If a Japanese Kamikaze pilot plummets earthward in a ball of fire, but the Federal Reserve ignores Abe’s pleas for help, does it leave a mark? Yes, we’re certain it will. I have a sneaky feeling that our own V. the Guerrilla Economist will have plenty to say over the next few weeks about what comes next in the Japanese bond market, just as he warned three years ago of the disaster that is the Land of the Rising Sun. Meanwhile, I wanted to post this quick blog if for no other reason than to “document the collapse,” as Shawn at @SGTreport is wont to say.
I thank Jeff Berwick of DollarVigilante.com for pointing out the obvious in his blog dated June 01, 2016 and linked here: “Now Japanese Prime Minister Abe Predicts Global Economic Catastrophe Is Imminent“. A few of the pertinent points are copied below his YouTube summary of the same blog:
The latest to join this list of doomsayers is Japanese Prime Minister Abe. This past Thursday at the G7 meeting he warned about the upcoming global crisis.
Abe was trying to generate support for global fiscal stimulus, according to reports. He told G7 members that the present times reminded him of the “post-Lehman era” in 2008. Lehman went bankrupt in September of that year and by the end of 2009, stock markets lost as much as half their value.
He even displayed a number of charts supporting his position that we are on the cusp of a massive collapse.
Instead, Abe’s comments received a near media blackout. Some media mentioned it but certainly not as headline news. We didn’t even hear about it until today, five days later.
You’d think this would be pretty big news. The Prime Minister of one of the biggest economies in the world just made a presentation saying we are on the brink of collapse not only in Japan but worldwide and it was mostly swept under the rug.
So why doesn’t anybody listen? Jeff’s answer concurs with something that Brandon Smith has been saying for months:
The idea is NOT to prepare for economic catastrophe.
It could even be that Abe’s role was somehow pre-planned to warn leaders and thus generate headlines that would show discussions at the highest levels. The IMF and the World Bank have also warned of an impending crisis… even Alan Greenspan. Post-collapse, they can always point to Abe’s warnings to say they understood what could happen, but that none of these warnings were picked up in a meaningful way.
For this reason most people will be blindsided by the collapse just like they were in 2008.
Indeed, Brandon Smith said nearly the same thing on June 08, 2016 in his blog “The Federal Reserve’s Strange Behavior Makes Perfect Sense“. Brandon, with probably a hint of frustration in his voice, wrote:
I have made this comment many times in the past, but I think it needs to be stated again here: If you think the Federal Reserve’s goal is to maintain or repair the U.S. economy, then you will never understand why they do the things they do or why the economy evolves the way that it does. The Fed’s job is not to protect the U.S. economy. The Fed’s job is to DESTROY the U.S. economy to make way for a truly global system.
If we needed any further confirmation that the JGB market is indeed preparing to go full Kamikaze, these two subsequent events were reported by ZeroHedge:
1. Bank Of Japan Board Member Warns Of “2003 Shock” Historic Bond Market Collapse – June 04, 2016.
Takehiro Sato said: “From financial institutions’ recent move to purchase super-long-term bonds in pursuit of tiny positive yield, I detect a vulnerability similar to that seen before the so-called VaR (Value at Risk) shock in 2003.”
Simply put, as Bloomberg notes, Sato is concerned the government bond market is heading for an historic collapse after 10-year yields plunged below zero, forcing banks to pile into super-long-term bonds in pursuit of tiny positive yields. This is creating huge concentrated positions with increasing duration risk (as we detailed previously), causing a vulnerability “similar to that seen before the so-called VaR (Value at Risk) shock in 2003,” when an initial jump in yields triggered a spectacular sell-off by breaching banks’ models for estimating potential losses.
2. “It’s A Seismic Shift” – Japan’s Biggest Bank To Quit As JGB Primary Dealer – June 08, 2016.
… It has seemed that the Japanese Government Bond is on life support. That support may be ending.
According to Nikkei, and confirmed by Bloomberg, Japan’s biggest bank, Bank of Tokyo-Mitsubishi UFJ, is preparing to quit its role as a primary dealer of Japanese government bonds as negative interest rates turn the instruments into larger risks, a fallout from massive monetary easing measures by the Bank of Japan….
In other words, one of the key links that provides liquidity and lubricates the Japanese government bond market has just decided to exit the market due to, among other thinks, lack of liquidity entirely due to the policy failure of Abenomics in general, and Kuroda’s disastrous monetary policies in particular. One could, of course, ask just how does BTMU plan on also exiting the Japanese economy itself, if and when the country’s $8 trillion bond market implodes, but we doubt the bank will ever be able to answer that….
Trying to downplay the impact of this shocking move, Morita said that the short-term impact on JGB market may be limited given BOJ’s purchases, however he adds that “if other large banks follow this move, it’s hard to say there will be no impact.”
According to the Nikkei that’s precisely what is about to happen: Sumitomo Mitsui Financial Group and Mizuho Financial Group also may consider quitting like BTMU.
In conclusion, we leave you with this little piece of dessert from the Bloomberg analysts who featured a video piece from Janus Capital’s Bill Gross. He is now warning that the current NIRP effect on $10,000,000,000,000 of global bonds should be likened to the effect seen when a star goes Supernova. That is, it’s ready to explode.
— David Skilling (@dskilling) June 10, 2016
The Bloomberg story is found here, “Gross Says Negative Rates Are Like ‘Supernova’ That Will Explode“, but my favorite part was the embedded video of their TV broadcast when the lady analyst concludes with:
“We really don’t know what the end game is, that’s what I’m trying to say.”
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