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The Bank of Japan Was The Top Buyer Of Japanese Stocks In 2016

When it comes to propping up the stock market in the US, the Federal Reserve does so with a certain degree of nuance, keeping at least one layer of disintermediation between itself and the market, which usually involves “advising” Citadel to intervene when it comes to acute moments of market stress, granting the HFT-heavy hedge fund a green light to stop and reverse and violent selloffs, or more traditionally, allowing companies to repurchase their own stock thanks to (until recently) record low interest rates.

This is nothing new: as Goldman has repeatedly pointed out, in 2016 corporations have been the largest source of equity demand, purchasing $450 billion of US equity through buybacks and cash M&A (net of share issuance). Outside of the Great Recession, corporates have been the primary source of US equity demand (see Exhibit 1).

Furthermore, Goldman recently predicted that as a result of Trump’s proposed repatriation tax holiday, buybacks in 2017 will surge even more, to wit:

Buybacks ($780 billion, +30%) will rise sharply in 2017. Our economists expect tax reform legislation will pass during 2H 2017. President-elect Trump and House Republicans have expressed support for a one-time tax on previously untaxed foreign profits as part of their tax reform proposals. We forecast that S&P 500 firms will repatriate $200 billion of their total $1 trillion of cash held overseas in 2017 and spend $150 billion of the repatriated funds on share repurchases. Managements generally remain committed to buybacks, which will benefit from 2% US GDP growth and ex-Energy earnings growth of 6%.

None of that should be news to regular readers, however it is worth repeating that the primary source of demand for US equities are the stock-issuing corporations themselves, who – in a page right out of Baron Munchausen – continue to pull themselves up by their bootstraps with the blessings of the Federal Reserve’s cheap money. That may soon be changing, however, now that rates have spiked higher and announced buyback have tumbled 28% Y/Y according to FactSet.

Meanwhile, in Japan, the BOJ had taken a less “stealthy” approach, and as has been the case for years, the Japanese central bank under Kuroda has had far fewer qualms about intervening directly in the equity markets by purchasing either ETFs, REITs or single name securities.

Did we say “less stealthy?” We meant the central bank is now intervening directly in the stock market with all the finesse of a stock bull in a china store (just not Chinese china, it’s a patriotic thing), and according to a report by the Nikkei, the Bank of Japan is set to become the biggest buyer of ETFs  in 2016 for the second straight year, in the process masking a srecent surge in foreign investor selling.

According to data through Thursday, the value of the BOJ’s ETF purchases this year has topped 4.3 trillion yen ($36.5 billion), up 40% from 2015. Last year, the central bank bought more than 3 trillion yen worth of ETFs. The data was released by the BOJ and compiled by the Tokyo Stock Exchange. Should it continue at this rate, in a few years, the BOJ will have nationalized the entire market: as of this moment it own approximately 2.5% of the market cap of the entire Topix according to the FT chart below.

As the FT recently noted, “the central bank’s overwhelming dominance of ETFs, combined with the structural oddities of Japan’s most famous but esoteric equity benchmark, the price-weighted Nikkei 225 Average, has given the BoJ indirect but massive positions in many of the country’s biggest corporate names.” Normally, this kind of activity would be associated with command-style, centrally-planned economies such as that of the USSR. Now, however, it is considered part of the “new normal.”

As the BOJ bought, foreign investors sold…  a lot; in fact more than a net 3.5 trillion yen worth of Japanese shares through Dec. 16. These sales were “offset” by the BOJ’s intervention, traditionally through trust banks, including those commissioned by the Government Pension Investment Fund, to buy a net 3.5 or so trillion yen worth of shares.

What is scarier, however, is the BOJ’s own direct intervention: the figure for trust banks was below that for the BOJ, which “will become the largest buyer of ETFs this year,” said Masatoshi Kikuchi of Mizuho Securities.

This year, the central bank increased its buying after doubling its annual ETF goal to purchase 3 trillion yen worth of the instruments. The decision came in July as the bank stepped harder on its yen-printing pedal. The central bank’s ultimate goal is to flood the economy with so much money that prices get moving predictably upward again; the BOJ is targeting a 2% inflation rate. Instead, one day it will create a currency crisis, as faith in the Yen collapses and unleash hyperinflation. We are not there just yet, though.

The value of the bank’s ETF holdings, based on purchase prices, is 11 trillion yen. However, unrealized gains send the market value to 14 trillion yen, according to an estimate by Mitsubishi UFJ Kokusai Asset Management, Nikkei added. 

And while foreigners have bought more than a net 2 trillion yen of Japanese shares since November, when Trump was elected president, the amount does not offset their selling in the first half of 2016. Furthermore, there is speculation that the Trump rally is on its last legs, and the next move will be lower. This has already been noted in the USDJPY which has fallen for 4 straight days.

The BOJ’s ETF program has propped up share prices but distorted “the formation of stock prices,” said Shingo Ide of NLI Research Institute. Alternatively, one could say that the BOJ’s ETF program has made the very definition of “market” a joke. The ETF-buying program allows, and in fact mandates, that the central bank purchase a wide range of stocks regardless of the issuing companies’ business results. This means that zombie companies which would otherwise be insolvent and bankrupt, are kept artificially alive thanks to central bank intervention, which in turn leads to deflation as in the race to the bottom, “zombie companies” around the globe are willing to undersell all their competitors in “hail Mary” hopes of survival, leading to lower interest rates and even more central bank intervention.

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Market Crash 2017 (Video)

By EconMatters


We have a Stock Market Bubble, excessive valuations, investors are complacent, everyone runs for the exits simultaneously, there are abundant catalysts out there in the world, the Crash occurs over next 12 months.

Donald Trump will preside over the biggest global market crash in the history of financial markets. Just due to where asset prices are set up thanks to six major central banks ZIRP INSANITY since 2008. Asset prices have so much and so far to fall just to get back to the pre-financial crisis HIGHS of 2007, which were also a bubble it should be mentioned, and crashed subsequently in half from those levels.

People and investors are so complacently clueless right now it just amazes me, there is no hope for humanity right now at this rate of stupidity. Forget trying to get to MARS, learn how to balance your checkbook, and not try crazy ZIRP experiments for a starter.

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On Christmas Day, The Human Rights Activist and Director of CAIR Clamored for More Russian Death

This is like a movie playing out in real life. Sometimes reality is more perverse than fiction.
 
The self proclaimed human rights activist and director of the LA office for CAIR, Hussam Ayloush, tweeted on Christmas that it was too bad more Russi…

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“Why I’m Hopeful”

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

Why am I hopeful? the Status Quo is devolving, and a better way of living lies just beyond the corrupt, wasteful, ruinous consumerist debt/financial tyranny we now inhabit.

Readers often ask me to post something hopeful, and I understand why: doom-and-gloom gets tiresome. Human beings need hope just as they need oxygen, and the destruction of the Status Quo via over-reach and internal contradictions doesn’t leave much to be happy about.

The most hopeful thing in my mind is that the Status Quo is devolving from its internal contradictions and excesses. It is a perverse, intensely destructive system with horrific incentives for predation, exploitation, fraud and complicity and few disincentives.

A more human world lies just beyond the edge of the Status Quo.

I know many smart, well-informed people expect the worst once the Status Quo (the Savior State and its corporatocracy partners) devolves, and there is abundant evidence of the ugliness of human nature under duress.

But we should temper this Id ugliness with the stronger impulses of community and compassion. If greed and rapaciousness were the dominant forces within human nature, then the species would have either died out at its own hand or been limited to small savage populations kept in check by the predation of neighboring groups, none of which could expand much because inner conflict would limit their ability to grow.

The remarkable success of humanity as a species is not simply the result of a big brain, opposable thumbs, year-round sex, innovation or even language; it is also the result of social and cultural associations that act as a “network” for storing knowledge and good will–what we call technical and social capital.

I have devoted significant portions of my books to an explanation of how community and self-reliance have atrophied under the relentless expansion of the dominant Savior State.

The social capital and “return on investment” earned from investing time and energy in community and other social networks has been replaced by a check from the Savior State–a transfer payment that surely beats the troublesome work of investing in community in terms of risk and return.

The net result of the Savior State dominating society and the economy is the rise of a pathological mindset of entitlement and resentment–the two are simply two sides of the same coin. You cannot separate them.

Once self-reliance has been lost, so too has self-confidence been lost, and the Savior State dependent–individual and corporation alike–soon distrusts their ability to function in an open market.

This is a truly sad, self-destructive state of affairs, and deeply, tragically ironic. The calls for “help” quickly lead to dependence on the Savior State, and that dependence quickly breeds complicity and silence in the face of repression and predation by the State and its corporate partners.

In a very real sense, citizens relinquish their citizenship along with their self-reliance and self-worth once they accept dependence on the State.

I often mention that the U.S. has much to learn from so-called Third World countries that are poorer in resources and credit. In many of these countries, the government is the police, the school and the infrastructure of roadways and energy. Many of these countries are systemically corrupt, and the State is the engine of enforcing that corruption.

Rather than something to be embraced and lobbied, involvement with the State is something to be avoided as a risk. In everyday life, people rarely encounter the government except in law enforcement or schooling.

As a result, people depend on their social capital and community for sustenance, support, work and connections.

This is not altruism, it is mutually beneficial.

Once a community dissolves into atomized individuals who each get a payment from the Central State, then they no longer need each other. Rather, other dependents on the State are viewed as competitors for the State’s resources.

These atomized, isolated individuals have a perverse relationship with the State and what remains of the community around them: lacking the self-worth earned from work or engagement/investment in a community, then their only outlet for self-identity is consumption: what they wear, eat, drink, etc. as consumers.

This dependence on the State also serves the State’s goal, which is a passive, compliant populace of dependents, and distracted, passive workers who pay their taxes. Thus dependence on the State and a hollow consumerism are ontologically bound: one feeds the other.

The era of debt-based consumption as the engine of “growth” and “prosperity” is coming to an end. Adding debt via credit no longer creates growth; it actually takes away from the economy by expanding debt service (interest payments).

The vast majority of developed-world people have had the basics of life since the late 1960s — transport, food, shelter and utilities. The “growth” since then depended on cheap, abundant oil and a consumerist mentality in which one constantly re-defines and renews one’s identity not from social investments in others or the shared community but from consumption.

Not coincidentally, this dominance of consumption as the only metric for “growth” (as opposed to, say, productive activity) has been paralleled by the dominance of the Central State.

The end of credit-based consumption will be a very positive development, as will the devolution of the Savior State. The Savior State is like oil–both are at their peaks and are starting their inevitable slide down the S-curve. The world they created was not as positive for human fulfillment and happiness as we have been told.

Indeed, study after study has found that people with the basics for life, a higher purpose that requires sacrifice and a tight-knit community are far and away happier than isolated, atomized, insecure consumers, regardless of their wealth and consumption.

This potential to re-humanize our economy is why I am hopeful.

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Kuwait slaps Filipina with 10-year term for Daesh links

A Kuwaiti criminal court on Monday slapped a woman from the Philippines with a 10-year jail term after she was convicted of belonging to the Daesh terrorist group, according to a local judicial source. The court also called for her expulsion from Kuwait upon the completion of her sentence, the same source said, insisting on anonymity as he was unauthorized to speak to the media. Monday’s court ruling, however, still remains subject to appeal. The woman, identified as Livani Azvillo, 32, was initially detained in August on suspicions of belonging to the terrorist group and planning terrorists attack in the small Gulf country. At the time, Kuwait’s Interior Ministry had said Azvillo had entered the country two months earlier to […]