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This year the Bank of Japan has decided to invest directly into Japanese listed companies.
They are in the top 10 shareholdings for the majority of listed stocks on the Nikkei index. This is supposedly going to help the economy because they will provide a floor in prices.
Unfortunately for the BoJ, this act will attract a lot of criticism in the future and it does seem like an act of desperation.
The money used to buy shares has to come from taxpayers, except that Japan has the largest government debt to GDP in the known world.
There is now talk that China needs to provide more stimulus to the economy as it is inexorably slowing to a point of contraction.
There is a belief that the Chinese government will provide similar packages as their Japanese counterparts.
The level of debt in the world is enormous, with over $14 trillion of government bonds on a negative yield.
Yesterday one of the Big 4 banks, I’ll let you guess which one, released a report into the economic performance of each State in Australia.
Predictably the report highlighted the fact that the mining boom has finished. They also argued that the States that were not part of the mining boom have taken the lead and are “powering ahead”.
By powering ahead, there has been a slight increase in housing activity in NSW and Victoria.
The report also argues that personal spending is rising, however they probably didn’t look at the spending increase being based on people maxing out their credit cards even further.
International Monetary Fund cuts its forecast for global growth.
Overnight the International Monetary Fund (IMF) cut its forecast for global growth for the 4th time this year. Interestingly they cited the Brexit vote as a cause of the lowered forecast, with out really understanding how the process works.
Forecasting is given a lot of credence in the financial world and a quick check on how accurate they are would disappoint. The IMF have lowered their forecast 4 times and each time they think it has to do with a particular event.
If they looked at the measures of confidence around the world they could see that the population in general are feeling less confident as the year goes on. This means that the social mood is collapsing and as a result, economic indicators fall as well.
Gold fell almost 2% overnight and yet again reinforces the wisdom of not going with the crowd. With record long positions held by hedge funds, pension funds, money managers and retail investors, gold was primed to fall against this almost fever pitch of buying.
On the other side of the speculators, there was a record number of short positions held by what is classed as Commercials. They are the companies that dig gold out of the ground and sell it for a profit.
On one side you have a group of people who are speculating. On the other it is simply a business decision.
Given that the speculators are almost always long at the top and short at the bottom, the emotionless Commercials have the right strategy.
There has been a lot written about the decision by the ratings agencies to lower the credit rating outlook of Australian Government debt. This is actually significant for the market although the negative outlook means that the actual rating may not change for another 18 months.
Apparently the ability of the government to continue fiscal reform and to get the budget through the Senate is all that is required to maintain the Triple A rating. A quick look at the composition of the Senate tells me that the outlook may be reduced faster than thought.
A little reported event that occurred at the same time the government got their rating cut was that the Big 4 banks also had their outlook reduced to negative as well. It makes sense that this would happen as the market believes that the banks are given an automatic lifeline if the credit markets seize up.
Australian Banks under fire by the Hedge Funds again
Rising bad loans and falling earnings are the trigger
It seems that the mainly international hedge funds have set their sights on the Australian banks yet again. Current data shows that the funds have ‘borrowed’ A$9bn worth of stock to sell short against the Big 4 banks in Australia. The trigger for this increase to record short selling against the banks started with the ANZ’s most recent result, which saw the bank cut its dividend and increase their bad and doubtful debt book for the first time since 2008.