MAD Macro - Kamikaze Economic Policy
Japan Eases and Tightens, Kamikaze Style
What Happened to Truth Social?
Economic policy in Japan is very confusing. My favorite “inflation is transitory” macro economist, the Jesus of macro, David Zervos, has new commentary about Japan’s latest monetary policy stance. To quote David, “Engaging in straight-up QE, while raising rates, is something completely different. It’s a highly incongruous policy mix I believe we have never seen before.” Yes it’s strange, but Japan’s central bank, the BOJ, has been buying their own government debt and public equity market for so long we all forgot they were still doing it. They now own 53% of their own bond market and are also the largest shareholder of the Japanese stock market. They have no plans to stop buying as they raise interest rates. David, who has never met a central banker he doesn’t like, thinks it might be a good idea and maybe we should try it. I am not sure what to think? It’s always seemed to me that the BOJ was engaged in a kamikaze economic policy. If they buy all of the government debt, does it matter? If they do, what’s their debt to GDP ratio, zero or 250%? David believes that the U.S. Fed will stop QT when they start easing in June. If the Fed maintains a very large balance sheet, what is the U.S. debt to GDP ratio, 97% or 120%? Do high levels of government debt even matter if central banks buy most or all of it? If we monetize most of the debt, what happens to the economy and inflation? It feels like a kamikaze dive bomber mission.
The Orange Mad King I’s Truth Social stock is crashing. It was fun while it lasted, but someone noticed that this emperor is not wearing any clothes. Truth Social stock, with the ticker DJT, fell 20% yesterday and is lower again this morning. I wonder why the Orange Mad King I used the DJT ticker again? He last used the DJT ticker when he took his hotels and casinos public in 1995. That company filed Chapter 11 bankruptcy in 2004. Maybe it’s his idea of a good joke. Good thing he posted bond yesterday, he might not have secured the bond if Truth Social goes to zero. It would be funny if the Truth Social bubble popping marked the top of other market bubbles. Has anyone seen George Costanza?
The Mideast war is getting serious. Israel bombed and killed two high ranking Iranian generals in Syria. Wonder why they were in Syria? Oh, I forgot, Iran is actually leading the “resistance” war against Israel. WTI crude oil is over $85 this morning. The Tin Man is in a very difficult position when it comes to the Mideast war. A very vocal portion of the Democratic party is against Israel. So the Tin Man needs to moderate his support for Israel. But he has another possibly bigger problem, oil prices. At $85 WTI crude oil, gasoline prices at the pump will be over $4 this summer. No problem, he will just start selling more SPR oil. Whatever it takes. Lower interest rates and fiscal spending to support the economy and save democracy. Why not sell more oil from the SPR? That’s what the Strategic Petroleum Reserve is for, to save democracy.
Markets are a little lower this morning. We get the JOLTS job openings number today at 10 am. It’s expected to be 8.7 million, down from 8.8 million last month. Friday is the big number, the monthly unemployment report. Bitcoin is sharply lower on the first ETF daily outflow yesterday. WTI crude oil is making new recent highs and gold made new all-time highs early this morning.
I included a chart of projected U.S. debt to GDP ratios. I updated the U.S. Dollar Index, U.S. 10yr yield, WTI crude oil, VanEck CMCI commodity index, spot gold, GDX VanEck Gold Miners ETF, bitcoin, S&P futures and NASDAQ 100 futures charts below.
The dollar is unchanged and interest rates are slightly higher after rising sharply yesterday on the strong ISM manufacturing number.
Crude oil is above $85. The VanEck CMCI Commodity Index is testing 2 year highs. Spot gold is a little higher after making new all-time highs overnight. GDX VanEck Gold Miners ETF is breaking out of a long-term wedge formation to the upside. Bitcoin is sharply lower this morning.
S&P and NASDAQ 100 futures are both lower this morning.
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Unless otherwise stated, Bloomberg is the source of all data and charts.
S&P 500 futures are a type of derivative contract that provides a buyer with an investment priced based on the expectation of the S&P 500 Index’s future value. Nasdaq 100 futures are commodities futures products traded within the equity futures sector. West Texas Intermediate (WTI) oil is a benchmark used by oil markets, representing oil produced in the U.S. Brent Crude Oil is a blend of crude oil recovered from the North Sea in the early 1960s, whose price is used as a benchmark for the commodity's prices. The U.S. dollar index (USDX) is a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the U.S.'s most significant trading partners. UBS Bloomberg Constant Maturity Commodity Index is a total return rules-based composite benchmark index diversified across commodity components from within specific sectors.
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