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Business/Finance See other Business/Finance Articles Title: Three Central Bank Swings, 3 Misses: Bank of Japan Delivers Latest Flub Three Central Bank Swings, 3 Misses: Bank of Japan Delivers Latest Flub Mike Larson | Friday, December 18, 2015 at 4:20 pm Three of the world’s most powerful central banks have stepped up to the plate in December. And all three have swung and missed, at least if you judge their performance by the market reaction. You know about Batter #1: European Central Bank President Mario Draghi. He offered up a heap of easy money measures on Thursday, Dec. 3. But the market tanked because it judged that he didn’t go far enough. Draghi tried to repair the damage by delivering another one of his “we’ll do whatever it takes” kind of speeches in New York the next day. That helped drive the Dow Industrials up by 369 points. But the rally completely failed shortly thereafter. Then there was Batter #2: Federal Reserve Chairman Janet Yellen. She followed up this Wednesday’s rate hike with lots of talk about how any further increases would be gradual, and how the economy was plenty strong enough to handle it. That paid for a rally of around 224 Dow points … but it lasted only 24 hours. The Dow plunged 253 points yesterday, completely erasing that gain, and then tumbled nearly 370 today. The Japanese central bank has moved again to spur the domestic economy. Has it failed again? Overnight, Batter #3 took his swing. Bank of Japan President Haruhiko Kuroda announced several modifications to that country’s $657 billion-per-year QE program. They included a change in the maturity range of bonds it’ll buy, additional stock ETF purchases, and a hike in the permissible level of purchases of Japanese REITs. That initially sent Japanese stocks higher and the yen sharply lower. But then investors grew to appreciate that the total amount of QE wasn’t actually going up, and that the stock purchases would be offset by later sales. And let’s face it, the BOJ has been doing QE for more than a decade with little success in spurring lasting economic growth or inflation. That’s a key reason one JPMorgan Chase economist to the measures by saying, “This all simply highlights the fact that it’s not easy to push on a string.” So what happened? Japan’s benchmark Nikkei 225 Index tanked almost 900 points from its intraday high through the close. The yen took off like a scalded cat, a typical “risk off” trading move. This just underscores the point that central bankers are no longer all reading from the same playbook, or all pulling in the same direction. Some are easing, some are tightening, and others are throwing whatever they can against the wall to see what sticks. “Central bankers are no longer all reading from the same playbook, or all pulling in the same direction.” They’re also trying to respond to every single swing in asset prices, something they never used to do. That’s increasing volatility, rather than suppressing it, and leading to some spectacular strike outs like the three I just wrote about. My advice? Take advantage of these wild swings to maximize your profits. For your more speculative funds, use active investments that hedge against downside risk and generate profits from moves lower in vulnerable stocks. I just recommended subscribers to my Interest Rate Speculator take two more rounds of profits today, in fact. For your core capital, keep a higher percentage of your funds in cash and invest in less economically sensitive stocks with lower volatility and decent yields. That should help insulate you against global economic weakness and the increasingly turbulent environment we find ourselves in. So what do you think of the “batting average” of the world’s major central bankers? Are they failing at their jobs? Or are the markets going to increasingly take matters into their own hands regardless of what Draghi, Yellen, and Kuroda say or do? Are there other strategies or pointers you want to share with your fellow investors, in addition to those I offered today? Use the Money and Markets website as your outlet. Poster Comment: Three strikes and you're out! Post Comment Private Reply Ignore Thread
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