BoJ Pumps The Sheet- Will US Stock Prices Follow?

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.

Fed SOMA, BoJ and Stock Prices - Click to enlarge

Fed SOMA, BoJ and Stock Prices – Click to enlarge

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!

Stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, along with regular updates of the US housing market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Don’t miss another day. Get the research and analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd. Click this link and begin your risk free trial NOW!

Read Durable Goods Orders Still Decelerating Despite Fed Money Printing


More Economic Charts

Follow my comments on the markets and economy in real time @Lee_Adler on Twitter!

Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also provide analysis and charts for David Stockman's Contra Corner which I developed for Mr. Stockman. I’ve had a wide variety of finance related jobs in the past 44 years, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

Leave a Reply