The always insightful Wolf Richter has an interesting piece today on the wild gyrations in the Japanese markets this week and the equally wild and desperate machinations of the Bank of Japan and Japan’s government in trying to control them: Iron-Fisted Bank Of Japan Is Losing Its Grip- Wolf Richter – Testosterone Pit. Wolf has graciously given me permission to repost his articles, which I do on a delayed basis. You can visit Testosterone Pit to get them as soon as he posts them, generally in the evening of the day before I repost them. This piece on the BoJ and Japan’s markets raises a critical issue that directly impacts the US market.
The fact that the BoJ pumped nearly 3 trillion yen into the system there last week could impact the US market. A chart I feature every week in the Professional Edition Fed Report shows the Fed’s balance sheet, the BoJ’s, and the ECB’s overlaid with stock prices and Treasury yields. The correlations between the timing and direction of changes in these behemoth central bank balance sheets and changes of direction in US securities prices is high. The ECB’s balance sheet correlates most closely with the direction of US Treasury securities. The Fed’s and BoJ’s correlate most closely with the direction of US stock prices.
One would think that the closest correlation would be between the Fed’s balance sheet (System Open Market Account or SOMA) and US stocks. While they do correlate nicely, the closest correlation is actually between the BoJ’s balance sheet and US stock prices. That is true even down to short term time frames. The short term gyrations of the S&P 500 frequently mimic the short term changes in the BoJ’s balance sheet.
Why might this be? Simple– the Fed and BoJ both deal with the same banksters. The Fed’s 21 Primary Dealers are essentially the largest banks in the world. Only 7 of them are US domiciled, and they all have Japanese operations. Three of them are Japanese giants, Daiwa, Mizuho, and Nomura, and the rest are European and Canadian banks which also have Japanese operations.
The world is all one liquidity pool to these monsters. When they don’t want to direct the cash back into the market of the central bank from which it came they buy stuff on Wall Street in the good old US of A, and make their mischief there. Once the BoJ or the Fed inject the cash into the accounts of their henchmen banksters, the central banks might suggest, but they do not control what the banksters do with it. The banksters’ job is to make profits, and they reinvest the cash where they think it will get the most love. In many cases, the central banks are injecting so much cash that the banksters are forced to spread it around by default. Hence so often we see markets move in lockstep.
With world markets shaking, rattling, and rolling last week, but the US far more stable than Japan, it will be interesting to see if some of the massive BoJ pumping in the past week again makes its way into US stocks. Sooner or later, it will go somewhere. Ladies, place your bets!
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