Groundhog Wednesday – The BOJ Sees No Shadow!

Groundhog Wednesday – The BOJ Sees No Shadow!
Courtesy of Phil at Phil’s Stock World 

Of course it’s Groundhog Day today.     The movie “Groundhog Day” is one of my all-time favourite films and our foreign readers would do well to remember that we live in a country where thousands of people actually do gather each February 2nd in a small town in Pennsylvania where a dozen men in tuxedos pull a rodent out of a box to see how much longer winter will last based on whether or not it sees it’s shadow.   Perhaps the little ritual itself isn’t that strange but how seriously people in this country take it is downright weird!   In the movie, Bill Murray is forced to live the same day over and over, much like the trading range the markets have been stuck in for the past few weeks.  There’s nothing wrong with being in a trade channel if you learn to recognise the tops and bottoms – that’s why it’s so important we watch our breakout levels and don’t over commit as we near the tops or bottoms of the range.  As I often say, “if there’s a real market rally, we have all the time in the world to participate” so we scale in slowly here, looking to see if we hold these levels but anticipating a very possible test of the 50 dmas – about 5% lower than we are now. The big news this morning is the BOJ, like our groundhog, coming out of their hole and declaring an early spring.  That was the topic of this morning’s newscast at Philstockworld:

It was BOJ Board Member Hidetoshi Kamezaki, who expressed an upbeat view of the Japanese economy, saying he expects the nation to pull out of its lull over the coming months and return to a moderate growth path.  “Japan’s economy is likely to gradually exit its standstill toward spring,” Mr. Kamezaki said after meeting business leaders in Saga, southern Japan.  Like our own Fed, the BOJ is out of firepower with zero interest rates and the printing presses running 24/7 so all they have left is the power of the other kind of press and every day we are hearing statements from Global Central Bankers and our own Fed Governors who tell us everything is fine BUT they are going to keep printing money until the cows come home.  


Only last week, Standard & Poor’s lowered Japan’s long-term sovereign-debt rating by one notch to AA-, the first downgrade for Tokyo since April 2002. The agency slammed political leaders for having no “coherent strategy” to tackle the nation’s fiscal problems.  Mr. Kamezaki cited an expected pickup in exports on the back of stronger global economic growth as one reason for a likely recovery.  As noted in our podcast, that seems strange (as in total BS) because Honda just reported a 40% drop in net profits for Q4, under the pressure of a strong yen and slack domestic sales.  

Shiseido Cosmetics (Japan’s largest) also reported a 62% decline in net profits on a 4.9% decline in domestic sales, poor export exchange rates (Yen too strong) and, of course, inflated input costs.  Chip maker Elpida took a loss on a 36% decline in revenues and even Global Mega-Corp, Panasonic, had a 6% decline in Operating Profits and missed estimates DESPITE a government stimulus program to replace appliances.    

Nonetheless, like the BOJ, HMC is forecasting a better year ahead.  That has been very much the pattern with Q4 reports, with great expectations paving over somewhat disappointing actual data. In fact, the actions of the Central Bankers reminds me of another kind of “Great Expectations,”  where Dickens wrote: “We spent as much money as we could, and got as little for it as people could make up their minds to give us. We were always more or less miserable, and most of our acquaintance were in the same condition. There was a gay fiction among us that we were constantly enjoying ourselves, and a skeleton truth that we never did.”

In fact, the character of Pip in Dickens’ novel will likely provide a good foreword for the future autobiographies of our current “leaders,” who are selling our futures down the river in order to cater to the interests of the wealthy, rather than the people they are supposed to represent.  Pip said:

In a word, I was too cowardly to do what I knew to be right, as I had been too cowardly to avoid doing what I knew to be wrong.”

Ron Paul, despite being the new Chairman on the House Subcommittee on Monetary policy, doesn’t think we’re going to get real reform at the Fed until there’s a crisis that forces change in U.S. monetary policy.  “I think we’ll end up with a real crisis and then they’ll have to stop, think about it, and have a reform,” of Fed policy, he said.  The irresistible force of Ron Paul runs straight into the immovable object of Ben Bernanke’s thought process on February 9th, when Congressman Paul chairs his first hearing with The Bernank.

I could not be happier as I used to call Ron Paul’s 5-minute turns to ask Ben questions in prior hearings episodes of “When Ron Paul Attacks” – now it’s like he’s being given his own show! According to Paul:

I don’t know of anybody in the Congress that isn’t against these high unemployment problems that we have. The problem is nobody asks the question of how it came about, where the bubbles come from, and why the corrections are necessary, and how it’s related to monetary policy. So, politically it’s very important for us to talk about jobs. Some talk about increasing spending and printing more money, my effort is to try to show how unemployment comes about and how it’s related to the bad policies of the Federal Reserve.

In the words of the immortal Flounder: “Oh boy, is this great!”  Let’s warm up for next week by revisiting a classic Ron Paul moment from December, 2007 – when Ron Paul, with the market still “strong,” tried his best to warn us that the Emperor had no clothes:

Should the Fed be concerned?  Damn right they should be and they already are.  The Federal Reserve has already hired a lobbyist and it’s not disclosed if former GOP Congressman from Ron Paul’s Texas turned Bank Pimp, Steve Bartlett is also on their payroll but Bartlett came out in December saying: “The current debate, which has included both proposals to change the Fed’s mission and charges that border on demagoguery, runs the risk of compromising our central bank’s mission and weakening the economy.”  Bartlett was extremely openly critical of GOP leaders elevating Ron Paul to his chairmanship.  

Egypt is still up in the air today as our man (and he is the USA’s man) Mubarak did not step down right away.  Instead, he said he will not seek re-election in September and will hang around for the transition.  Mubarak won the last election with 92% of the vote so you can probably understand why this did not impress the 95% of the country that is protesting against him – most of whom could have sworn they voted for the other guy last time.  Also, not helping, Mubarak rallied thousands of “supporters” to confront the protesters and that situation is on the edge of boiling over this morning.  

Are the pro-Mubarak demonstrators out of uniform policemen sent by Mubarak or are they thugs that have been paid by oil speculators, who do not want their week-long gravy train to end so soon?  Their sudden and coordinated appearance is very, very, very strange but we’ll have to let the newspapers sort this one out.  

We had a strong ADP report this morning with 187,000 jobs added vs. 143,000 expected but the last report was not only miles off the actual and very disappointing NFP report (comes Friday) but even that one has been revised down by 50,000, to 247,000 – still more than double the 113,000 jobs that the Non-Farm Payroll report logged in December.  The Challenger Job CUT Report, on the other hand, is increasing – with 38,519 planned layoffs.  

Not at all surprisingly, the Fed is already positioning to spin the NFP report positive for the markets if it misses with Governor Hoenig telling Market News International that “The Federal Reserve may consider buying more U.S. Treasury securities than planned if U.S. economic data show weakness.”  That’s right folks – MORE FREE MONEY!  This is just what Egypt needs, I guess.  Europe too, as today’s Producer Price Index for the EU jumped 5.3% in December after increasing 4.5% in November so up 0.8% in one month is on pace for 9.6% and accelerating nicely. 

That is, I will remind you, WITH a strengthening Euro!  Of course the EU inflation was the timely subject of yesterday’s post “How the US Government Manipulates Inflation Data” because, apparently, it DOES take an Einstein to get to the bottom of all the shenanigans our Government is pulling on us.  Between the Hedges tells us thatGermans feel prices are rising almost twice as fast as the official rate, fueling wage demands and making it harder for the European Central Bank to keep a rein on inflation,” according to UniCredit Bank AG.

So-called “perceived inflation” jumped to 3.3% in December compared with Germany’s official rate of 1.7%. UniCredit calculates perceived inflation by giving greater weight to the goods people buy most often, such as fuel, food and clothing. “The rise in perceived inflation increases the likelihood of higher wage demands,” said Alexander Koch, an economist at UniCredit in Munich. “An excessive round of wage increases would certainly make the ECB nervous.”     

We should all be very nervous and, while we were indeed concerned that we were too bearish in yesterday’s PSW Wrap-Up Show, I’d be a lot more concerned if we were overly bullish here.  Lots of data to discuss in the next two days but let’s keep our eyes on Egypt and oil while we look to see if the Dow can hold 12,000 and the S&P can hold 1,300 while we wait for the Russell to confirm a move up by finally getting back over 800.  

Success Plan pic credit: PopEconomics 

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