Money and Markets: Investing Insights

Japan: The Land of the Rising Sun … and Falling Yields!

Mike Burnick | Thursday, July 28, 2016 at 4:30 pm

Market Roundup Dow 18,456.35 (-15.82) S&P 2,170.06 (+3.48) NASDAQ 5,154.98 (+15.17) 10-YR Yield 1.51% (+0.00) Gold $1,333.30 (+$6.60) Oil $41.08 (-$0.84)

The Federal Reserve convened yesterday and did absolutely nothing, as widely expected. My colleague Mike Larson covered the details yesterday. But suffice to say that, aside from acknowledging an “improved economic outlook,” the Fed seems content to stand pat for the foreseeable future.

Here’s the reality: The Fed has become a central bank sideshow, with investors shifting their attention to the European Central Bank (ECB), and even more so to the Bank of Japan (BOJ).

In fact, the BOJ is where the real main event takes place tomorrow.

The BOJ has become “more relevant” to U.S. investors now than even the Fed, according to Bloomberg. That’s because the BOJ is expected to increase its already record-setting monetary stimulus, or quantitative easing (QE), on Friday.
Throwing good yen after bad, in a desperate attempt to revive Japan’s economy.
Keep in mind, Japan has already spent 38 trillion yen in QE from 2013-14, but that didn’t stop Tokyo from doubling down with news of another 28-trillion-yen stimulus package surfacing earlier this week.

As a result, Japanese government bond yields are already leading the charge of global sovereign debt deep into sub-zero territory, with Japan’s 10-year note yielding minus-0.3% currently.
This insanity means investors are willing to pay the over-indebted Japanese government 0.3% a year over the next decade for the privilege of investing their money. Priceless!
It’s no surprise that investors are beginning to run for the exits, driving Japan’s buying of overseas debt to a record high this month, as they desperately search for yield.
This in turn is keeping a bid under 10-Year U.S. Treasuries, because even an anemic yield of 1.3% in the U.S. is far better than a sub-zero yield in Japan!

Can the Bank of Japan do anything to get the country’s economy moving again?

It’s no wonder why Fed meetings are considered non-events, while all eyes are on the ECB and BOJ.
As the “bond king” Bill Gross pointed out recently, our “highly leveraged economic system is dependent on credit …” and in a world with $11.5 trillion of government debt trading with sub-zero yields, it’s clear that “the financial system is sputtering.”
I wonder what monetary policy tricks the BOJ has up its sleeves for tomorrow?
Good investing,
Mike Burnick

Other Developments of the Day

Hillary Clinton will officially accept the nomination tonight as the Democratic candidate for the presidency. Among the speakers will be her daughter, Chelsea, who America first saw as a braces-wearing preteen during her father’s presidency. Then all we have to do is endure one of the fiercest presidential campaigns ever, all the way to Election Day in November.
Bad news on the auto front – Ford earned “only” $2 billion in the second quarter, down 9% from a year earlier as the boom in U.S. vehicle sales showed signs of cooling off. Ford’s earnings of 52 cents a share missed analyst expectations of 60 cents and sent the shares tumbling. Analysts were worried about profit margins in North America, which were 11.3%, down from 12.2% a year earlier.
New rules have been proposed that would affect the way debt collectors can pressure consumers. Consumers could no longer receive multiple calls per day from collectors and would have more ability to dispute their bills. The rules, proposed by the Consumer Financial Protection Bureau, would also require collectors to have more documentation to prove a debt is owed, according to the Associated Press. They would also require a 30-day waiting period for loans linked to someone who has recently passed away — preventing collection attempts from a spouse or child during that time.
The changes would affect only third-party debt collectors. The bureau has yet to propose rules for first-party debt collectors, such as credit-card companies and payday lenders. Hearings are being held to discuss the proposals. Once formal rules are written, the public will have 90 days to comment before they go into effect.
What’s your take on central bank policies, both here and abroad? Is the boom in car sales fading fast? Have you bought a car recently or plan to? What’s your take on the industry? Having trouble with bill collectors? Or having trouble collecting bills yourself? Comment below.
The Money and Markets team

Mike Burnick, who has over 25 years of professional investment experience, is the editor of the Ultimate Stock Options newsletter and associate editor and trader of Martin’s Ultimate Portfolio.
Mike has been a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. He also held the position of investment research analyst and Director of Research for Weiss Capital Management, where he assisted with trading and asset-allocation responsibilities for a $5 million ETF portfolio.