Bank of Japan Is an Estimated Top 10 Holder in 90% of the Nikkei 225 | Hacker News Reader

Bank of Japan Is an Estimated Top 10 Holder in 90% of the Nikkei 225

bloomberg.com

201 pointsrandomname2214 comments

This is ridiculous. It illustrates that most central banks’ primary mission has become asset price inflation (primarily the stock market) more than anything else. Pension funds, retirement savings, the top 1%’s majority of assets, and so on are all in the market so governments of the world have decided that the market shouldn’t go down, at least not very much.

So we are stuck at zero percent interest rates going negative. Give out the money to keep the party going. Any hiccup in the markets and banks cut rates. Our economies will continue to struggle with malinvestments until interest rates are in a more reasonable long-term range and all the zombie businesses can die and free up resources for stronger players. Amazing how supposed proponents of ‘free markets’ try to micromanage entire economies.

I also enjoy the side effect of keeping the rate of return for savings accounts at zero.

This is a frequent misguided criticism. The job of central banks isn't to ensure that savings accounts have a high rate of return. They're not robbing virtuous savers.

It is the nominal rate of return which we are talking about too, which means that the rate reflects the low rate of inflation. An increase as a result of inflation would amount to no long-term gain for savers.

Real returns result from real investments, not fluctuations in the money supply.

Which means that savings accounts give zero return or negative return to force you to make real investments.

The person above you wasn't wrong, and what you described is the entire point of the operation.

> force you to make real investments.

There lies the problem. Real investments aren't made, unless pushing the price of housing stock to extract more from renters and to-be homeowners, as well as stock buybacks in large corporations, are the "real investments" central banks are preferring.

Although that is what is happening, I think it will take quite a while for people's investment profiles to change.

Right now there are people that think "I can't keep my money in the bank without it loosing money, let alone keep up with inflation, what am I supposed to do put it under a mattress!?"

It will be quite a while before people become corporate bond investors as commonplace (which would put money back into the economy).

In Switzerland, for example as a nation of savers, the corporate bond market has basically dried up. Because even higher risking bonds have too low yields to be attractive for the risk. (Although the Swiss National Bank hasn't prompted bank savings account interest rates to go negative.. yet).

As someone who has been burned several times by the stock market and supposedly safe index funds, I have no idea where I would put my savings (if I had any substantial amount). Stock market / mutual funds have a high risk of loss. Bank accounts will not grow (and will lose eventually due to inflation). Inflation-adjusted savings securities seem like the best bet, but they won't grow. There's no safe return anywhere anymore.

> no safe return anywhere anymore

Just means your risk profile is too low. As detailed earlier, the central banks literally don't want you to do the things you were considering doing. Their distortions of the market are not arbitrary.

They want you to make private equity investments (the ones that don't come with hundreds of pages of disclosures), they want you to buy corporate bonds.

They want you to do things that actually put money back into the economy, and give a potentially higher return with a higher risk of loss.

The line between investing and gambling has always been a social construct. You hop into derivatives and even the "positive vs negative expected value" distinction falls apart.

There never was any safe return anywhere. It was all an illusion. Even US government bonds carry some risk once you account for black swan events across a sufficiently long period of time.

>As someone who has been burned several times by the stock market and supposedly safe index funds...

I'm curious to know what this means. You can only get "burned" in index funds if you pull your money out when the market is down. Are you investing money you need to pay the bills?

Bad timing. I'm sure the stock market is fine for people with an infinite time horizon, but I no longer trust it as a place to park savings for 5-10 years that you want to grow in order to buy a house or spend on grad school.

You are not alone. If you look at the "target retirement date" funds Vanguard etc. run you'll see that by the time the target date is 5-10 years out they have shifted largely to bonds to provide defined income.

Sounds like you need better advice. Most advisors will tell you that 5-10 years isn't quite long enough for the risks of stocks to pay off. Sounds like you wanted medium-term bonds instead of stocks!

Does this mean I'm better off not having any money in a savings account (except perhaps 1 month's expenses or so) and putting that money in stocks and bonds? I've been thinking recently of moving (part of) my 5-month emergency fund to intermediate term muni bonds (VWITX specifically). But I'm not sure if that's a good move.

IANAFA (not a financial advisor :P), but it really depends on your goals and risk tolerance. Sure, interest rates are low but so are inflation rates. Sitting on cash isn't as bad as it used to be if you want instant-access to dollars. If you don't need that 5-month-emergency-fund to grow, you probably don't need to put it in riskier vehicles. I believe putting that fund in VWITX would still give you quick access (on the order of a day or two) to if you needed it. You should look at the size of the fund and weigh the risks: definite loss due to inflation over N years, or the small risk-reward spread of medium-term bonds (i.e. they will probably grow, and you'll be earning interest, but there is a chance you'll be forced to sell at a time when bond prices have dropped).

All true but done in light of the historical record of every other time the party crashed to a halt suddenly. They're trying to not let everything go to shit while a solution is prayed for.

Actually, every other time after the Great Depression (which was arguably different, because there was still the gold standard), markets rebounded quite quickly after a crash; you could say that each crash was a "clean cut", while what we have now is a "botched surgery massacring the patient".

Why did the gold standard cause the depression to linger? Because the standard meant less financial tools available to policy makers?

Theories vary. It's believed in some theories that some nations "cheated" and held more gold than the currency offered would imply.

Historically, things are just as unstable with gold as without it. And if you have productivity rises and inadequate increase in gold supplies, you get deflationary effects. This being said, fiat seems just as capable of that.

Just as an example, the Swiss National Bank notoriously took a $120M+ loss on Valeant. [1]

[1] http://www.fuw.ch/article/die-angst-der-snb-vor-dem-eigenen-...

Tangential question: One of HN's frequent subjects is the rapid rise in Bay Area housing prices. Since real estate is an asset like any other, how does the Fed's policy of inflating asset prices contribute to this phenomenon?

Real estate price rises at that level imply the pursuit of land rents. This doesn't happen in Texas. Compare and contrast.

Low interest rates means you can afford to borrow more money to buy a house. 3000 dollars a month payment radically changes based on how much the interest changes.

Real estate prices, as with all other assets, are a function of supply and demand. In the case of San Francisco, supply has remained relatively constant (due to stability in the housing stock) and demand has increased.

Without looking at the data, I'd imagine the recent explosion of the technology industry in the Bay Area has been the largest driver of demand for houses. An increased number of people moving to the area for employment will naturally increase the demand for houses.

However, Fed policies also contribute to the demand for housing. As the Fed has kept interest rates close to 0%, it is much easier to finance mortgages for houses, so the housing becomes more affordable (when considering amortization). Additionally, these policies have also driven investment into higher yielding assets, such as equities, in search for greater return. This has had the effect of increasing many individuals' wealth, making them more capable of purchasing houses.

With increases in the ability to pay for housing (assuming housing is a normal good), there will be an increase in demand for housing.

Real estate prices are not solely a function of supply and demand. If the value of your money goes down, so too will the price of your house.

>Real estate prices are not solely a function of supply and demand. If the value of your money goes down, so too will the price of your house.

Sorry, but that statement is pure nonsense. If the value of your money goes down, you will need more if it to purchase any good (since it is less valuable). Therefore the price of your house has increased, since you need a nominally greater amount of money to purchase the house.

And, yes, all asset prices are ultimately determined by supply and demand. Suppose you are the last person on earth. You necessarily own all houses on earth. However, you cannot sell them for any price, so no price exists. Now suppose you own the only house on earth (with its current population). I imagine you might be unwilling to give up the comforts of a home at any price (although people will likely offer huge sums for the house). As you can see, the supply and demand of assets fundamentally determines their values.

The housing prices don't really adjust for foreign exchange rates of a currency most of the time. There are forces in both directions with foreign and local buyers both being impacted in different ways.

> The housing prices don't really adjust for foreign exchange rates of a currency most of the time.

That's really not a correct statement. The drivers of currency fluctuations are absolutely going to affect the value of housing (interest rates, legal infrastructure, etc.) As a prime example, consider the housing market in Vancouver. Prices have increased significantly, in large part due to capital flight from China. As holding RMB became less attractive, buyers altered their asset allocations.

> There are forces in both directions with foreign and local buyers both being impacted in different ways.

That's tautological. Holding one currency has the opportunity cost of not holding other currencies. If EURUSD increases, then holders of EUR will benefit exactly as much as holders of USD suffer (relative to one another).

I encourage you to look at an actual graph of housing prices and foreign exchange rates. They really don't track each other.

Short and long term there are different and very complex with multiple feedback loops. Also, most people have home loans and houses are not currency. Further, having your currency appreciate is bad for many parts of the economy.

Sure, long term there are impacts especially with foreign investors. But it's also vary local with Las Vegas housing market tracking different things than rural Minnesota. Even as interest rates have long term impacts.

> I encourage you to look at an actual graph of housing prices and foreign exchange rates. They really don't track each other.

I'd be very interested to see such a graph. I'd also be interested to know what you mean by foreign exchange rates (I've been assuming you're talking about USD relative to all other currencies). [0] seems to indicate that FX rates affect real estate prices.

> Also, most people have home loans and houses are not currency.

I really struggle to see how that's relevant in the slightest. No one claimed that houses are currency.

> Further, having your currency appreciate is bad for many parts of the economy.

That supports the notion that FX fluctuations will affect real estate prices. A region with worse economic prospects will likely have less demand for housing than an otherwise identical area with better economic prospects.

[0] http://www.investopedia.com/articles/forex/053115/understand...

The zero interest rate definitely does contribute, but a bigger deal for mortgage rates is that the Fed continues to buy $24-26 billion a month in mortgage-backed securities. It is keeping its total holdings of MBS constant, but since total holdings are still over $1.7 trillion, that results in a lot of purchases each month to cover the reduction in principal from people paying off mortgages in existing MBS.

This article has a good explaination: http://www.cnbc.com/2015/12/16/why-the-fed-move-doesnt-matte...

>The zero interest rate definitely does contribute, but a bigger deal for mortgage rates is that the Fed continues to buy $24-26 billion a month in mortgage-backed securities

I think you've got the right idea, but you are misinterpreting things slightly. Purchasing MBS contributes to ZIRP (as opposed to serving a separate policy objective). MBS are interest rate products based on mortgages instead of US Government credit (although you can view MBS as a US Treasury + some spread). In sustaining purchases of MBS (supporting their price), the Fed drives down their yields (note that yields necessarily move inversely with price). In effect, these purchases result in lower interest rates and go hand in hand with ZIRP.

> that results in a lot of purchases each month to cover the reduction in principal from people paying off mortgages in existing MBS.

I'm not sure what you mean by this. A person's principal is only changed when she makes a payment on the principal. Fed's purchases will affect the yield on the MBS.

"... it is much easier to finance mortgages for houses, so the housing becomes more affordable ..."

Not necessarily. Widespread access to greater amounts of affordable credit also means that more people can afford to buy more expensive houses, which puts upward pressure on housing prices. So sure, you might get a better rate, but that better rate may well be negated by a higher purchase price.

I'm glad we agree...

"With increases in the ability to pay for housing (assuming housing is a normal good), there will be an increase in demand for housing."

There's no question that it's a major factor. Even well-heeled individuals/couples don't take out mortgages on the order of $800,000 if they don't get minuscule rates on the order of ~3%. Banks wouldn't be able to hand out those rates for spans of ~30 years unless the government gives them access to cheap money and guarantees the loan.

Agree entirely. Once interest rates rise, you'll see a direct impact on SF housing prices.

People who can afford an $800,000 mortgage at 3%, can't borrow anywhere near that amount when rates are 6% (closer to the historical average).

Yeah, it goes down to $563,000 if its 6%, a 30% drop in affordable home price.

It's funny, as someone who was still a kid back in the 80s, the idea of a 6% mortgage sounds ridiculous to me. How on Earth could someone afford to pay all that interest? Yet, mortgage rates were at times in the past over 15% (!!!)

It's not so bad when the actual price of the home is 30% lower.

The interest rate on my first house in Sunnyvale was 13% and it adjusted every 6 months. Of course the house cost $153,000. Still it took both my wife and I working (she is also an engineer) to make the payments and we didn't have kids yet.

At the same time my Vanguard money market account was paying 15% annual interest. That was pretty awesome.

Because inflation? I assume the "real interest rate" was much lower.

In New Zealand, interest rates were around 8% when I was growing up, and were around 20% when my parents bought a house. Would have been cheaper to put it on your credit card...

Not being from US, are most mortgages there fixed for their lifetimes or tied to fluctuating interest rates?

Many are fixed for the entire duration of the mortgage's length (e.g. 25 years). You can find variable rates as well though.

Being from Canada, I couldn't believe that this was possible when I first came down here because it seems to defy belief that any bank would take on the risk to extend a loan at such low-interest over that kind of time frame. It turns out that it's possible because the banks aren't taking any risk; instead it's all outsourced to US taxpayers ;)

That's very recent, though. We had thirty year mortgages long before the government started holding most of the paper.

Banks have been selling loans for ages - when I bought my first house in the '90s the bank which originated the loan sold it to a life insurance company four days after escrow closed. After a few years that insurance company sold it to someone else.

Life insurance is a good fit for mortgages. Insurance companies need a safe investment to pay out when people die, and usually the payout isn't inflation adjusted.

Besides, if you have to invest money for the long term but can't (by statute or temperament) handle much risk, what are you going to invest in? Twenty year T-Bills are at 2.30%.

> Twenty year T-Bills are at 2.30%

FYI, T-bills have maturities of one year or less, T-notes two to ten years, and T-bonds 10 to 30 years. The term "Treasuries" helpfully covers all three.

Selling the loans forward sounds a bit weird system. In Finland it's usually the other way around -- customers may take their loans with them to another bank. This happens every now and then when competing banks offer better margins on the loans, or if customer isn't happy with the bank's service.

Yes, which blows my mind too since APRs (as the US calls them) are standard in my experience here in Australia except that our banks tie the interest rate to the reserve rate which is revised monthly, not yearly. Fixing an interest rate is something you do for a span of 3-5 years, not the life of the loan.

The US does a lot of things strangely, this is but one of them :)

Selections from an article titled If You're Over 65, You Should Love the Fed by N Kocherlakota, former president of Fed Reserve Bank of Minneapolis:

Conventional wisdom suggests that monetary stimulus is particularly bad for senior citizens: When the Federal Reserve holds interest rates low, retirees tend to get less income from their nest eggs. Over the past eight years, though, they've done a lot better than this simple logic would imply.

Consider the amount of goods and services that seniors consume -- an important indicator of their well-being. According to the Consumer Expenditure Survey, the average household headed by someone aged 65 or older consumed 5 percent more in 2014 than in 2007, adjusted for inflation. That compares to declines of 5 percent for all households and 7 percent for households headed by someone aged 35 to 44...

Seniors hold more assets like stocks, bonds, and homes than do younger folks. All of these assets have appreciated a lot over the past seven years, providing seniors with a source of spending money that offsets some of the effect of low interest rates...

We should assess the appropriateness of monetary policy in terms of macroeconomic outcomes, not in terms of the level of interest rates. And when we judge by outcomes, we have to conclude that monetary policy has not been appropriate for the economy as a whole, because inflation and employment have been too low. Unduly tight monetary policy has systematically shifted the distribution of resources toward people who are not working and who receive payments that are, in large part, not indexed to inflation -- that is, toward retirees.

http://www.bloombergview.com/articles/2016-03-18/if-you-re-o...

Housing is one of the preferred assets for the US government placing the money it creates. It's this way here at Brazil too.

The cheap money policies are the entire cause of the recent housing price explosion in a big part of the world.

That's what I think too. In my home country, it's conventional wisdom that the central bank's policy of low interest rates is pumping up a bubble in housing prices. But somehow here in the United States, people feel it's more of a secondary issue.

It won't direct affect cash buyers, who currently constitute about a quarter of the housing market. Nothing will really change for foreign investors looking to park their assets in a safe location. But a stock market crash could reduce the number of buyers who are able to cash out stocks from IPOs and buy homes.

http://www.sfchronicle.com/business/networth/article/All-cas...

Interest rate has a huge impact on housing price, as most people borrow to buy houses these days. People evaluate monthly payment more than the price. If they can afford the monthly payment, they can afford the house. Lower interest rate lowers the monthly payment. People can afford higher priced houses. When everyone does it, the general housing price goes up.

The US Fed was a very large buyer of Mortgage Backed Securities, lower the rate of US mortgages. This means that they directly contribute to the housing rate increase. (This is in addition to the indirect aspect of lower long term rates raising equity prices, and people putting that money into houses)

https://www.newyorkfed.org/markets/mbs_faq.html

http://www.bloomberg.com/news/articles/2013-10-28/fed-sees-a...

http://www.marketwatch.com/story/fed-bought-up-half-of-agenc...

I am constantly reminded of that 90's movie Weekend at Bernie's where, in order to keep the party going, two guys drag a rich dead guy around and make it appear as though he's still alive in order to keep the party going and have access to all his stuff and wealth.

- and stay out of trouble.

The government does have a responsibility to alleviate the pain of economic dislocation. The nation might gain as companies fail and jobs are lost, but individuals are hurt. Unfortunately, the best solutions -- unemployment insurance, free education, free healthcare, or basic income -- are politically unpalatable (for the strange ethics of "fairness"), so we end up with awkward compromises that set us up for catastrophic failures.

> Pension funds, retirement savings, the top 1%’s majority of assets, and so on are all in the market so governments of the world have decided that the market shouldn’t go down, at least not very much.

Yeah, that's kind of my worry with the move to long-term wide-spread stock investing for retirement. Ostensibly, that strategy has done well, but once everyone does it, that prods massive political favor toward propping up the largest companies (that are getting this investment).

Meta comment / rant about the bloomberg website.

What's the matter with these web sites these days ?

When did everyone decide that good old scrolling is too old fashioned, so now the simple act of swiping the mouse to scroll down, results in totally surprising and confusing consequences - such as resizing and moving the video, pausing it if I scroll too much and then restarting it if I scroll back up..

Scrollbar position ? Ignore that - it tells you absolutely nothing - because there is the mega cool "infinite scrolling" feature ! Which by the way replaces current video with another one, which starts buffering and playback starts only later, when I've scrolled away or switched tabs..

And of course there's the unscrollable, unremovable top header - a sort of screen real estate tax you have to pay for the "bloomberg" logo and .. Surprise ! A horizontal scrollbar showing the vertical position in current article !

What a mess ...

Sorry for the rant, but I'm sure I'm not alone in my 'suffering' and this is a trend I've noticed on many websites, since they copy each other anyway...

/Rant

I browse with Javascript disabled by default (NoScript), and it makes it much less painful.

Although there is the odd case of a completely broken design that even Firefox Reader cannot detect, it does save me many other issues, and makes everything load much faster!

uBlock origin in advanced mode is good for this. So you can toggle certain primary JS scripts to get some sites functional. Then saving the setup for future use. Over time you get to the point where 99% of sites are fully usable while still blocking the vast majority of JS.

NoScript can do this too. You have the choice to activate certain scripts permanently (of course you can deactivate them later again if you want), or you can even activate them only for the current session and the next time you start the browser the temporary activated scripts are blocked again.

Except it's easier to just use uBlock Origin for everything. The grid approach is far more intuitive than the text list you get with NoScript (IMO).

Major differences are:

- In uBlock Origin you can allow/block on a per-site basis with one click -- you do not need to allow one specific domain everywhere. (I am aware NoScript's ABE can get the same result, but that requires more than a single click.)

- You can block on a 1st-/3rd-party basis. I consider the default blocking of 3rd-party scripts while allowing 1st-party scripts to be the optimal solution for cutting bloat with less web page breakage. Now keeping 1st point in mind, this means one could allow all 3rd-party scripts on one specific site, while keeping them blocked everywhere else by default.

- Whatever is not taken care by dynamic filtering will fall onto static filtering, i.e. even if one end up allowing 3rd-party scripts, the static filters will pick up the task of blocking nuisance scripts.

This sounds really nice, especiialy the possibility to easily block scripts for a single site. That NoScript by default activates the scripts on all sites is sometimes annoying. It seems I need to take a closer look at uBlock Origin.

I second that. I browse, guessing, about 95% of the public web with NoScript + uBlock on and unless the content that doesn't work without JS is especially crucial to what I'm doing at the moment, I'll just leave the page that won't render/work properly and look it up elsewhere, without a second breath.

But that sometimes makes for really bizarre experiences watching other people browse the same websites, cursing at how slow, bloated or broken they are, seeing that until now I didn't even know that the particular website that I've been visiting for years can do THAT.

The Bloomberg site is a really good example of it - for the first time I've turned the JavaScript on for it and... WHOA.

It's like every single piece of that 'extra' JavaScript functionality serves just one single purpose - to make your time spent on the site reading the articles as much miserable as possible.

I probably don't even want to know what I'm missing elsewhere...

Yeah, I especially hate how the page-down/up is inconsistent with the viewable part of the page -- it pages down as if you could see the stuff behind the un-moveable header, which makes it go too far.

What's amazing as well is the number of ad server requests this site sends. I've never seen my adblocker number get into the 30's before, but I guess there's a first for everything.

It's not suprising that Bloomberg has more business people to push back on the designers/technical staff in this regard.

Having been on the other end of this fight to keep ads to a minimum as to not damage UX, it's a difficult fight over time as the number of 'business people' in the operation grow in size faster than technical teams. Plus the added pressure from the very top to keep increasing financial output increasing.

This is why I tell people that being a good designer often means being good at saying no. Particularly at larger institutions.

What are you using? I only caught 12 :/

keep scrolling ;-)

I have said this about many websites recently, but design/front-end dev teams have to to justify their existence through constant "progress".

However you choose to define progress is up to you, but when your boss asks you about the Q3 roadmap you better have some answers.

Even worse is the blogger thing of swipe right/left takes you to the next/previous post. Zoomed in and looking around? Surprise! Youre on another page! This seems to break every reasonable expectation of good navigation design and I hate it with a vengeance.

After I paused the AUTOPLAYING video the page reloaded itself and started playing it again. Nice way to screw over advertisers and increase for fake pageviews. Not to mention piss all over the users attempting to browse the site.

I caught this hint from HN comments, so I thought you might enjoy it. The bookmarklet Kill Sticky Headers restores your ability to read using the space-bar, removes annoying fixed objects etc. Once I started using the bookmarklet, I couldnt stop:

https://alisdair.mcdiarmid.org/kill-sticky-headers/

This! Large sticky header is the worst design trend in web design. Google does it too, Gmail, Groups. Google Groups is the worst with 3 levels of fixed large headers, taking up 1/4 to 1/3 of the laptop screen.

Edit: Kill Sticky Headers doesn't work with them :(. Looks like they are iframe. Is there a kill outer iframe?

Ya, me too, it mostly works great. Sometimes the web page becomes unresponsive (to all input), so I have to refresh it and try again.

In firefox there the book icon aka reader view and it works with this site. /rant What is odd, that I had the same reading experience. I thought it was the fault of my choice for using firefox. I would like to work with only people who feel sorry for their existence. And the ceo at the Kafka company resides in a bunker, safe place for her/him and us. /rant

Astounded that the top comment is about meta-fucking-web.

This is a huge story. It has enormous impact, economically, politically, socially. We're seeing centralised ownership through the back door, via the mechanism which started out as "QE", and is now morphing into an all-engulfing zombie policy maker devouring free markets. And you don't need to be a free market fundamentalist to at least see that this is huge.

But...you see only a meta-UI bbg website angle? Oh brother. Wake up, get out of your tech hypnosis. In case you hadn't noticed, in the past 12 months tech lost its special-snowflake status and is now exposed to the same macro factors, including this one, as all other industries. You owe it to yourself and your stakeholders to start seeing much further than the web stack here.

Meh. It could have linked to a website that doesn't suck so bad.

Remember Ebola ? The war in Ukraine ? Malaysia Airlines Flight 17 ? Paris terror attacks ?

January 2016 the oil slipped below $30 with long term low prices predicted by all experts.. Shanghai index collapsed for several days in a row. China slows down - China bubble is bursting - The world is entering recession.

Every week there's a huge story. They come and go.

You also have to realize that news media are weapons used in geopolitical and economic wars - a big part of what's reported has some sort of secondary goals. Even a minor shift in perception can translate into millions gained on the stock markets.

You owe it to yourself to see past all the informational pop corn that the media is producing and realize how little it matters wether you know the "huge" story or not.

no this is a major shift in how we are governed, it's creeping up multi-decade, and has huge future ramifications. It is literally the breakdown of everything we have taken for granted in economic governance in the past 100 years, and it telegraphs the kind of inflection point that leads to very big structural changes in society.

I'd call it one of those Thomas Kuhn style paradigm shifts in the making, this time applied to the sphere of economics.

It's not about a temporary price move, disease outbreak, or natural disaster, all of which are, I agree, all too regular.

The biggest issue with this is that it distorts the market in a way that normal quantitative easing doesn't. Normally the stock market prices are kept in check with short sellers putting downward pressure on stocks that are priced too high.

With the government buying so much, being long only, it makes it very hard for a fund to short a stock. Its one thing to be right, but its another to try and short a stock knowing that you've got the government taking the other side of your trade. It doesn't matter what fund you are, they have more firepower than you, which leads to decrease in short interest, which leads to an overall inflation in market values that goes away the moment the markets get any hint that the government will stop propping up prices.

Or put another way, the government is now in a position where they'll need to keep on buying and holding the stock market forever.

Nothing about the Japanese stock market surprises me anymore.

Below is a good article illustrating how one leveraged ETF got so big that it was literally moving the market at the end of ht day in its attempt to re balance itself. Sort of a tail wagging the dog scenario.

http://www.bloomberg.com/news/articles/2015-10-18/the-etf-wh...

I guess the one good thing about Japan is that its essentially a petri dish for maco economists and macro funds to experiment with to determine what the US markets will look like if/when the US hits an end to its economic growth.

QE and the banks buying stocks is the same thing: QE helps banks loan money extremely cheap which they can use to long the stock market.

Aren't they free to do what they like with that cheap money? They can short the stock market as well as many other things. There's no requirement to long the market.

OP is saying the govt only buys which keeps underpinning the market higher.

On the other hand QE allows the market forces to do what it likes with the cash which will more easily balance.

Shorting might be an option for the retail investor but I doubt it's so simple when your dealing with the amounts of a large bank. Banks usually borrow stocks and then sell them back (in order to short) and finding a counterparty for that might be very costly.

I doubt a bank can just go and short stock speculatively. The Volcker rule basically banned that kind of prop trading.

I don't know the exact reason why all banks and central banks are long stocks and not short right now, and I'm sure they will change their position when they think it's worth it, but currently QE money has a big correlation with the stock market.

Shorting a stock would remove cash from the system which is essentially the opposite of QE. To short a stock the short seller first "borrows" the stock from another stock holder and then sells that stock on the open market. In most cases the investor who the stock is borrowed from won't even be aware that his stock has been loaned out to a short seller.

The effect is that there are now two individuals who believe that they own the same share. From the perspective of the market the short seller has effectively created shares out of thin air, sold the shares and is now sitting on the cash.

When a central bank is the one shorting the market the effect is to pull cash onto it's balance sheet which removes it from the economy which is deflationary.

Interesting idea though! One that I hadn't considered as a tool for central banks to constrain inflation.

> QE and the banks buying stocks is the same thing:

No they most certainly are not. QE puts money into the economy. People can then use that money to buy stocks or short stocks, they can also use that money to do things like travel, purchase a new house or put a kid through school, etc. It can be viewed as a market neutral strategy in terms of buy vs sell pressure on the stock markets.

Now this can cause the stock market to rise through "organic" growth from increased consumption leading to increased corporate profits.

On the other hand the government buying stocks only puts pressure on the buying side of the equations, causing the market to move up.

They both may cause the markets in general to rise, but in terms of market dynamics they are not the same thing:)

>No they most certainly are not. QE puts money into the economy.

Did a helicopter fly over your house?

I'm really confused. I think you accidentally responded to the wrong post:)

http://www.forbes.com/sites/stevekeen/2016/04/12/dont-trust-...

Is there that big a difference between inflating stock prices the way the BOJ does and depressing bond yields through "normal QE" (which amounts to buying bonds, thus inflating their prices)? Depressing bond yields distorts the market in the sense of encouraging risky investment/"risk mispricing", and then indirectly it inflates stock prices as investors' safe alternatives now yield less income.

It does change the availability of low-prices debt but so would the government failing to issue debt in the first place. In both cases there's less distortion than if the government starts blessing specific stocks.

I wonder if in the future we will look back on history and understand that what is happening with Japan is just a natural result of transitioning to a no-growth economy.

In the USA, everything is set up to require growth, or we get collapse. Except for family owned businesses that tend to take a long term view and also modern decentralized 'limited profit' companies (even better if their charters use blockchain tech), all big business requires growth as does our government.

I know I am asking for a lot, but I would like to see a non-growth (or cyclical growth) mindset become the new normal. This would require new ideas about currency, the benefits of small local businesses over global businesses, etc.

There are an awful lot of people that would like to increase their consumption. Don't expect them to fondly embrace a non growth mindset.

(It's not just people that can't stand life without a yacht either, it's people that want a newer vehicle or a house in a nicer area or more meat or more proactive healthcare or ...)

I think a lot of people would be happy with slow but steady growth instead of the up and down of the last years/decades.

You mean slow to no growth, when inflation is taken into account. The truth of the matter is Demographics being what they are especially in places like Japan, going forward growth is impossible

Well, it's hard to argue that this is non-growth rather than negative-growth masquerading as non-growth. There is a very strong argument that many corps in Japan should've given way to market forces and died out, but they are instead kept on life-support as a form of social welfare.

One has to wonder what the rationale for all of this is -- what are they afraid of? If they are suddenly left to their own devices, are these people going to starve to death? Has no-one ever been faced with the prospect of having to find a new job?

Many nations on Earth are being confronted with the notion that larger and larger sections of their society are now unemployable, and they are all handling it differently. Japan seems to have been confronted with this sooner than anybody else and they are choosing to keep their businesses afloat under the assumption that they will not institute deep and painful budget cuts, specifically slashing the employment workforce. And it looks like Japanese corps are cooperating.

It's ironically Keynesian only without the potential benefits, because most of the money is lost on play acting make-work and not on productive activity.

Even more ironically, it's practically nationalisation by the back door.

>Many nations on Earth are being confronted with the notion that larger and larger sections of their society are now unemployable

People are not unemployable. The problem is more that the current system isn't smart enough to work out how they can be usefully employed.

Every country in the world has a huge amount of work that could be done - infrastructure improvement, education, housing improvement, art and culture, even software and startups.

But the current value system deems most of these activities "uneconomic" because funding them would decrease the short-term net worth of a small number of very wealthy individuals.

It's a nonsense reason, but it's going to be a problem until the value system becomes intelligent enough to plan rationally for the medium and long term.

Aside from 'benevolent dictatorships', maybe even questioning those as well, has the 'value system' EVER been that intelligent?

>One has to wonder what the rationale for all of this is -- what are they afraid of? If they are suddenly left to their own devices, are these people going to starve to death? Has no-one ever been faced with the prospect of having to find a new job?

Practically. A little perspective on Japanese culture might help to answer this question.

The Japanese value company loyalty, tradition, and conformity. They have more than 21,000 companies that are more than a hundred years old. [0] From a 'pure market' perspective, most of these companies should have given way to market forces, yes, but Japan is deeply averse to what that entails for individual workers.

[0]https://www.tofugu.com/japan/oldest-businesses-in-japan/

For an explanation of why the Japanese government keeps kicking the can down the road instead of facing their problems directly I recommend the book "Dogs and Demons: Tales From the Dark Side of Modern Japan" by Alex Kerr. It was published in 2002 but nothing has really changed.

http://us.macmillan.com/books/9780809039432

Simple arithmetic shows that nothing can grow exponentially forever, just google for a lecture on exponential growth by the late Dr. Albert Bartlett of CU.

What bewilders me is the mass denial. Sooner or later inflation and GDP growth have to stop, and reverse, even.

And the world will not end - there will still be startups and investment opportunities, stocks and commodity prices will go up and down, the only difference being that overall we will see the major indexes flat or declining, and that will be just fine.

The sooner the population at large recognizes that this is the future, the smoother will the transition to this new state of affairs be. The longer we hang on to this naive notion of perpetual growth, the more devastating will be the day it ends.

Edit: Link to find the Bartlett video: https://www.google.com/?gws_rd=ssl#q=albert+bartlett+exponen...

There could still be gains in productivity.

Except the universe seems to be infinite, so yes, the economy can grow exponentially forever. Even within current physics, it's possible to put billions of habitable Earths in our solar system, by importing mass and energy from other systems. There's A LOT of empty space.

Given interstellar distances, the annual rate of growth would be small, but still positive.

Even if the universe is infinite, it's impossible to interact or even perceive anything beyond our lightcone. Within that finite (albeit vast) region of space is a finite amount of matter and energy which is constantly and irrevocably subject to entropy, and will eventually be torn apart and decohere with the heat death of the universe.

So... no. In literally no way known to physics can anything other than spacetime itself grow exponentially forever, and even that may not necessarily be the case.

That's not proven physics, just speculation. There are no answers at this point, especially regarding end of the universe.

Also, infinite universe is not necessarily the same thing as a growing one.

For all we know all we see could be some local quirk of spacetime or whatever that creates a weird projection. I would at least wait for a return data from a probe in nearby star system's before accepting that yes, that's probably how it actually is, at least in our larger neighborhood.

Unless the laws of thermodynamics and the speed of light are wrong, there is only a finite region of spacetime with a finite amount of energy that we will ever be able to interact with. Infinite expansion would require expending infinite energy, and that's just not possible. Not even "proven physics" supports an argument that an economy can "grow exponentially, forever."

What bothers me more than anything outside of the conflation of "assets" such as stocks and bonds as indicators of actual economic "growth" is that they are placing an inter-generational bet:

They are using money today which must be paid back tomorrow. The people who stand most to benefit are adults today. The people who stand most to lose are their children's children.

Yes! You've hit the nail on the head! QE is indentured servitude of future generations. Inflate assets younger members of society need (housing) or are expected to purchase for retirement (equities), profit.

It's just the latest in a trend. Generous final salary pensions, inflationary tax breaks and support for first time buyers, arguably even high spending on geriatric health care. It all drives up prices and costs for the tax payers of the future. Shame they don't have any votes to cast in today's elections.

I believe some of them do and that’s a major reason populist politicians are becoming in favor. Would be interesting to see the average asset ownership between supporters of the traditional candidates Clinton/Cruz and outside candidates Sanders/Trump. My guess is that the bases for the latter candidates (young/working-class) have a lot less ‘ownership’ and wouldn’t care too much if the stock market and home prices where cut in half.

At least in the UK the populist UKIP gets a lot of votes from old people.

Well... the federal elections are not democratic ( electoral college ) I lament this point because ... bush vs. al gore is still a sore subject, and the federal reserve is a private institution. Not to mention the supreme court justices are not elected.

I'm a Brit so not my business, but hey it's the internet.

Over here none of our Judges are elected, and I think that's a very good thing. They are professionals, not politicians. The SCOTUS Justices are appointed, questioned and confirmed by elected representatives. I really don't see why that isn't enough.

Voting directly for judges, based on their statements or track record on how they interpret the law, is far too close IMHO to holding referendums on whether people are guilty or innocent. Judges are required to serve the law. Making them beholden to an electorate and asking them to serve both masters is abhorrent to the basic principles of justice. The statue over the Old Bailey is blindfolded for a reason.

You're assuming the QE cannot be maintained on the Fed's balance sheet indefinitely. Substitute something else for "the Fed" where appropriate.

The reason you have (relative) inflation of housing (besides subsidies and throttling of supply ) is because there's no inflation other than that. With no growth in productive sectors, people turn to rents. Keep it up long enough, and they forget how to do anything else.

See also "The Greatest Generation." They presided over the largest expansion of Federal debt in (at least recent ) history. Y'know, WWII?

Things were fine. What's needed is GDP growth.

"They are using money today which must be paid back tomorrow."

That reasoning doesn't support examination.

The adults of today use the real resources of the economy of today. The adults of 50 years from now, will use the resources of the economy of their time.

If we are worried about the people of the future, we will try to create real resources (knowledge and technology specially) that they can use, and we will worry less about debt. In fact, we should be using debt to create those resources as fast as possible.

In your description a debt created in return for consumption today and honored in the future is like a wormhole in space-time. Unlike iron or steel, personal labor is a real resource capable of time travel. A psychiatrist can work 40 hours or 80 hours this week. Presumably society is better off if he works 80, so we promise him more money (future demand) in return for his services now (supply pulled forward, especially if he retires earlier than he otherwise would). In theory, as you imply, future generations are better off since you have "accelerated" economic development which is usually net positive. In reality, taken to the extreme, you wake up one day and find that you have been born into a world of neonatal debt slavery to retired psychiatrists who you never met and (especially without population growth) the entire system collapses and reboots. This describes Japan: a country with 300% debt to GDP and flat to declining population, where babies are born into a headwind of sovereign debt.

You complicate the issue too much.

What would you prefer, to live in a Somalia with 0% public debt or in a Japan with 300% public debt? And why? Because in one there is real infrastructure and knowledge and the other not so much.

Or if we want to go all science fiction. In what future do you prefer to live? One with economic fusion, artificial intelligence, and robots that do the entire job but a 300% debt or a future of 0% debt and less technology or infrastructure that today.

Debt is a political arrangement and organizational issue. Real wealth comes, surprise, from real wealth.

You aren't wrong. I believe in economic acceleration but there is a limit to how far you can take it, which we are now testing with ZIRP. In this case the central banks kept their feet on the gas pedals too long out of political fears of a global depression. Global depressions suck but they are also very useful in that they create healthy periods of intense asset reallocation to prevent malinvestment. Did (largely successful) Japanese attempts to prop up their economy in the 90s and 00s prevent more acute pain but also kill an entire generation of Japanese entrepreneurs who would have cut their teeth with blood in the streets? Instead of healthy reallocation, we have far less targeted broad asset inflation in an attempt to keep economic acceleration going when we are already near the point where GDP growth equals debt service requirements and I don't think it ends well. It's also interesting that ZIRP screams ''maximize your human capital'' at the same time that automation threatens opportunities for the bottom rungs of the work force, and it's not clear how that dilemma will be resolved.

We live in a world of extreme subjectiveness.

Cash flows are massaged and obfuscated. Dividends aren't paid, we are asked to look, instead, at earnings yield, but not too closely. Non-GAAP earnings are treated as first class citizens. Companies borrow money against themselves to buy back their own stock, in a self-referential spiral. Meanwhile, governments shamelessly intervene in the markets, to keep the (increasingly subjective) prices high and the (objective) realized cash flow rate (dividends) low.

What is the value of any cash flow, with a 0% interest rate? With a negative one? What is truth?

These are the crazy days.

We all die sometime, we just gotta keep kicking the can down the road until it turns into a bucket!

Permission to steal this? :)

Haha, sure. Probably one of my proudest puns I've come up with. I posted it on r/showerthoughts one time and got zero upvotes.... think it goes over a lot of heads. :P

What sort of epigenetic expression must there be for the can to suddenly turn into a bucket?

And what does this mean to cancer research?

What's the end-game here?

Obviously their sovereign debt level is enormous too, but it's also mostly purchased by the Bank of Japan. It's a ponzi scheme that's contained within itself.

So it must mean Japan is heading toward a currency collapse, correct? They're not going to default on their own debt since they own it all and can print whatever they need to keep it serviced.

It seems to me that the markets will one day wake up and decide that the yen is worthless...and that will cause ruckus.

Shorting the yen, meaning betting that the currency will collapse has been an obvious trade for decades.

This trade is also called the widowmaker :) There is a long trail of bodies in it's wake...

As always, timing is everything.

http://www.businessinsider.com/japanese-30-year-hits-new-low...

http://www.bloomberg.com/news/videos/2016-01-14/the-widowmak...

I think that's why there's a saying about the market staying irrational longer than you can stay solvent.

Wouldn't a market always act rationally, by definition?

Not so much.

Without perfect information, market participants can act irrationally.

This is why Ethiopian farmers sell their coffee beans for pennies/kilo, while Starbucks charges $5/gram (made up numbers).

Why would Ethiopian farmers sell for so little if they could sell for more?

Some possibilities:

* They don't know that their beans can actually sell for so much

* They don't know how to sell their beans for higher prices (e.g. they don't have access to the right middlemen)

* They aren't coordinated enough and undercut each other when dealing with the middlemen.

* Starbuck's premium prices may have little to do with the beans themselves

None of those would necessarily indicate that the farmers are acting irrationally in the previously described exchanges.

This is not a good example. Distribution, branding and maintaining retail outlets make most of the cost. Ethiopian farmers can't sell their beans for dollars because:

* They haven't shipped them across the ocean

* They don't have warehouses to store them in

* They don't have a retail store to sell them in

* Nobody knows the quality or consistency of Ethiopian Joe's coffeebeans, but they know that Starbucks is consistent good.

A better example of irrational acting is that: MLB tickets can be sold for hundreds of dollars, even though professional baseball is the most boring thing to watch, we barely have good enough eyes to see what's happening from that far away anyway, and you'll have to pay 2x for anything you eat or drink.

Also Beanie Babies. Buying beanie babies and tulip bulbs was really irrational acting.

You are confusing two things. Here are plausible definitions:

* market: system for trading assets between willing participants

* economics: modeling the behavior of markets assuming rational behavior of participants

The definition of markets has nothing to do with rationality.

Market: participants freely exchange goods

Rational: subject acts according to their own utility function

Freely acting is equivalent to rationally acting, which is precisely where markets can exist.

E: Downmod without leaving a comment. Classic HN.

Not a downvoter, but:

Freely acting != rational acting. People often take actions on bad information, or on bad analysis of good information.

I guess the problem is that I'm the only one in this discussion that has offered a definition of rational. Taking action on bad information or analysis may be rational for some utility functions.

Yeah, I was thinking about that after I wrote my comment. I suppose that rational could just be defined as "what a person does", since they must have been trying to optimize for _something_.

But there must be some universal optimial for a given utility function, right? Like: choosing to buy a BMW when your utility function is a looking for a cheap car is just simply irrational or a mistake.

Here's a good one: All of my high school teachers (and my parents) encouraged me to study biochemistry in college. They assured me there'd be a good career for me afterwards. But they were kinda wrong, and I had executed my utility function (what's a major that will give me interesting and good work) on bad input. I acted rationally, but would you say that my decision was a rational one?

It was rational because you valued what your teachers and parents thought. All value is subjective, so you cannot define a universal optimum.

To say whether something was a rational decision requires evaluating the subject's utility function at the time of the decision. This is something only the subject can do. Trying to judge something after the fact is very difficult.

What good input could you have used when you made the decision (or while you continued to execute it)?

Making mistakes in reasoning and/or lacking information that would allow for making a decision at a higher perceived utility does not make one irrational.

An irrational decision is one where an action determined to have the most utility is not taken.

Unfortunately it's often rational to act irrationally.

Only if mainstream economic theory was correct, unfortunately it is deeply flawed and much of it depends on unrealistic (and at times inconsistent) assumptions.

A gradually sinking yen might be a boon for exports. Its effects would depend on the balance of trade at the time.

But really the main reason markets aren't bailing out of the yen, as with the dollar and euro, is that there's a real shortage of better places to go. Much of the developed world is at near-zero interest rates - negative in a few places. The developing world is not stable enough to take in much investment.

>the yen is worthless

In what way is it worthless? It's not like Japan has zero productive capacity or real assets.

It will be worth a lot less once the majority of current yen holders become convinced that the Japanese government can no longer pay for its expenses by external borrowing or by taxing those assets.

Looking through the history of financial crisis, the end-game is pretty obvious. Short-term, its a win for 401k holders and retirees so politically its an easy sell.

However, sooner or later, all the dollars and yen that the government simply prints to "buy" these securities will cause an inflationary spiral that will lower the standard of living for the working classes, although the bankers and politicians who created the programs will easily dodge those effects due to their wealth and influence.

An interesting article on quantitative easing... http://www.ft.com/cms/s/0/031b49ec-c415-11e4-9019-00144feab7...

I disagree that the correct term is 'dodge'. One argument against inflation detractors is that Inflationary growth of the money supply helps those who have debt the most. However, that doesn't end up being the working class, the rich are much more heavily leaveraged into assets that are protected against inflation.

Inflation ends up being a wealth transfer from the working class to the rich.

Deflation ( or low inflation ) works for the rich moreso because who do you think holds all that debt? Mild inflation "ages out" the stock of debt.

We think 4% is a good rate of inflation for a recovery ( if a bit low ) but we're unable to maintain even 2%. This is incredibly strongly correlated with wealth inequality.

>Deflation ( or low inflation ) works for the rich moreso because who do you think holds all that debt?

The...US Government. I do not agree at all 'deflation' works better for the rich. I think you missed the part about being leveraged into assets. That's huge.

>but we're unable to maintain even 2%

Going by CPI? Take a look at the Dow and RE and tell me inflation is less than 2%.

No, you're right - the principal benefactor is the government, but that's pretty weird and unsustainable. Not to mention a massive conflict of interest.

Yes, by CPI. I think the rise in real estate is caused by the deflationary nature of the rest of the economy. The Dow? That's just our standard bellwether now.

> Inflation ends up being a wealth transfer from the working class to the rich.

Absolutely, and while my use of the word "dodge" might have been sloppy writing, your analysis of it is spot on.

But also, it is almost universally agreed that inflation in the 3-4% range is healthy for an economy, the eventual effect of governments printing money to pay current obligations and/or securities to "prop-up" Wall Street is a much larger rate, like 20%-30% per year

Just read the histories of South American government defaults or look at Greece now for a primer on the eventual endgame for out of control debt.

This inflationary spiral has been predicted twelve out of the last three business cycles... deflation lowers the standards of living of wage earners more than inflation.

Right...but the thing economists have learned is that these dramatic financial events come pretty much without warning, so saying that because people are predicting it and its not happening yet doesn't mean it won't eventually.

The Big Short explained it perfectly...a few forward looking investors made huge bets against MBS while everyone thought they were crazy. It took way longer then expected for the things to come crashing down, but, of course, it did.

Yep. The yen will pretty much collapse. That will coincide with the sudden return of a highly non-linear phenomenon known as general price inflation.

It's not like it hasn't happened before anywhere in the world. The exceptional thing is the enormous amount of trust that developed markets have in the central bank's technocratic policies. This trust was built up during 70 years of relatively high stability (and growing complexity and obfuscation of the monetary and financial system).

For now the BoJ still has room to abuse this trust and make a mockery of every form of market-based risk analysis, valuation and price discovery. But at some random point of time, the trust will just break. Even in Japan no amount of measures will stop the market's instinct for self-preservation as yen holders flee to other assets.

Japan is ahead of the rest of the developed world in this. The Japanese experiment will put pressure on currencies and interest rates in all other countries who are facing a variation of the same problem.

Most important: all this will happen in a country (or world) full of pensioners. Shikata ga nai.

> But at some random point of time, the trust will just break. Even in Japan no amount of measures will stop the market's instinct for self-preservation as yen holders flee to other assets.

"There will be a financial crisis at some point in the future" is the safest economic prediction anyone can make, any time.

Do you have any more precise claims which we can use to evaluate your model of economics?

The prediction is not "crisis". It's hyperinflation and runaway depreciation of the yen.

In terms of duration: I would say they are one regular recession away from this. For the last 5 years I've been saying "next 2 years". Today I'd say 1 year. (I have no actual money involved so this prediction is worthless. But you asked for it...)

It was the same with Greece: people had months or even years to yank their money from the bank. The trainwreck was telegraphed way in advance. It's just that nobody did it because they couldn't imagine it.

It's a similar psychological process that is keeping Japanese markets disciplined for such a long time.

By contrast, in a country like Argentina people have living memories of monetary disasters and they trigger much quicker.

>In terms of duration: I would say they are one regular recession away from this. For the last 5 years I've been saying "next 2 years". Today I'd say 1 year. (I have no actual money involved so this prediction is worthless. But you asked for it...)

So what you're saying is that you've called 3 of the past 0 recessions...

The Japanese economic stagnation is complex enough that it demands more than a lone sentence concluding that it will result in hyperinflation.

As an aside, I often find it frustrating reading HN comments related to economics, as it is not an area of strength for the community. Consider how much faith you would put in an Economist's analysis of consensus objects or networking protocols. This gets especially frustrating when technical terms with specific meanings (like duration) get misused in these discussions.

1/ I'm clearly not using duration as in bonds or portfolios.

2/ I wouldn't trust an economist's analysis of network protocols. I also don’t trust an economist when he’s talking macro.

3/ When somebody asks me, I'm happy to say that I (and many others) have been expecting depreciation and inflation for 5+ years. Being wrong for the past 5 years would still have made money because the yen has already dropped so much. But true, it’s a trickle, not a flood.

4/ Japan’s near future is not really complex. Demographics are only getting worse in the next few years; and the entire world is drowning in excess capacity. In this environment, their govt is acutely running out of its traditional funding sources.

They start borrowing from the rest of the world, but then yields will rise (further increasing their already fantastic debt servicing expense, exacerbating the problem). Or they take the easy way to (nominal) growth and pass the bill to yen holders. Which is what they've been doing since 2012.

The double digit inflation prediction will have very rapid onset once we get there.

and for the record, it doesn't have to be the next cyclical recession. Anything that makes the Japanese government abandon its last shreds of fiscal credibility may seal the deal for yen holders. How about a military build-up to confront their good friends the Chinese?

> So what you're saying is that you've called 3 of the past 0 recessions...

That's pretty much what I read there. And the author seems well aware of this.

Just let's not forget that this is an area where experts have the track record of calling 0 of the last 3 (hell, make it 30) recessions.

> It's a ponzi scheme

No, it's not. It's intergovernmental debt, it's essentially meaningless.

If I write myself an IOU for $1mil, I'm not going to be especially concerned about my solvency.

You personally could only write yourself an IOU not for US dollars, but for Kaonashi dollars. That's meaningless because nobody will trade you anything in exchange for those Kaonashi dollars. At least I wouldn't :-)

I assure you; this is written in good old US dollars.

>They're not going to default on their own debt since they own it all and can print whatever they need to keep it serviced.

I wouldn't discount this possibility entirely. As recently as the late 90's Russia defaulted on their own debt.

> I wouldn't discount this possibility entirely. As recently as the late 90's Russia defaulted on their own debt.

The Russians defaulted on debt handed to them during the break-up of the USSR. This is an important distinction in the mind of the Russians; it was not debt issued by Russia for Russia.

Shortly before the default on the bonds, the Russians had apparently offered a swap for Russian bonds. Very few people took them up on it, but those who did suffered no write-down.

For more reading, check out Martin Gilman's book: "No Precedent, No Plan: Inside Russia's 1998 Default". It gives deep insight into the complexity of the Russian default.

Which is all a sort-of aside on your comment, I appreciate. Many countries have gone bankrupt since WW2, at a background-rate of around 2 countries per year. I put together a map visualizing it at https://sovinswm.appspot.com

The reality is that the semantics of "default" mean very different things in different contexts, but generally if the governing law of a debt instrument (e.g. a bond) is that of the country issuing the debt, then the country can "legislate away" their obligations. This may nevertheless have knock-on effects in marketplaces, particularly via contingent or derivative instruments (e.g. credit-default swaps), and hurt the credit rating just much as if there was a technical default.

Very few countries have the luxury of being able to legislate away their debts, and even those that do would feel a backlash and ongoing burden remaining in the marketplace.

Note that being able to print ones own money and being able to change the law governing the instruments are two different things, though sometimes similar in effect. If you control the law you can change any term of the debt agreement by legislation, for example. If the debt is repaid in ones own currency, one can print currency to satisfy those obligations (as in quantitative easing, or seigniorage).

All to say: The Russian example has an interesting caveat, but it is in any case one of many recent events illustrating defaults on debts (which include Greece, Cyprus, Iceland, Argentina, Ecuador, Ukraine, and others).

As you can probably tell, I could probably talk about this at some length. :)

This is the way Europe and the US are going too with quantitive easing it is just that Japan is a couple of decades ahead.

We need proper helicopter money (or a Modern Jubilee) going to the public to spend not to purchase assets at the benefit of existing asset holders.

http://www.debtdeflation.com/blogs/manifesto/ See - "A Modern Jubilee" (I'm not sure about the Jubilee Shares part though).

At an estimated 8.6 trillion yen as of March, the BOJ’s holdings amount to about 1.6 percent of the total capitalization of all companies listed in Japan. That compares with about 5 percent held by the nation’s Government Pension Investment Fund. The central bank’s use of large-cap ETFs means its positions are concentrated, with less impact on the thousands of Japanese companies outside benchmark indexes.

Some additional context, from the article. This is not really a big deal. Unusual, but not crazy.

If nations want to nationalize their stock market it's good monetary policy.

If nations want to nationalize healthcare it's an improper manipulation of free markets.

Simplification of above statements: $good = "logical monetary policy"; $bad = "pinkie commie manipulation of free markets";

if ($policy leads to higher prices for my portfolio) { $good } else { $bad }

Totally correct. The intention is to serve the general interest (through Keynesian reasoning), but its immediate effect is to quite literally implement "socialism for the rich". You may call it capitalism, but it sure has nothing to do with free markets.

No thats only a valid criticism of the US debates

Indeed, almost every other western country has socialized healthcare. The US is only 300 million of them with particularly loud voices... and despite all of the rhetoric, they have even deeper pockets to pay for healthcare than most states with comparable tax regimes.

France, Japan, Germany, Spain, Canada, and Mexico don't have socialized health care. Of the western countries, it's mostly just Britain that has socialized health care.

Now a lot of those countries have universal access to health care. In fact, all of them do. Every developed nation except the USA does.

But only one major western nation does to health care what the Bank of Japan is doing to its stock market.

I'm going to go on a limb and say that entirely depends on your definition of socialized health care.

Seems pretty sensible policy to me. The expected return on the stocks if probably something like 7%. The government can borrow at about 0%. Why not borrow and buy stocks? I would if I could borrow in that way. Also it helps the economy - win all round.

It's almost working out as a very slow nationalization process -which is not what the Boj is looking for, so what's the endgame if they do end up controlling sizable shares in companies? More or less of the concrete-industrial-retirement complex?

Japan has a lot of leading industries and a social contract that depends on conglomerate careers for life. Nationalistic mercantilism makes enormous sense in Japan.

It sort of does, if it worked more disinterestedly, however the way it works grossly mismanages resources and is rife with corruption and you end up with the concretization and tetrapodization of the shorelines and community centers in the middle of nowhere. They could use these monies much more smartly.

Yeah, that tends to be the downside of a management structure that almost universally favors seniority over merit.

> the concretization and tetrapodization of the shorelines and community centers in the middle of nowhere

I couldn't find a definition for "tetrapodization" in an economic or urban planning context (one of the top Google hits is your post), can you please offer a link that describes this effect upon the shorelines and community centers you speak of?

"tetrapodization" probably refers to the large concrete "tetrapods" piled up along Japan's shorelines as a preventative measure against erosion. Google "japan tetrapod' and you can find a lot of references - here is a Pink Tentacle article with a lot of pictures[0], and another article describing them and their history.[1]

[0]http://pinktentacle.com/2008/08/photos-tetrapod-beaches-of-j...

[1]http://www.mikesblender.com/tokyo_concretecoast.php

Thank you much, that has got to be it. I found one 2011 estimate that the shoreline tetrapods are $6K USD each, but I didn't find much in a cursory search either for or against the evidence of tetrapods as useful erosion control.

Seems to me they're much the same as the riprap seawalls, jetties, and groynes you'd find down the shore in parts of the US. They're pretty effective, and USACE seems to approve of them being there.

Thanks, that's exactly it. Some tetrapods are effective against erosion control. But, just because they are effective does not mean they are needed everywhere nor is it clear we need to protect all places which do suffer erosion. It's a natural process -sometimes we want to curtail it, sometimes not. In Japan, it's almost always unquestionably "a good" specially when considered by the concrete industrial retirement complex.

This shows the need for basic income. Now the central banks are geared toward giving money to the Have's, the people owning assets, by popping up the asset price one way or the other.

Since the money need to be printed anyway, might as well give it directly to ALL of the people. At least the money will be spent to drive the economy. Printing money to pop up asset price just locks up the money in the asset and won't be used.

This news follows the recent disclosure that the BOJ is already an owner of 52%+ of all Japanese ETFs (and wants to own more). [1]

The BoJ is not the only central bank doing such purchases -- the Swiss National Bank similarly owns over $100B in equities. [2]

In addition, central banks actively trade S&P 500 futures on Globex. [3]

[1] http://asia.nikkei.com/Markets/Tokyo-Market/BOJs-stock-portf...

[2] http://www.streetinsider.com/SEC+Filings/Form+13F-HR+Swiss+N...

[3] https://www.cmegroup.com/company/membership/files/CBIPFAQ.pd...

Don't forget the European Central Bank! They are officially buying corporate bonds!

In regards to #3 & the central bank incentive structure.. I've seen this behavior for quite sometime. Really since QE3 started.

I'm an S&P futures trader that trades many many thousands of contracts every single year & hundreds per day based on real-time order flow. There is an algo that was introduced around QE3 that I have made a tremendous amount of money front running that I have called the "Fed bot". Obviously, this is anecdotal & I have no proof but this bot only ever trades in one direction... long. It has a clear & obvious fingerprint in the market when it is activated & absorbs a huge amount of inventory followed by market order offer sweeps.

Often times on an intraday pattern with a "V" shape where a bottom was put in is when I see this algo active. Admittedly, I've not seen it much in 2016 but it has not gone extinct. Typically when volatility is lower is when I see it in action & it's so obvious that I could show it to anybody watching in real-time.

It never seems to desire a "best price" type of fill, rather its intentions seem to be more like having a direct impact on the pricing mechanism of the market. That is evident by the sweeping market orders clearing out the offers resting in the order book & immediately moving up liquidity on the bid to those new prices.

Could be conspiracy theory but I've been trading electronically for a long time in a lot of markets & the S&P since QE3 has a new long only player that has me suspicious.

Central banks are very hesitant at being seen as a market maker, except in money markets.

The article mentions these are being held as ETFs. In addition, the future liabilities the central bank holds should be written-off against current assets vs. future tax income required to fund these liabilities.

It's called socialism folks. Government ownership of the means of production. Full stop.

Let's not write off this extreme form of QE if Japan can keep its quality of life high at the same time.

That's a little short sighted dont you think?

How so? Japan's been trying for decades to stoke growth, is unable to, and has (IMHO) a pretty high standard of living. Correct me? Abenomics is fairly recent, but you can't create demand in a country with a declining population.

EDIT: Stop optimizing for GDP. Optimize for quality of life.

This works in the short run, but the Japanese have been in an economic hole for a long time. They are printing money to keep assets afloat, but this wont work forever and they know it. The whole thing is fake, and fake doenst last forever.

It's lasted what, 20 years so far? You say it won't work forever; we can't just reproduce ourselves out of the problem (by encouraging policies the promote couples to have more children).

At some point, we will decide growth is over and isn't coming back. It feels like we're close to that point. And good! You can have a great quality of life without neverending growth.

Quality of life? Japan's poverty level is at record highs.[0]

"Bookshops advertise a slew of bestsellers on how to survive on an annual income of under ¥2m ($16,700), a poverty line below which millions of Japanese now live."

[0]http://www.economist.com/news/asia/21647676-poverty-worsens-...

The thing about this is that national poverty statistics don't tell the whole story. They just offer a rough summary.

Things really are different in Japan, even in the impoverished parts. From the same Economist article: "The country has long prided itself on ensuring that none of its citizens falls between the social cracks. Japan’s orderly, slum-free neighbourhoods seem to confirm that. Street crime, even in Kotobuki, is minuscule. Unemployment is below 4% ... "

Compare that to the "choice parts" of downtown Los Angeles or the Tenderloin in SF. Despite many decades of fighting poverty, many many people still fall through the holes in the US social safety nets.

Japan also builds better cars.

This hits the nail on the head. As a US citizen who has lived in the US for 32 years, I'd rather live in poverty in Japan than middle class in LA, SF, or NYC.

How is this economically distinct from broad ownership of passively-managed stock index funds?

the economic system of Japan is very different than in the US/Europe, I find the east asian capitalism style preferable to what we have here.

You prefer supporting zombie companies and forcing your young creative class away from being able to create disruptive startups in favour of being a corporate cog [1] in the machine?

That is the life in Japan. It's not just a fear of failure preventing a thriving entrepreneurial class from existing there. It's their economic policy.

[1] https://www.youtube.com/watch?v=otWl3Zu1Mr4

I like the way that Japan is. I don't care about disruptive startups, and if you think japan needs or wants "disruption" you clearly don't get it at all. I like green tea that is made by a 300 year old company. Have you actually been there or just watched stupid videos on the internet?

Fair enough, if they can stay in business.

The question is sustainability. Old institutions often reach points where failure, or nearing failure, is the only way forward. So it can be rebuilt into something better.

I see issues with the hyper speed that SV businesses have taken this to the extreme but it's the middle ground that is healthy. The other extreme creates the situation where always having a safety-net no matter what negative downward problems or risks a company is taking creates dangerous moral hazards [1] which compound on each other over time to create unavoidable economic crises, as Wall st generated in 2008.

If you think the Japanese are immune to these moral hazards then you are denying some core principles in human behavioural science.

Japan's core industry seems to be suffering a chronic illness which it's continually trying to medicate instead of moving on and confronting the future. Kicking the can down the road, as others have mentioned. Zombie companies are just the obvious symptom as this dysfunction bubbles to the surface.

Reality will come to bare eventually, it has to, economies cannot remain disconnected from their own tangible output forever. The apparent stubbornness of Japanese culture to maintain the status quo will likely mean it will be the children of the current generation that will be the ones left to pick up the pieces, so you can keep drinking your tea no doubt.

[1] https://en.wikipedia.org/wiki/Moral_hazard

maybe Japan will hire you to come fix everything since you seem to be an expert on their situation

I'd rather go to China, I much prefer the loose-leaf tea that the Fujian province outputs than any green tea I've tried out of Japan.

Plus they're not held back by stubborn short-sightedness masked as cultural prestige.

Can we please update this wildly sensational title? BoJ is a top 10 holder in 90% of Nikkei 225 stocks. That is 90% of 226 stocks [1], or, 203 in total.

The article states this clearly before the opening paragraph.

1. https://en.wikipedia.org/wiki/Nikkei_225#Components

What's up with titles on HN? Are you guys doing this on purpose?

>the monetary authority’s exchange-traded fund purchases have made it a top 10 shareholder in about 90 percent of the Nikkei 225 Stock Average

I have:

> The Tokyo Whale Is Quietly Buying Up Huge Stakes in Japan Inc.

So I guess bloomberg is A/B testing their titles

Not sure why you're being downvoted. BofJ does not hold 90% of Japanese stocks, just 90% of stocks in the Nikkei 225 index. Still interesting but very misleading title.

it's not even that they hold 90% of stocks in the Nikkei 225.

It's that among 90% of the stocks in the Nikkei 225 (about 203 stocks), the BoJ is one of the top-10 stockholders. Typically with large US stocks, the top 10 stockholders hold about 1-6% [0] -- so that implies, if the countries are substantially similar, that the BofJ holds 1-6% of 90% of Nikkei 225 stocks, or about 0.9-5% of total stocks in the Nikkei 225.

[0] http://finance.yahoo.com/q/mh?s=CSCO&ql=1 -- type in any large stock you can think of; you'll probably see Vanguard, T.Rowe Price, State Street, and a couple of other investment firms in the 1-6% range.

SPOF

Reply on news.ycombinator.com