Counterparties: Meaningless plunge
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Japan’s Nikkei index plunged more than 7% on Thursday. Investors and economists spent the last 12 hours obsessing over possible explanations. Weak Chinese manufacturing data and comments from the Fed were both identified as possible culprits. Most likely Neil Irwin is right and there â€śwasnâ€™t really any news overnight that would justify a swing of that magnitudeâ€ť.
To put the fall in perspective, the Nikkei is now back at the level it was merely two weeks ago. And it is still up over 68% in the last year. That performance did not stop the WSJ from calling investorsâ€™ enthusiasm for Prime Minister Abeâ€™s plan to boost Japanâ€™s economy â€śbrittleâ€ť. Paul Krugman thinks it may all of a sudden be reasonable to doubt the Bank of Japanâ€™s commitment to monetary stimulus.
Following the vein of Bernankeâ€™s comments and the possibility of curtailed stimulus, Tim Duy thinks the Fed could start slowing the pace of QE as early as September. However, Duy writes that the Fed should more directly communicate its intentions, rather than expecting market participants to divine specifics from opaque statements. Pointing to a shift in the Treasury yield-curve, Sober Look sees a preview of what may happen if the Fed tapers its monetary stimulus — declining value across multiple asset classes.
At times like this, analysts will recommend a lot of things, sometimes written in all caps to demonstrate conviction (which should be a warning sign in and of itself): â€śbuy the dollar, sell EM FX and sell carryâ€ť; â€ślong USD against the CHF, AUD and CADâ€ť; â€ślong USD/JPY and long Japanese stocks are the most crowded trades out thereâ€ť; â€śthe dollar rally is expected to gain momentumâ€ť; go long Herbalife. That last one has nothing to do with Japan or the Fed, but hey, why not. — Ben Walsh
On todayâ€™s links:
Congress quietly watered down a new law on Congressional insider trading – NPR
The Department of Justice is actually not too sure if this whole “too big to jail” thing exists – Shahien Nasiripour
And, of course, there are many more links at Counterparties.