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Bank of Japan Spends A Record $81 Billion To Avert Collapse, But $10 Trillion JGB Market Is Now Completely Broken

Bank of Japan Spends A Record $81 Billion To Avert Collapse, But $10 Trillion JGB Market Is Now Completely Broken

Exactly one week ago, when…

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Bank of Japan Spends A Record $81 Billion To Avert Collapse, But $10 Trillion JGB Market Is Now Completely Broken

Exactly one week ago, when quantifying the dizzying cost of the BOJ's defense of its Yield Curve Control policy (at the expense of the collapsing yen), Deutsche Bank's George Saravelos calculated that the "the BOJ printer is on overdrive", and if the current pace of buying persists, the bank will have bought approximately 10 trillion yen in June. To put that number in context, it is roughly equivalent to the Fed doing more than $300bn of QE per month when adjusting for GDP.

Somewhat redundantly, the DB strategist said that this is a "truly extreme" level of money printing given that every other central bank in the world is tightening policy and is one of the reasons why he has been bearish on the yen. And as so many have argued, "currency intervention in this environment is simply not credible given it is the BoJ itself that is the cause of yen weakness."

More broadly, Saravelos echoes what we said in our preview of the end of MMT, writing that he worries that "the currency and Japanese financial markets are in the process of losing any sort of fundamental-based valuation anchor" and, as a result, "we will soon enter a phase where dramatic and unpredictable non-linearities in Japanese financial markets would kick in."

He was proven right the very next day, when not an insigificant part of Japan’s bond market imploded as the central bank battles to keep control of its policy goals as some of the largest hedge funds in the world pile on billions in bets that the BOJ is about to lose control, in a repeat of Soros' dramatic crusade against the BOE (which the billionaire democrat ended up winning, and affording him the wealth to be the US government's shadow puppetmaster to this day).

As Bloomberg explained, a small tweak to the Bank of Japan’s bond purchase plan this week blew up an arbitrage strategy popular with overseas investors known as the basis trade (the same basis trade which blew up in 2019 in the US cash/futures market sparking the historic repo crash and the Fed's return to QE). It also exacerbated a supply shortage of government bonds that has ramped up pressure on domestic financial institutions, leading them to turn to the BOJ for help to relieve the strain.

One week ago we described how after four straight days of declines in Japanese bond futures, the central bank announced unlimited purchases of so-called cheapest-to-deliver 10-year notes for Thursday and Friday - securities closest linked to the contracts. That sent the spread between the futures and the bonds underlying them soaring to the widest since 2014 - a massive shock for traders with positions between the two.

As a result, 10Y JGB futs crashed by the most since 2013 as traders bet that the BOJ will be forced to abandon its pledge to cap yields at 0.25%...

... while the gap between JGB futs and underlying cash bonds soared the most on record.

The chart below is another way of visualizing this historic divergence between futs and cash JGBs, clearly signaling the market's belief that the BoJ will fold on its unlimited bond buying curve control program.

Needless to say, arbs who were short the cheapest-to-deliver bonds and long the futures contracts suddenly faced steep losses and found it impossible to close their positions (remarkably all this was happening in the world's 2nd largest bond markets, amounting to some 1.24 quadrillion yen or about $10 trillion, yet all everyone can talk about is crypto). As Bloomberg notes, the BOJ had effectively cornered the market in the cheapest-to-deliver bonds making it almost impossible for others to purchase them, while the futures price slumped to the brink of a trading halt as those caught out rushed to close.

By late day Wednesday, a Bloomberg estimate of the cost to close this so-called short basis trade widened to about minus 7% from minus 0.4% the day before. It remained at distressed levels Friday -- around minus 2% -- suggesting some investors were still stuck on the wrong side of the trade.

"The selloff in futures has killed arbitrage opportunities,” said Mari Iwashita, chief market economist at Daiwa Securities. “This situation will eventually end up in a total stalemate in markets."

By stalemate, he means "crash."

Speculative attacks on Japanese bonds have mounted as a growing number of funds - most notably the giant, $127 billion BlueBay - bet the BOJ will cave in to pressure and change its increasingly isolated super-easy monetary policy. The central bank confounded its critics Friday, holding firm with its rock-bottom interest rates and continuing with its fixed-rate bond purchase plan.

Benchmark bond yields fell further below the 0.25% ceiling, after the central bank announced a fixed-rate purchase operation for the afternoon.

But the bigger problem for the BOJ is that those purchases, which preserving the BOJ's YCC "credibility" (for now) are also sucking up what little liquidity is available in the JGB market, piling pressure on local institutions, something which can be seen in the usage of the BOJ’s lending program -- another gauge of stress in the market.

Yes: on one hand the BOJ continues to buy billions in JGBs via QE, but on the other it is forced to lend what it has bought back into the market to avoid a terminal paralysis of what was once the second deepest bond market.

The amount of bonds the central bank has lent "temporarily" to financial institutions to relieve supply tightness has hit a record, Bloomberg data show. The BOJ lent 3.2 trillion yen ($23.9 billion) of JGBs through its Securities Lending Facility on Thursday, well above the 2.3 trillion yen lent at the peak of coronavirus fears in March 2020.

BOJ Governor Kuroda told reporters on Friday that the BOJ will take appropriate measures to address any decline in bond market liquidity. But he also said he isn’t thinking about raising the 10-year yield ceiling from 0.25%, which means that the liquidity situation will only get worse in the coming days.

“Market functioning and liquidity have deteriorated sharply with the BOJ’s massive JGB purchases,” Barclays strategist Shinji Ebihara wrote in a note.

Meanwhile, and going back to the original point brought up by DB's Saravelos above that the BOJ is spending monstrous amounts of yen just to keep the JGB market from crashing, as traders countdown to the complete Ice-9ing of the Japanese bond market (which in recent months has seen its share of days without a single trade crossing) Bloomberg has calculated how much it cost the BOJ to preserve calm after last week's catastrophic slide in futures, and the answer is some 10.9 trillion yen ($81 billion) of government bond purchases last week, the most on record. By way of comparison, European Central Bank asset purchases under its so-called APP program averaged about $27 billion - per month - this year through May. But fear not, once Europe's dominoes start falling and peripheral yields explode to all time highs, Lagarde's hedge fund will make BOJ's purchases seems like a walk in the park by comparison.

And while every day could be the BOJ's last, market watchers see the temporary calm as an eye in the proverbial hurricane, as the BOJ continues to defy an intensifying global wave of central bank tightening and concentrated market pressure on the yen and government bonds. Treasuries remain a key driver as does the direction of the dollar-yen, hovering around a 24-year low.

“If the yen weakens further as a sell-off in foreign bonds resumes, it would not be surprising were the yen rates market to start testing the BOJ again,” wrote Citigroup Inc. strategist Tomohisa Fujiki in a note.

One place where the pressure is building up, is in implied volatility for 10-year JGBs, which however eased modestly after rising to the highest since the global financial crisis in 2008 on Friday. The BOJ said Friday its bond buying will continue for an extended period of time.

“Since the JGB market volatility has been initiated by the global reaction to US CPI and the Federal Reserve’s tightening, the structure keeping it unstable remains quite intact,” said Mari Iwashita, chief market economist at Daiwa Securities. “Even as the BOJ steps up efforts to defend its turf, the structure behind the challenges remain the same.”

Speculative attacks on Japan’s bond market have mounted amid bets the BOJ will cave in to pressure and tweak its increasingly isolated easy monetary policy -- something it reconfirmed at its policy decision Friday. But the impact of the central bank’s bond purchases have squeezed some corners of the futures markets, putting at least some arbitrage traders under pressure.

And yet, the most ominous sign yet for the BOJ is the recent quiet appointment of a Japanese government bond expert with experience of the market turmoil of the late 1990s to a key role in the Finance Ministry, which caught the attention of market watchers in Tokyo. Michio Saito -- dubbed “Mr. JGB” -- will head up a division that covers the bond market and may strengthen lines of communication with the central bank, according to some strategists.

For the BOJ to seek a smooth exit from massive bond purchases, close cooperation with the finance ministry is essential, so the appointment of an experienced person in charge is very significant, Iwashita said. This “is positive news for the market,” she said.

Most disagree, however, although they know better than to take the BOJ head on: after all, shorting JGBs has been a widowmaker trade for decades. Still, there is a sense of ominous capitulation vis-a-vis the Japanese bond market in recent days, almost as if we are now well past the point of no return and the final collapse of not just the JGB market, but the entire fraudulent MMT paradig, is just days if not hours away. Indeed, as Rabobank's Michael Every put it, with every attempt to preserve the status quo, the BOJ is pulling even further on a monetary elastic band that will hurt far more when it does inevitably come snapping back the other way, and concludes that when the BOJ's YCC peg eventually breaks, markets are going to get hit hard: "Japan is currently a source of ultra-cheap financing in a world of rising rates, and with a currency that is only going one way - down. If both reverse at once,… ouch!"

Tyler Durden Mon, 06/20/2022 - 22:03

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The Coming Of The Police State In America

The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now…

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The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now patrolling the New York City subway system in an attempt to do something about the explosion of crime. As part of this, there are bag checks and new surveillance of all passengers. No legislation, no debate, just an edict from the mayor.

Many citizens who rely on this system for transportation might welcome this. It’s a city of strict gun control, and no one knows for sure if they have the right to defend themselves. Merchants have been harassed and even arrested for trying to stop looting and pillaging in their own shops.

The message has been sent: Only the police can do this job. Whether they do it or not is another matter.

Things on the subway system have gotten crazy. If you know it well, you can manage to travel safely, but visitors to the city who take the wrong train at the wrong time are taking grave risks.

In actual fact, it’s guaranteed that this will only end in confiscating knives and other things that people carry in order to protect themselves while leaving the actual criminals even more free to prey on citizens.

The law-abiding will suffer and the criminals will grow more numerous. It will not end well.

When you step back from the details, what we have is the dawning of a genuine police state in the United States. It only starts in New York City. Where is the Guard going to be deployed next? Anywhere is possible.

If the crime is bad enough, citizens will welcome it. It must have been this way in most times and places that when the police state arrives, the people cheer.

We will all have our own stories of how this came to be. Some might begin with the passage of the Patriot Act and the establishment of the Department of Homeland Security in 2001. Some will focus on gun control and the taking away of citizens’ rights to defend themselves.

My own version of events is closer in time. It began four years ago this month with lockdowns. That’s what shattered the capacity of civil society to function in the United States. Everything that has happened since follows like one domino tumbling after another.

It goes like this:

1) lockdown,

2) loss of moral compass and spreading of loneliness and nihilism,

3) rioting resulting from citizen frustration, 4) police absent because of ideological hectoring,

5) a rise in uncontrolled immigration/refugees,

6) an epidemic of ill health from substance abuse and otherwise,

7) businesses flee the city

8) cities fall into decay, and that results in

9) more surveillance and police state.

The 10th stage is the sacking of liberty and civilization itself.

It doesn’t fall out this way at every point in history, but this seems like a solid outline of what happened in this case. Four years is a very short period of time to see all of this unfold. But it is a fact that New York City was more-or-less civilized only four years ago. No one could have predicted that it would come to this so quickly.

But once the lockdowns happened, all bets were off. Here we had a policy that most directly trampled on all freedoms that we had taken for granted. Schools, businesses, and churches were slammed shut, with various levels of enforcement. The entire workforce was divided between essential and nonessential, and there was widespread confusion about who precisely was in charge of designating and enforcing this.

It felt like martial law at the time, as if all normal civilian law had been displaced by something else. That something had to do with public health, but there was clearly more going on, because suddenly our social media posts were censored and we were being asked to do things that made no sense, such as mask up for a virus that evaded mask protection and walk in only one direction in grocery aisles.

Vast amounts of the white-collar workforce stayed home—and their kids, too—until it became too much to bear. The city became a ghost town. Most U.S. cities were the same.

As the months of disaster rolled on, the captives were let out of their houses for the summer in order to protest racism but no other reason. As a way of excusing this, the same public health authorities said that racism was a virus as bad as COVID-19, so therefore it was permitted.

The protests had turned to riots in many cities, and the police were being defunded and discouraged to do anything about the problem. Citizens watched in horror as downtowns burned and drug-crazed freaks took over whole sections of cities. It was like every standard of decency had been zapped out of an entire swath of the population.

Meanwhile, large checks were arriving in people’s bank accounts, defying every normal economic expectation. How could people not be working and get their bank accounts more flush with cash than ever? There was a new law that didn’t even require that people pay rent. How weird was that? Even student loans didn’t need to be paid.

By the fall, recess from lockdown was over and everyone was told to go home again. But this time they had a job to do: They were supposed to vote. Not at the polling places, because going there would only spread germs, or so the media said. When the voting results finally came in, it was the absentee ballots that swung the election in favor of the opposition party that actually wanted more lockdowns and eventually pushed vaccine mandates on the whole population.

The new party in control took note of the large population movements out of cities and states that they controlled. This would have a large effect on voting patterns in the future. But they had a plan. They would open the borders to millions of people in the guise of caring for refugees. These new warm bodies would become voters in time and certainly count on the census when it came time to reapportion political power.

Meanwhile, the native population had begun to swim in ill health from substance abuse, widespread depression, and demoralization, plus vaccine injury. This increased dependency on the very institutions that had caused the problem in the first place: the medical/scientific establishment.

The rise of crime drove the small businesses out of the city. They had barely survived the lockdowns, but they certainly could not survive the crime epidemic. This undermined the tax base of the city and allowed the criminals to take further control.

The same cities became sanctuaries for the waves of migrants sacking the country, and partisan mayors actually used tax dollars to house these invaders in high-end hotels in the name of having compassion for the stranger. Citizens were pushed out to make way for rampaging migrant hordes, as incredible as this seems.

But with that, of course, crime rose ever further, inciting citizen anger and providing a pretext to bring in the police state in the form of the National Guard, now tasked with cracking down on crime in the transportation system.

What’s the next step? It’s probably already here: mass surveillance and censorship, plus ever-expanding police power. This will be accompanied by further population movements, as those with the means to do so flee the city and even the country and leave it for everyone else to suffer.

As I tell the story, all of this seems inevitable. It is not. It could have been stopped at any point. A wise and prudent political leadership could have admitted the error from the beginning and called on the country to rediscover freedom, decency, and the difference between right and wrong. But ego and pride stopped that from happening, and we are left with the consequences.

The government grows ever bigger and civil society ever less capable of managing itself in large urban centers. Disaster is unfolding in real time, mitigated only by a rising stock market and a financial system that has yet to fall apart completely.

Are we at the middle stages of total collapse, or at the point where the population and people in leadership positions wise up and decide to put an end to the downward slide? It’s hard to know. But this much we do know: There is a growing pocket of resistance out there that is fed up and refuses to sit by and watch this great country be sacked and taken over by everything it was set up to prevent.

Tyler Durden Sat, 03/09/2024 - 16:20

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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