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“If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t. And contrary wise, what is, it wouldn’t be. And what it wouldn’t be, it would. You see?”

–Lewis Carroll, Alice’s Adventures in Wonderland & Through the Looking Glass

Commentary & Analysis
Reaction to the Bank of Japan Decision to “do nothing”…

Mr. Carroll, I think we have entered the world of nonsense; it seems pervasive, but as it applies to monetary and fiscal policy nonsense is the word. For the down the rabbit hole we have gone. How else can one explain the fact central banks have completely lost their rudders yet markets turn on every utterance of useless gibberish?

It seems clear to me our central bank “leaders” are making this stuff up on the fly. I would suggest these new market master manipulators request a refund from whichever illustrious institution charged them for earning a Ph.D. in economics. To torture this further, it reminds me of the movie “Good Will Hunting.” It starred Matt Damon playing the role of the local “uneducated” South Boston toughie/genius. In the movie he confronted a crowd of cocky Harvard elites in a bar showing everyone how smart they were. Damon chopped them down to their proper intellectual size and showed them they weren’t quite as smart as they pretended. He then told them if they would have spent $2 on a library card, and used it, they could have saved their parents tens of thousands of dollars on their vaunted Harvard education. A perfect analogy I believe for our central bank Ph.Ds.

Had our CB masters shunned Ph.Ds. and the econometric nonsense so associated and instead concentrated solely on Ludwig von Mises magnum opus, “Human Action,” they would not only have saved their parents big money, but saved us from the ongoing shit-show they call monetary policy.

But it seems traders and investors are enjoying the show and playing their roles nicely—hanging on every central bank utterance as if its mana from heaven. How can it be other than a world of nonsense considering the reaction to the Bank of Japan’s decision to do nothing?

Empirical evidence suggests what the BOJ has been doing isn’t working. So, when the BOJ stops doing something that isn’t working and finally shows some degree of what we might define as rationality, what does Mr. Market (which I define as a group of highly irrational people) do—it violently reacts as if “something” should have been done. If that isn’t nonsense I am not sure what is.

But of course, today, in retrospect, there is likely some pundit, somewhere, explaining the reaction to the poor decision by the BOJ as completely “rational” based on his knowledge of monetary policy and its proper application for maximum efficiency in transmission of all that is good for the real economy, etc. etc. etc. Barf!

Said pundit likely has two things to fall back on to help justify his analysis: 1) an advanced degree of some kind from an Ivy League institution; and 2) never traded his own money in highly leveraged markets.

It’s not a stretch to suggest short USD/JPY (long JPY/USD) is a very crowded trade now. And if so, just maybe we are getting close to the end of this move. Next key support at 106.60; then the swing low at 105.18…will the oscillator pattern repeat as seen in the weekly USD/JPY chart below? Stay tuned.