QE* from Japan Rescues S&P500*
Published in Agora
(France) on 4 November 2014
by Philippe Béchade (link to original)
(France) on 4 November 2014
by Philippe Béchade (link to original)
Translated from
by Michael Krimian.
Edited by Bora Mici.
On October 17, while operators attempted to save the day following the end of the trading hours for the Three Witches,* the probability of once again seeing an S&P500 at 2,000 points before Oct. 31 was estimated at 0 percent.
Also estimated at 0 percent was the probability of beating a new ground-breaking record in the next three weeks following the breakdown of the mid- and long-term supports — which happened between Oct. 9 and 19.
In other words, the market sequence ranging from October 16 to 31 could simply not be envisaged, and even less so be played openly. What manager would have dared compromise his credibility by announcing that he was selling volatility to buy call options* when the S&P500 is trending at 2,000 and the Dow Jones* is at 17,000?
Even the most demented permabulls* would not have taken the risk of gambling a single dollar on such a hypothesis. To believe systematically in rebound is one thing; to believe in Santa Claus is puerile.
But Super-Janet,* the Mrs. Claus of money brewing, on Oct. 17 had sent her two-of-her-whitest-doves hint at the possibility of extending QE3 to the end of 2014, or the implementation of a QE4, if necessary. Everyone understood that the Federal Reserve aimed at stemming the downward trend on Wall Street and nothing else — which is in itself not that bad.
While an umpteenth “v-shaped recovery” initiated, nobody could have conceived that it would be transformed into an unprecedented case, never seen in the last 30 years, where Nasdaq realized its highest increase in 11 trading days since March 2009, after having undergone its strongest monthly fall since August 2011.
A Miracle “Good for Morale” ...
Most of all, technical analysts have never observed what took place: a rebound of U.S. indexes ranging from 11 to 15 percent, after a correction of -10 percent under historical caps, and all that occurring in one month — it does not matter that it happened in October.
The result was an absolute golden swan — as opposed to a black swan* — a unique occurrence, to our knowledge, in Nasdaq history and American indexes: a monthly candle ending on a historic record, but having a wick that is 8 to 9 percent long.
Commentators, strategists and the media all agree on two things: First, it is good for American morale; second, everyone agrees to ignore whether this miracle could not be ascribed to one of the most stunning market manipulations in history by monetary authorities working together to rescue — at any cost — the asset bubbles that they have been contributing to inflating since November 2009.
The impact of the injected money in the form of discrete special operations is multiplied by the algorithmic software of a few banks working openly in symbiosis with the FED, and whose computers are now able to program the closing prices with 0.001 percent accuracy.
Incidents and Odd Phenomena
An odd phenomenon illustrated this actual situation this week: We are dealing with transaction record highs without any objective reason — no results published, no last minute information — on secondary values, ranging up to 3,000 trades occurring within the last two seconds of the trading session. Yes, seconds and not minutes — and it would take weeks to comprehend what really happened.
It is because of this kind of action — entailing absurd price discrepancies in a few microseconds — that the S&P500 closing rate could be adjusted with a two-digits-behind-the-decimal precision. Nevertheless, in the eyes of the media, the 3 percent increase in the Nasdaq in October only demonstrates one thing: The fall that occurred between Oct. 9 and 16 was just an incident. All’s well that ends well!
It could not be a case of “manipulation”: It is a politically incorrect term that hints at conspiracy. Nonetheless, the operators rejoice in the holy lies multiplied by central banks and the Bank of Japan, which is injecting massive amount of liquidity fewer than 36 hours after the FED stopped its own QE program.
BoJ is going a step further: It has declared the total monetization of the Japanese public debt. Furthermore, it has compelled the most important Japanese pension fund — also administrated by the Ministry of Health, yes for real! — to sell a part of its bond portfolio in order to replenish the central bank of assets — via ETFs* or direct purchases — and also estate securities — the equivalent of French SIIC or OPCI.
The End of Markets
In order to be clear, central banks fix the prices of moveable and immoveable assets in a sovereign manner, and do not hide it anymore. Regarding markets, they plebiscite this strategy, and they do not hide it no more.
Nevertheless, it forces us to recognize the pure and simple abolition of the market vocation to freely fix a right value. It would be intolerable if the markets fall — who would dare rig the markets and provoke a catastrophe? — but the central banks' activism is a benediction since the valuations go up eternally (six years on the stock market is indeed an eternity).
The term “eternity” bothers you? Fine, let’s replace it with the following phrasing: “on upward trend on the market that lasts as long as the imagination of the investors can project.”
Since we arrived at the epitome, let’s carry on with the festivities: Markets will taper with the coming of the midterm election in early November, but they will inexorably go up all the more as Thanksgiving weekend approaches — the wealth effect will urge consumers to succumb to all of their temptations.
The sells will be so robust — +4.1 percent anticipated, against +3.1 in November 2013 — that Wall Street will be dazzled. This point will mark the beginning of the end-of-year rally, which will propel the S&P500 far beyond the 2,050 points expected by Goldman Sachs — only an increase of 1.5 percent to gain; it is sheer formality — and maybe beyond 2,100 points. As for itself, the Dow Jones will go on its way to 17,500 points to enchant on Christmas Eve.
If Even Greenspan* Thinks Like Us
Then? Well, it will be the EBC’s turn to make the markets dream! BNP* anticipates Germany — shaken by the multiplication of deflationist signals — and thinks the latter will finally abide to the QE before the end of the year, and that Mario Draghi will officially announce it during the ultimate re-union of the year, which will propel European indexes high until December 31.
CAC40* will once again reach 4,600 points; DAX* will get as high as 10,000 once again, and the Euro-Stoxx50 will surface above 3,325 points, which will change from a state of balance – since Jan. 1 — to an annual gain of 7 percent. This is a minimum when we consider that the S&P500 displays +9 percent, and NASDAQ100 +15.75 percent, in early November.
Fifteen days ago, every analyst was enraged over not having sold an obviously overvalued market, which was not corrected in six years, which in itself constituted a dangerous case. Today, it is only a question of perspectives on numerous absolute records.
But it has nothing to do with a bubble! You have to be senile like Alan Greenspan to proclaim that the madness derived from QEs will end up very badly, that the Euro will disintegrate, and that the only sane refuge is gold.
He knows what he is talking about; he has spent 18 years of his life doing the opposite of what he was preaching in his writing from the 1960s and '70s, that is to say, printing money, letting the markets do absolutely anything, and manipulating the value of gold down.
*Glossary
• QE: Quantitative easing, or money printing.
• S&P500: American stock market index based on the market capitalizations of 500 large companies.
• Three Witches: Third Friday of each month, when different kinds of contracts — futures, options, indexes — simultaneously end, usually marking a period of high volatility.
• Call option: An agreement that gives the right — but not the obligation — to buy a stock, bond, commodity, etc., at a specified price within a specific time period.
• Dow Jones: A stock market index.
• Permabull: Someone who is always upbeat about the future direction of the markets.
• Janet Yellen: Current president of the Fed.
• NASDAQ: U.S. stock market index.
• Black swan: An unpredictable rare event that is considered almost unlikely to happen. If it happens, the consequences are supposed to be considerable.
• ETF: Exchange-Traded Fund, a security that tracks an index, a commodity/basket of asset, like an index fund, but trades like a stock on an exchange.
• Alan Greenspan: Former Fed president.
• BNP: The most profitable French commercial bank.
• CAC40: Main French index market.
• DAX: Main German index market.
Also estimated at 0 percent was the probability of beating a new ground-breaking record in the next three weeks following the breakdown of the mid- and long-term supports — which happened between Oct. 9 and 19.
In other words, the market sequence ranging from October 16 to 31 could simply not be envisaged, and even less so be played openly. What manager would have dared compromise his credibility by announcing that he was selling volatility to buy call options* when the S&P500 is trending at 2,000 and the Dow Jones* is at 17,000?
Even the most demented permabulls* would not have taken the risk of gambling a single dollar on such a hypothesis. To believe systematically in rebound is one thing; to believe in Santa Claus is puerile.
But Super-Janet,* the Mrs. Claus of money brewing, on Oct. 17 had sent her two-of-her-whitest-doves hint at the possibility of extending QE3 to the end of 2014, or the implementation of a QE4, if necessary. Everyone understood that the Federal Reserve aimed at stemming the downward trend on Wall Street and nothing else — which is in itself not that bad.
While an umpteenth “v-shaped recovery” initiated, nobody could have conceived that it would be transformed into an unprecedented case, never seen in the last 30 years, where Nasdaq realized its highest increase in 11 trading days since March 2009, after having undergone its strongest monthly fall since August 2011.
A Miracle “Good for Morale” ...
Most of all, technical analysts have never observed what took place: a rebound of U.S. indexes ranging from 11 to 15 percent, after a correction of -10 percent under historical caps, and all that occurring in one month — it does not matter that it happened in October.
The result was an absolute golden swan — as opposed to a black swan* — a unique occurrence, to our knowledge, in Nasdaq history and American indexes: a monthly candle ending on a historic record, but having a wick that is 8 to 9 percent long.
Commentators, strategists and the media all agree on two things: First, it is good for American morale; second, everyone agrees to ignore whether this miracle could not be ascribed to one of the most stunning market manipulations in history by monetary authorities working together to rescue — at any cost — the asset bubbles that they have been contributing to inflating since November 2009.
The impact of the injected money in the form of discrete special operations is multiplied by the algorithmic software of a few banks working openly in symbiosis with the FED, and whose computers are now able to program the closing prices with 0.001 percent accuracy.
Incidents and Odd Phenomena
An odd phenomenon illustrated this actual situation this week: We are dealing with transaction record highs without any objective reason — no results published, no last minute information — on secondary values, ranging up to 3,000 trades occurring within the last two seconds of the trading session. Yes, seconds and not minutes — and it would take weeks to comprehend what really happened.
It is because of this kind of action — entailing absurd price discrepancies in a few microseconds — that the S&P500 closing rate could be adjusted with a two-digits-behind-the-decimal precision. Nevertheless, in the eyes of the media, the 3 percent increase in the Nasdaq in October only demonstrates one thing: The fall that occurred between Oct. 9 and 16 was just an incident. All’s well that ends well!
It could not be a case of “manipulation”: It is a politically incorrect term that hints at conspiracy. Nonetheless, the operators rejoice in the holy lies multiplied by central banks and the Bank of Japan, which is injecting massive amount of liquidity fewer than 36 hours after the FED stopped its own QE program.
BoJ is going a step further: It has declared the total monetization of the Japanese public debt. Furthermore, it has compelled the most important Japanese pension fund — also administrated by the Ministry of Health, yes for real! — to sell a part of its bond portfolio in order to replenish the central bank of assets — via ETFs* or direct purchases — and also estate securities — the equivalent of French SIIC or OPCI.
The End of Markets
In order to be clear, central banks fix the prices of moveable and immoveable assets in a sovereign manner, and do not hide it anymore. Regarding markets, they plebiscite this strategy, and they do not hide it no more.
Nevertheless, it forces us to recognize the pure and simple abolition of the market vocation to freely fix a right value. It would be intolerable if the markets fall — who would dare rig the markets and provoke a catastrophe? — but the central banks' activism is a benediction since the valuations go up eternally (six years on the stock market is indeed an eternity).
The term “eternity” bothers you? Fine, let’s replace it with the following phrasing: “on upward trend on the market that lasts as long as the imagination of the investors can project.”
Since we arrived at the epitome, let’s carry on with the festivities: Markets will taper with the coming of the midterm election in early November, but they will inexorably go up all the more as Thanksgiving weekend approaches — the wealth effect will urge consumers to succumb to all of their temptations.
The sells will be so robust — +4.1 percent anticipated, against +3.1 in November 2013 — that Wall Street will be dazzled. This point will mark the beginning of the end-of-year rally, which will propel the S&P500 far beyond the 2,050 points expected by Goldman Sachs — only an increase of 1.5 percent to gain; it is sheer formality — and maybe beyond 2,100 points. As for itself, the Dow Jones will go on its way to 17,500 points to enchant on Christmas Eve.
If Even Greenspan* Thinks Like Us
Then? Well, it will be the EBC’s turn to make the markets dream! BNP* anticipates Germany — shaken by the multiplication of deflationist signals — and thinks the latter will finally abide to the QE before the end of the year, and that Mario Draghi will officially announce it during the ultimate re-union of the year, which will propel European indexes high until December 31.
CAC40* will once again reach 4,600 points; DAX* will get as high as 10,000 once again, and the Euro-Stoxx50 will surface above 3,325 points, which will change from a state of balance – since Jan. 1 — to an annual gain of 7 percent. This is a minimum when we consider that the S&P500 displays +9 percent, and NASDAQ100 +15.75 percent, in early November.
Fifteen days ago, every analyst was enraged over not having sold an obviously overvalued market, which was not corrected in six years, which in itself constituted a dangerous case. Today, it is only a question of perspectives on numerous absolute records.
But it has nothing to do with a bubble! You have to be senile like Alan Greenspan to proclaim that the madness derived from QEs will end up very badly, that the Euro will disintegrate, and that the only sane refuge is gold.
He knows what he is talking about; he has spent 18 years of his life doing the opposite of what he was preaching in his writing from the 1960s and '70s, that is to say, printing money, letting the markets do absolutely anything, and manipulating the value of gold down.
*Glossary
• QE: Quantitative easing, or money printing.
• S&P500: American stock market index based on the market capitalizations of 500 large companies.
• Three Witches: Third Friday of each month, when different kinds of contracts — futures, options, indexes — simultaneously end, usually marking a period of high volatility.
• Call option: An agreement that gives the right — but not the obligation — to buy a stock, bond, commodity, etc., at a specified price within a specific time period.
• Dow Jones: A stock market index.
• Permabull: Someone who is always upbeat about the future direction of the markets.
• Janet Yellen: Current president of the Fed.
• NASDAQ: U.S. stock market index.
• Black swan: An unpredictable rare event that is considered almost unlikely to happen. If it happens, the consequences are supposed to be considerable.
• ETF: Exchange-Traded Fund, a security that tracks an index, a commodity/basket of asset, like an index fund, but trades like a stock on an exchange.
• Alan Greenspan: Former Fed president.
• BNP: The most profitable French commercial bank.
• CAC40: Main French index market.
• DAX: Main German index market.
Le 17 octobre dernier, alors que les opérateurs tentaient de sauver les meubles à l’issue de la séance des "Trois sorcières", la probabilité de revoir le S&P 500 à 2 000 points avant le 31 octobre était estimée à… 0%.