited (apparently due to the need to be independent), the apparent accounting mistakes when they don't know whether they were/are buying or selling and then the relationship with other central banks which allows them use of other currencies/funds etc printed or otherwise when necessary (at time of "stress" for example) etc. Then there's the general jiggery pokery. So there seems to be plenty of scope to buy more or less whatever they want in the name of "stimulus".

If the BoJ and the ECB are doing it then there's a good chance that the BoE is following along as well with its own form of plunge protection asset purchase scheme but they're far more secretive.

Edited by billybong
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Conventionally you would say that any country that prints its way out of insolvency should collapse, but this is a much bigger picture question. This doesn't happen in economies that have deep capital markets where debt is required to keep the system going.

As people get older they spend less and earn more (until retirement), the idea of capitalism is simply an inter generational ponzi scheme of asset rises via debt as an intermediary. As long as there are more people on the bottom of the pyramid than the top the asset prices can be paid - divided amongst the many. The problem comes when you do not get enough immigration (or foreign interest) to support the prices and your population declines e.g Germany, Japan. Your way of live becomes impossible. Worse still, the elite educated are working on more and more ways to make higher paying jobs obsolete e.g one click delivery from amazon will get rid of every retail store except department stores and replace these manager to shelf stacker jobs with warehousing jobs and robots.

The education gap has got wider and wider and immigration has helped to lower the standard of the working class in the last decade in most western (japan included) economies as they ultimately work for less and demand less conditions.

If I can argue that capitalism is ultimately a game of arbitrage, where you buy goods and services of the same quality from cheaper and cheaper locations (i.e those that somehow produce goods more efficiently regardless of damage to environment or workers), ultimately what should happen is a great leveling - the people living on $2/day will earn more and the people living on $150/day will earn less. So, you will find that as we integrate Europe or make trade agreements the standard of living for anyone who is not in the education elite, already rich, or in politics will get worse. This is not in of itself a bad thing, we will have shelter, food, water, entertainment, a small amount of capital and safety for you kids - and your kids will have the same. For most people they don't really want anything else - for a lot of people on this planet who don't have these things they would kill to have them.

Back to the question at hand? How can Japan do this? As a country which relies on the debt system in order to sustain capitalism, no entity in the Western world will call their bluff on their emperor's new clothes, as they are doing it to. Ultimately, they are biding their time trying different things until something works, just like anyone would in this circumstance. What they think they need is inflation to shrink debt and continue the ponzi scheme, but it looks as though their population just isn't in the mood to spend as they are older and could care less about asset purchases. This obviously screws the young but most can be distracted for 10-15 years through rhetoric and entertainment, they barely know now they system works and actually believe that institutions are their to help them rather than keep the system going. With communism also relying on capitalism, Russia and China also have no desire to completely upset the model, so you have no breaks on capitalism at all. It will as Karl Marx said, eat it self. Until we find a better way to allocate the debt (which grows exponentially) to the population (which grows at a slower rate) we cannot let this system die so the central banks keep buying everything - until they own it all, then the penny would actually drop.

Globalism is what you seem to have described.

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No it isnt. BoE are very clear and specific which assets they purchase for their balance sheet.

£375bn in UK government gilts specifically as part of their QE prorgam.

Ditto ECB.

They precisely DO want to broadcast which assets theyre buying else it rather defeats the point of buying them.

here is the BoE b/sheet in all its glory:

http://www.bankofengland.co.uk/markets/Pages/balancesheet/default.aspx

Even if the other CBs start to buy shares, would this be such a bad thing? An honest question to a point I've only just been made aware of, so please no sarcastic or derogatory replies.

My initial answer would be why not buy equities? On a macro basis populations are changing, with fewer workers in proportion to retirees, economies will also be contracting after the Boomer bulge. No escaping that, which is bad for profits but could be good for the environment. An orderly, managed slowdown is preferable to a hard landing especially if it's inter-generational rather than just a 7-year cycle.

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Even if the other CBs start to buy shares, would this be such a bad thing? An honest question to a point I've only just been made aware of, so please no sarcastic or derogatory replies.

My initial answer would be why not buy equities? On a macro basis populations are changing, with fewer workers in proportion to retirees, economies will also be contracting after the Boomer bulge. No escaping that, which is bad for profits but could be good for the environment. An orderly, managed slowdown is preferable to a hard landing especially if it's inter-generational rather than just a 7-year cycle.

Because it's malinvestment. It just creates zombie companies that are wasteful and bloated. Not good for growing an economy.

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Another interesting question is how much BoJ (for instance) QE funding could be (perhaps by stealth) finding its way into other countries markets to buy up their shares either directly or perhaps share buying sub-contracted to other central banks - or being loaned to other central banks for them to use as "stimulus" for other countries economies "in times of stress".

"Stimulus" = lining their own pockets.

"In times of stress" = pocket lining slowing down.

Edited by billybong
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Even if the other CBs start to buy shares, would this be such a bad thing? An honest question to a point I've only just been made aware of, so please no sarcastic or derogatory replies.

My initial answer would be why not buy equities? On a macro basis populations are changing, with fewer workers in proportion to retirees, economies will also be contracting after the Boomer bulge. No escaping that, which is bad for profits but could be good for the environment. An orderly, managed slowdown is preferable to a hard landing especially if it's inter-generational rather than just a 7-year cycle.

I dont do sarcastic or derogatory replies so you neednt worry on that score.

I dont have an issue with it so long as it has a clearly defined purpose, is in accordance with the CBs democratic mandate and it is the best way to meet that mandate.

Personally I would prefer to see (in US, UK & Europe) far more attention iven by democratically elected politicians to the use of their b/sheet e.g. investment which especially at this moment in time looks like a serious no-brainer rather than this obsession with stifling growth through attempting to produce a budget surplus to a predetermined political timeframe which seems to have no rational undepinning whatsoever & clearly has poor outcomes. CBs need a break. Politicians have hidden behind monetary policy now for far too long and it is becoming less effective in any event.

As for "malinvestment" (another poster) you only have to look at Philip green/BhS to see how that argument quickly falls apart.

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I dont have an issue with it so long as it has a clearly defined purpose, is in accordance with the CBs democratic mandate and it is the best way to meet that mandate.

Their mandate, unless I'm mistaken, is to keep inflation within a set band in the UK and to keep growth positive in the US. I guess propping up stock markets is one tool they can use...

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No it isnt. BoE are very clear and specific which assets they purchase for their balance sheet.

£375bn in UK government gilts specifically as part of their QE prorgam.

Ditto ECB.

They precisely DO want to broadcast which assets theyre buying else it rather defeats the point of buying them.

here is the BoE b/sheet in all its glory:

http://www.bankofengland.co.uk/markets/Pages/balancesheet/default.aspx

Apart from the intervention they keep secret. So all we know is the information they want to tell us publically.

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The share buying spree by CB's is just another flashing sign that says "The Lunatics Have Taken Over The Asylum".

Markets are just a plaything of the politicos and their clients (the mega rich and corps)

Robert Mugabe was a visionary.

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Which are also full of noise. ;)

A more inane comment i couldnt think of

Its just not possible for index prices to be manipulated by 000s of participants

All known info is in the price and/or technical indicators.

Sometimes wrong but not often

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To RK its ok for the central bank to print and buy assets so rich people will get richer

If only a Chancellor wld announce he's going to sell our gold months in advance.

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I think the ECB have announced they are buying equities along with the BoJ.

I had wondered if they may also be buying equities - an announcement to that effect, from an 'official' source is exactly the sort of (circumstantial) corroborating evidence I was hoping someone could point me towards. Tell me that you can find the reference... please... :unsure:

I know that central bank policies have been supporting the stock market - but, until recently, I have assumed that the mechanism was to support banks that lend to corporate entities who then buy-back their own stock on the open market. While this would have a similar effect on share prices - there are subtle differences:

  • The corporation would expose information about the activity through Corporate Action notifications - and the debt would feature in the company accounts.
  • The central bank would be dealing in monetary assets (i.e. where the monetary value is objective rather than subjective under normal circumstances.)

Is buying shares directly something that can be called "helicopter money" - where the beneficiaries are shareholders?

Even if the other CBs start to buy shares, would this be such a bad thing?

I guess it depends what you consider "bad". State ownership (control) of (significant shares of) corporations is known as Fascism. Fascism, historically, has correlated with absence of democracy; with militarization and some pretty-unpleasant situations.

Where the state arbitrarily rewards some groups relative to others (where it buys shares, it benefits the shareholder demographic at the expense of the wage earner demographic - and the opposite when it sells) then it stops being rational to assume that outcomes in life arise principally from one's choices. I see two consequences: On one hand, shareholders (and directors who are compensated using equity) stop being dependent upon providing value to society in order to derive a profit - leading to unaccountable (allegedly free-market) corporate conduct. On another hand, individuals will become conditioned to the expectation that their economic activities are irrelevant to their situation (when they recognize that they benefit if they're in the demographic the government prefers, and they lose otherwise.) When individuals stop believing that economic engagement is relevant, and corporations are free to act arbitrarily - you have the ingredients for the collapse of civil society. Maybe that would be bad, perhaps not... I doubt it would be pleasant for anyone.

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A more inane comment i couldnt think of

Its just not possible for index prices to be manipulated by 000s of participants

All known info is in the price and/or technical indicators.

Sometimes wrong but not often

If that were true then we'd never see the kind of long-lived pricing discrepancies which result in bubbles and crashes. Noise is everywhere and all traders contribute to it, an observation made most forcefully by Fischer Black. What had been missing from the literature was the role played by entropy in speculative trading. Noise traders constitute the market 'with measure one'.

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I guess it depends what you consider "bad". State ownership (control) of (significant shares of) corporations is known as Fascism. Fascism, historically, has correlated with absence of democracy; with militarization and some pretty-unpleasant situations.

Where the state arbitrarily rewards some groups relative to others (where it buys shares, it benefits the shareholder demographic at the expense of the wage earner demographic - and the opposite when it sells) then it stops being rational to assume that outcomes in life arise principally from one's choices. I see two consequences: On one hand, shareholders (and directors who are compensated using equity) stop being dependent upon providing value to society in order to derive a profit - leading to unaccountable (allegedly free-market) corporate conduct. On another hand, individuals will become conditioned to the expectation that their economic activities are irrelevant to their situation (when they recognize that they benefit if they're in the demographic the government prefers, and they lose otherwise.) When individuals stop believing that economic engagement is relevant, and corporations are free to act arbitrarily - you have the ingredients for the collapse of civil society. Maybe that would be bad, perhaps not... I doubt it would be pleasant for anyone.

Sounds a lot like communism to me (fascism needs a dictator, doesn't it?), and I'm not the first to point out maybe the fall of the Berlin Wall didn't extinguish Communism as we thought previously. What you state is certainly believable and 'bad', it also seems almost inevitable as events are going. Soviet Russia was around for decades and started from a much lower point, relatively, than the Anglosphere is now. Also its society didn't collapse as such, just slowly degraded over time. Maybe we'll do the same but over a bit longer.

I dont do sarcastic or derogatory replies so you neednt worry on that score.

I dont have an issue with it so long as it has a clearly defined purpose, is in accordance with the CBs democratic mandate and it is the best way to meet that mandate.

Personally I would prefer to see (in US, UK & Europe) far more attention iven by democratically elected politicians to the use of their b/sheet e.g. investment which especially at this moment in time looks like a serious no-brainer rather than this obsession with stifling growth through attempting to produce a budget surplus to a predetermined political timeframe which seems to have no rational undepinning whatsoever & clearly has poor outcomes. CBs need a break. Politicians have hidden behind monetary policy now for far too long and it is becoming less effective in any event.

As for "malinvestment" (another poster) you only have to look at Philip green/BhS to see how that argument quickly falls apart.

Thanks, my initial (and sarcastic) response was we'd have what you wanted if we had a chancellor who wasn't as pig-shit thick as Osborne. Actually my second, more reasoned, response amounts to the same. I'm struggling to remember a decent chancellor, Lawson was better than Osborne, Brown could've been very good but he let politics screw him up, Darling is a footnote, Major... hmm, not being remembered for f*cking up the economy but f*cking another minister - maybe he's the best recent chancellor?

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I posted this article by Shaun Richards on this matter the other day Steve.

https://notayesmanseconomics.wordpress.com/2016/04/25/the-bank-of-japan-becomes-the-tokyo-whale/

It is simply amazing to see how far the Japanese are willing to go is it not? Yet we see that even so the Yen was the strongest currency around last week. They must be running out of choices.

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Surely that would be when a CB is buying either bonds or newly issued shares, if it's buying shares already in the market it's paying the current holders.

Banks are not supposed to buy assets...it is the basis for a ponzi environment where the value is not in how the firm produces and is able to borrow based on their ability to offer a return, if the CB buys the debt, there is no loss anywhere that cant simply be written off.

If the Central bank, which is supposed to be there to support the banking industry, sees itself as the defender of failing industry then all that is keeping the firms afloat is printed money.

The CB is supposed to lend money into the economy, using performance as a security, not sell money into the economy.

The reason the CB might start buying assets in the real economy is to support very bad purchases by private banks, who see their asset values likely to fall. The unlimited pockets of the CB can support nominal values when nobody else wants the stuff. Meanwhile, banks that should have failed are supported, firms that should have declined are supported, meanwhile good firms either banking or production are stuck with a competitor that shouldnt be in the market.

This last act stifles return on capital.

Edited by Bloo Loo
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State owned infrastructure companies last July...

http://www.ft.com/cms/s/0/69fbff8a-20bd-11e5-aa5a-398b2169cf79.html#axzz47EyPkRAN

March 2016....indirectly by buying corporate debt pressing down on rates and hence costs versus equity... stimulating buybacks...

http://www.bloomberg.com/news/articles/2016-03-14/jpmorgan-sees-european-share-buybacks-rising-after-ecb-stimulus

But not direct holding as far as I can see.

I was aware that there has been extensive central bank purchase of non-sovereign debt - ever since QE was adopted in the West, at least. While there are similarities, to alleged BoJ direct purchase of ETFs, I am confident that this is distinct because the assets are debts, as opposed to equity positions.
Several important things distinguish corporate debt from corporate shares... There are obvious things like the face value of debt being a fixed value... but, also, less obvious things - like the fact that corporate debt can be engineered to provide senior tranches - allowing some proportion of the corporate bonds to be deemed to have substantially less default risk.
In Mervyn King's book "The End of Alchemy" he makes several very interesting (and credible) points. One, of which I'm reminded by this, is that sovereign debt, on bank balance sheets, has always required zero capital. Mervyn commented that used to make intuitive sense, as sovereign debt was deemed immune to default... right up until the recent Euro crisis - when a complete absence of default risk was far from assured.
I don't think I can do Mervyn's point justice, in one HPC post, but - in essence - he questions conventional wisdom about what forms of debt should constitute base money. If sovereign debt can not be assumed risk-free, that raises an obvious question: specifically, what debt should be assumed to constitute narrow money?
I don't have a well formed answer to this question... but I recognise that answering it is important. One possibility is that there is no such thing as 'safe debt' - and that base money should be some proportion of the safest tranches of a basket of debt. I feel that how such a basket of debt might be constructed is a very contentious issue... but, even so, I expect that - if such a strategy were to be established, it is possible that it could work 'OK'... Perhaps?

Banks are not supposed to buy assets...

That's what I believe(d). But, in what sense is it prohibited? Is that a false assumption today?

Edited by A.steve
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I was aware that there has been extensive central bank purchase of non-sovereign debt - ever since QE was adopted in the West, at least. While there are similarities, to alleged BoJ direct purchase of ETFs, I am confident that this is distinct because the assets are debts, as opposed to equity positions.
Several important things distinguish corporate debt from corporate shares... There are obvious things like the face value of debt being a fixed value... but, also, less obvious things - like the fact that corporate debt can be engineered to provide senior tranches - allowing some proportion of the corporate bonds to be deemed to have substantially less default risk.
In Mervyn King's book "The End of Alchemy" he makes several very interesting (and credible) points. One, of which I'm reminded by this, is that sovereign debt, on bank balance sheets, has always required zero capital. Mervyn commented that used to make intuitive sense, as sovereign debt was deemed immune to default... right up until the recent Euro crisis - when a complete absence of default risk was far from assured.
I don't think I can do Mervyn's point justice, in one HPC post, but - in essence - he questions conventional wisdom about what forms of debt should constitute base money. If sovereign debt can not be assumed risk-free, that raises an obvious question: specifically, what debt should be assumed to constitute narrow money?
I don't have a well formed answer to this question... but I recognise that answering it is important. One possibility is that there is no such thing as 'safe debt' - and that base money should be some proportion of the safest tranches of a basket of debt. I feel that how such a basket of debt might be constructed is a very contentious issue... but, even so, I expect that - if such a strategy were to be established, it is possible that it could work 'OK'... Perhaps?

That's what I believe(d). But, in what sense is it prohibited? Is that a false assumption today?

Its obviously not prohibited, but it has been called an emergency and temporary position....since 2007

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Its obviously not prohibited, but it has been called an emergency and temporary position....since 2007

The 'emergency temporary position... since 2007' usually relates to QE, which involves central banks buying debt instruments (including some which are issued by corporations.) While 'extraordinary' - and rather less 'temporary' than assurances, at the time, suggested... it's different.

While, on its own, QE is very significant, it is entirely different to what the Bloomberg article alleged has happened at the BOJ (to the tune of $3tn!)

The thing I thought was prohibited was central banks putting non-debt backed assets on their balance sheet. I half-remember that it was something that became unacceptable about a century ago... maybe it had something to do with Germany... and wars... Erm - after that, my mind has gone blank.

Edited by A.steve
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I don't think I can do Mervyn's point justice, in one HPC post, but - in essence - he questions conventional wisdom about what forms of debt should constitute base money. If sovereign debt can not be assumed risk-free, that raises an obvious question: specifically, what debt should be assumed to constitute narrow money?

Let's all ignore the shiny yellow 800 pound gorilla in the room.
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A couple of links below about the plunge protection scheme.

It seems that it's been in operation for at least a couple of decades if not before (it probably started in earnest as year 2000 approached). So it seems that the question is when do they officially admit/announce it rather than when do they start it. Once they got tarp style QE then for sure they would be using it as well - part of the justification for QE being to support the financial system of which equities and equity spin offs are a massive part of the financial system.

The BoJ seems to be open about its equity purchases and they're just doing in the open what most all of the other main central bankers like to do in secret.

Then

2013

http://www.bloomberg.com/news/articles/2013-04-24/central-banks-load-up-on-equities-as-low-rates-kill-bond-yields

Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk-averse investors toward equities.

In a survey of 60 central bankers this month by Central Banking Publications and Royal Bank of Scotland Group Plc, 23 percent said they own shares or plan to buy them. The Bank of Japan, holder of the second-biggest reserves, said April 4 it will more than double investments in equity exchange-traded funds to 3.5 trillion yen ($35.2 billion) by 2014. The Bank of Israel bought stocks for the first time last year while the Swiss National Bank and the Czech National Bank have boosted their holdings to at least 10 percent of reserves.

2014

http://www.marketwatch.com/story/central-banks-becoming-major-investors-in-stock-markets-2014-06-16

LONDON (MarketWatch) — Some leading central banks have become major players on world equity markets in a development that could potentially contribute to overheated asset prices.

The buildup of central-banking interest in equities is one of the unexpected consequences of the last few years’ fall in interest rates, which has depressed the returns on central banks’ foreign exchange reserves and driven them to find alternative investment targets.

2014

http://www.ft.com/cms/s/0/d9dfad02-f462-11e3-a143-00144feabdc0.html

Central banks around the world, including China’s, have shifted decisively into investing in equities as low interest rates have hit their revenues, according to a global study of 400 public sector institutions.

“A cluster of central banking investors has become major players on world equity markets,” says a report to be published this week by the Official Monetary and Financial Institutions Forum (Omfif), a central bank research and advisory group. The trend “could potentially contribute to overheated asset prices”, it warns.

2013

http://business.time.com/2013/04/26/why-are-central-banks-suddenly-buying-stocks/

Safe Bet? Central Banks Suddenly Start Buying Stocks

...

The U.S. Federal Reserve does not appear to have joined in the stock-buying trend. The Fed is not permitted to make direct stock purchases. But there is nothing to prevent it from funding a Special Purpose Vehicle that buys a broad basket of stocks through indexes or Exchange Traded Funds. In the past year, Wall Streeters have speculated the Fed would buy stocks as part of its quantitative-easing programs to stimulate the economy.

In secret but blatant.

Edited by billybong
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  • 433 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


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