The BOJ's Stench of Desperation

Takeaway: The BOJ is monetizing over half of annual JGB issuance but has still failed to energize economic growth.

Editor's NoteBelow is an excerpt from a research note written by Hedgeye Senior Macro analyst Darius Dale. To access our institutional research email

The BOJ's Stench of Desperation - Nikkei  BOJ cartoon 09.13.2016

That Japan's failure to launch occurring at a time when the Bank of Japan (BoJ) is expanding its balance sheet at a near +25% annual clip speaks volumes about the inefficacy of the BoJ’s existing monetary easing platform.


And while market participants have yet to defend critical ratios with respect to the size of the BoJ’s balance sheet or the pace of its accumulation of JGBs, the seemingly egregious nature of both is worth flagging.



  • The BoJ’s balance sheet is nearly three times the size of the next closest G4 counterpart when adjusted for the size of the respective economies.
  • When assessed as a ratio to total nonfinancial sector credit (a good proxy to evaluate where LSAP programs may face frictional resistance), the BoJ’s balance sheet is twice the size of the next closest G4 counterpart.
  • Prior to the start of Abenomics, the BoJ was a fairly distant third with respect to JGB ownership at 12% of the float. It’s now far and away the #1 holder at 33.9% of the total. Monetizing over half of annual JGB issuance has a tendency to do that for you. 


The BOJ's Stench of Desperation - central bank 9 20


All told, the purpose of this note isn’t to speculate on what the BoJ will or won’t do tomorrow. For all I care, Kuroda could tightrope across the towers of the Tokyo Metropolitan Government Building wearing nothing but whitey tightys and I would be largely unfazed.


While there’s no doubt the BoJ has the potential to shock global bond markets for a TRADE, there’s also no doubt that nothing they do tomorrow or in the not-too-distant future will outweigh economic gravity in the pricing of interest rates over the long term. How they plan to achieve the aggressive growth and inflation targets as mandated by Abenomics remains well beyond our purview – and likely theirs too (hence the stench of desperation and policy fatigue).


See the forest, not the trees. The central planning #BeliefSystem continues to break down right before your very eyes.

Poll of the Day: Will The Fed Raise Rates This Week?

Takeaway: What do you think? Cast your vote. Let us know.

Syria: Another 30 Years War?

Editor's NoteBelow is a complimentary research note written over the weekend by Hedgeye Potomac National Security analyst LTG Dan Christman USA Ret. To access our institutional research email


Syria: Another 30 Years War? - syria


With Russian foreign minister Sergei Lavrov at his side, Secretary John Kerry a week ago announced a Syrian cease-fire deal that could lead to coordinated U.S.-Russian air operations against Syria-based jihadists; Kerry also posited that the deal could provide an eventual path to a negotiated political settlement to replace the Assad regime in Damascus.


  • Unfortunately, based on previous efforts to secure a pause in the fighting alongside Moscow, this will likely prove to be a classic triumph of hope over experience. 
  • Syria is already on a long path to repeat Europe's 17th Century 30 Years War - one that laid waste to much of what is today's Germany. Syria will never again be the pre-2011 unified state it was before the onset of the current anti-Assad fighting.  Sadly, this latest Kerry deal will probably do nothing to alleviate the horrific suffering of the Syrian population or even begin the process of putting the Syrian "Humpty-Dumpty" back together.

 Consider the deal itself: 

  • In its essence, it requires a cease fire, effective last Monday, in which all parties - the Assad government as well as the opposition - stop air and ground attacks; humanitarian corridors would be opened to relieve suffering in the city of Aleppo in particular; and IF the cease fire is effective for seven continuous days, then and only then would the US and Russia work to establish a Joint Implementation Center (JIC) to coordinate air attacks against ISIS and the principal al Qaeda affiliate in the area, "Syria Conquest" (formerly al Nusra).  
  • But who seriously believes that the dozens of opposition groups battling Assad (many closely intertwined with Syria Conquest) or the Damascus regime will adhere to this? The "support" for the deal from Russia, Iran, Damascus, and Hezbollah is beyond cynical.  Because of "facts on the ground," each now holds the military advantage; there's no incentive for them to change anything.
  • Numerous cease fire violations of the accord this week have confirmed the worst; yet, so far, the deal has gotten off the ground – but barely; sadly, like the “cessation of hostilities” accord from last February, an agonizing death for this deal probably awaits.

Many have talked about what might be needed to change the "facts on the ground" in Syria. Here's one answer: 

  • First, because nearly all of the civilian casualties in major population centers like Aleppo, Homs, and Hama - and the refugees flows from these areas - are caused by barrel bombs, cluster bombs, and chlorine gas dropped from Syrian aircraft and helicopters, Washington needs to bluntly warn Assad, in simplest terms: "NO More!"
  • Then, if Assad uses those systems, after a one hour notice to the Russians (the notice they gave us before they launched their first air combat sorties in Syria), the U.S. should send cruise missiles, drones, rockets, and stealth aircraft to target every Syrian fixed wing asset, every helicopter, and all of Assad's personal aircraft. If a restrike is necessary after a bomb damage assessment (BDA), we should execute it immediately. 
  • The U.S. should then say to Assad, "Don't do this again." This becomes a “no-fly” zone, but vigorously enforced from the outset.
  • The Russians would howl; but Washington would have their attention, and in the end, their cooperation.   

The U.S. is currently not a country that believes in changing "facts on the ground" in the Middle East, even "facts" that have produced over 400,000, largely civilian, deaths. But an action like the one outlined above may be about the only way to get the attention - and the respect - of Vladimir Putin. And it can also help move us to the ultimate goal: a political solution in this fractured country - one that is the only way to end the Syrian version of Europe's 30 Years War. 

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Bond Bear Beat Down

Takeaway: In the past year, JGB 10yr yields are down 38bps on the most causal factor in all of macro right now, #GrowthSlowing.

Plenty of clever questions in the @Hedgeye inbox on why “JGB yields might rip” (higher)… and they just went lower (again) instead, back down to -0.07% on the JGB 10yr this morning w/ no support to -0.27-0.28%.


As Hedgeye Senior Macro analyst Darius Dale wrote earlier this morning:


"Investor consensus is far too focused on the risk of policy action (or inaction) out of the BoJ perpetuating a potentially violent backup in bond yields globally and not nearly enough on the underlying drivers of “lower-for-longer” and negative-yielding debt securities – drivers that are set to remain in place for quite some time."


In the past year, JGB 10yr yields are down 38bps on the most causal factor in all of macro right now, #GrowthSlowing.


Bond Bear Beat Down - japan gov bond 9 20


So why in God’s good name would you “invest” at this stage of the #GrowthSlowing cycle as the #BeliefSystem that the Fed, ECB, BOJ, PBOC, BOE, etc. breaks down?


Bond Bear Beat Down - central bankers cartoon 06.29.2016


Editor's Note: The snippet above is from a note written by Hedgeye CEO Keith McCullough and sent to subscribers this morning. Click here to learn more.

Daily Market Data Dump: Tuesday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, rates and bond spreads, key currency crosses, and commodities. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products




Daily Market Data Dump: Tuesday - equity markets


Daily Market Data Dump: Tuesday - sector performance


Daily Market Data Dump: Tuesday - volume


Daily Market Data Dump: Tuesday - rates and spreads


Daily Market Data Dump: Tuesday - currencies


Daily Market Data Dump: Tuesday - commodities

September 20, 2016

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  • Bullish Trend
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  • Neutral

10-Year U.S. Treasury Yield
1.73 1.52 1.70
S&P 500
2,105 2,159 2,139
Russell 2000
1,200 1,264 1,232
NASDAQ Composite
5,111 5,262 5,235
SPDR S&P Oil & Gas Explore
34.71 37.15 36.09
1,140 1,213 1,187
Nikkei 225 Index
16,230 16,771 16,519
German DAX Composite
10,175 10,770 10,373
Volatility Index
14.02 19.84 15.53
U.S. Dollar Index
94.50 96.25 95.76
1.11 1.13 1.11
Japanese Yen
101.07 103.86 101.88
Light Crude Oil Spot Price
42.05 45.20 43.86
Natural Gas Spot Price
2.66 3.04 2.93
Gold Spot Price
1,302 1,352 1,317
Copper Spot Price
2.05 2.17 2.15
Apple Inc.
108.19 117.99 113.58
751 791 775
J.P. Morgan Chase & Co.
65.30 67.62 66.19
Intel Corp.
35.88 38.00 37.16
Las Vegas Sands Corp.
53.50 58.67 56.61
Chipotle Mexican Grill, Inc.
395 414 402

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