Abenomics: medicine or poison for Japan?

[lomiller]

interesting (if outdated / incorrect) theories you have here. what actually happens is somewhat different.

Paultard bloggers are not a good place to find out what actually happens.

 

[kevsta]

None of which change stock prices without money actually flowing into the stock market. Your own link said money was flowing from outside Japan into the Japanese markets, something that first requires these people to buy yen.

I am not denying that hot foreign money has been front running the BOJ in the Nikkei, in fact as you point out, I told you that. However you still seem to be laboring under the false premise that traders cannot simultaneously short Yen and bet on a rising Nikkei. Quaint old assumptions, but incorrect. If as you seem to think, the Nikkei cannot move without people "first buying yen, to buy actual stocks in the Nikkei" ...?

Then perhaps you'd like to explain to me the precise mechanism by which with Japanese markets closed (US open) if the Nikkei Futures plunges 1000pts from the cash markets close the day before, that the Nikkei opens 1000pts down, with NO stocks having been bought or sold ?

Everybody who actually owned Japanese stocks the day before still owns them at the instant of open, no money has gone in or out of the closed markets, and yet they are priced differently from the day before now. interesting, huh?

Clue. you still seem to be missing the "contracts" part of it. What is traded is a "contract (or promise) to deliver" based upon ..ie no currency, and no stocks denominated in Yen.

http://www.cmegroup.com/trading/equity-index/files/EQ-156_Nikkei225Revised_Final_Low_Res.pdf

Nikkei 225 futures and options on futures provide investors around the globe with an efficient way to access the opportunities of the Japanese equity market, one of the world’s largest markets today (in terms of market capitalization).

The contracts track the benchmark Nikkei 225 Stock Average, with futures offered in both yen- and U.S. dollar-denominated contracts, to better serve customers with portfolios of investments in those currencies.

Let's talk through how it actually works to spare you any further confusion.

If I have a $10 million trading account and decide that I'm going to risk 10% of the account on frontrunning this gift from the BOJ back in January across 4 separate trades, so max $250k loss per trade.

My account (same as real life) allows up to 200:1 leverage, in this case I'm confident so I'm using the maximum allowed.

• 1. buy 200 USD Nikkei Futures (June 2013) contracts @ NKD 10350. (1 standard contract is $5 x index, so this in effect 5x200 = 1000 contracts/$ exposure)
  
• 2. buy 100 USDJPY FX contracts
  
• 3. buy 100 EURJPY FX contracts
  
• 4. buy 100 GBPJPY FX contracts

1. Nikkei - I'm going to allow a 500 point stop loss which would take me out at 9850 at a loss of $250k.

MARGIN REQUIREMENTS & LEVERAGE

The minimum margin requirement for most Forex pairs is 0.5% (200:1), this can be changed to 1% (100:1) or 0.25% (400:1). The minimum margin requirement for energies, metals, soft commodities and indices is usually 1% (100:1) and this can be changed to 2% (50:1) or 0.5% (200:1) via your account setting in the platform.

so 1000 contracts x 10350 = $10,350,000 position.

margin required in trading account for this position = 1.0% of 10,350,000 = $103,500. my Target Take Profit is 14000, (the position will automatically close at that point)

2. USDJPY 100 contracts long at 88.00. Stop loss at 85.00 (300 pips) equates to a -$250k loss.

(1 contract = $100,000) position size = $10million, margin requirements = 0.5% = $50,000
Target take profit = 100.00 exchange rate (automatically closed)

Repeat for trades 3 & 4. Then in early May all these trades hit their targets.

Nikkei trade closed 1000 contracts x 3650 points = $3.65 million profit.

USDJPY trade closed 100 contracts x 1200 pips = $1 million profit

Repeat trades 3 & 4 (for considerably more pips each profit than USDJPY but assume same profit)

This trading costs me $250k ($50k/$100k per trade) put aside as margin for $40 million's worth of exposure, and a potential $1 million total loss

Note I have put 3x as much ($) bearish betting on the Yen as the bullish long Nikkei position, and not once, did I "buy Yen" what I have done, is entered into contractual derivatives positions, with my broker, who may or may not hedge off any excess exposure (ie any not covered by their internal books and opposing bets) with their interbank liquidity providers.

this is part of what is known as the "Shadow banking system" and which is not dealt with by (m)any traditional economists as far as I'm aware, but is the basis of your incorrect assumptions.

because I've just shown you how the most basic of retail traders on a standard brokerage platform can do exactly what you said isn't possible.

One final question for you to ponder: Where did my $3.65 million (Nikkei) + $3 million FX profits actually come from? ie whose dollars do I now have in my account, and have they ever been converted into Yen in any direction? (no)

 

[kevsta]

Paultard bloggers are not a good place to find out what actually happens.

neither are Wootard economists

 

[lomiller]

However you still seem to be laboring under the false premise that traders cannot simultaneously short Yen and bet on a rising Nikkei.

Attempted goalpost move noted.

What we are discussing is your claim that foreign traders were selling the yen and buying the Nikkei and you offering that as an explanation for the yen's fall and Nikkei's rise in that period.

then a little while back the BOJ went all shock and awe on deflation's ass and the whole world sold the yen and bought the Nikkei, parabolic acceleration up, starting with a gap up on the news, see it? (btw from a technical perspective it was always virtually certain that gap will get "filled" -ie price re-visited again)

you still seem to be missing the "contracts" part of it.

Rather, you seem to have tried to move the goalpost rather than face the cognitive dissonance inherent in your position.


A futures contract may or may not result in buying the Nekkie. The scenarios that do not also do not impact either the value of the yen or Nekkie and are irrelevant to the discussion.

 

[lomiller]

neither are Wootard economists

Indeed, and the blog you linked to was rife with wootard economics. Featured likes like "abolish the Fed" dollar.collapse.com" and promoting books like "The Monetary Elite vs. Gold's Honest Discipline" or "The Dollar Meltdown"

 

[kevsta]

Attempted goalpost move noted.

What we are discussing is your claim that foreign traders were selling the yen and buying the Nikkei and you offering that as an explanation for the yen's fall and Nikkei's rise in that period.

what? what part of the above example of selling (short) the Yen and buying (long) the Nikkei, do you not understand? I am a foreign (non Japanese) trader, and I have done just that.

Rather, you seem to have tried to move the goalpost rather than face the cognitive dissonance inherent in your position.

nonsense, this whole *discussion* is about your claim that people cannot simultaneously sell the Yen and buy the Nikkei, as demonstrated above.

A futures contract may or may not result in buying the Nekkie. The scenarios that do not also do not impact either the value of the yen or Nekkie and are irrelevant to the discussion.

uh huh, well once again, I will ask you the question you dodged, because it is the key to your confusion.

Then perhaps you'd like to explain to me the precise mechanism by which with Japanese markets closed (US open) if the Nikkei Futures plunges 1000pts from the cash markets close the day before, that the Nikkei opens 1000pts down, with NO stocks having been bought or sold ?

Everybody who actually owned Japanese stocks the day before still owns them at the instant of open, no money has gone in or out of the closed markets, and yet they are priced differently from the day before now.

how can this be? the Nikkei was shut wasn't it?

and it works the same on every cash market with futures derivatives, the cash will gap up / down to the Futures price on open.

how, if no money flowed in or out of a closed market?

 

[kevsta]

Indeed, and the blog you linked to was rife with wootard economics. Featured likes like "abolish the Fed" dollar.collapse.com" and promoting books like "The Monetary Elite vs. Gold's Honest Discipline" or "The Dollar Meltdown"

we have very different definitions of this, I was talking more of Ferbus & his PHD cult.

ps with regards the "blogger" let me know when you get invited to speak to the PHDs at Google (2009) regarding how prescient your (Time.com 's #1 economics blog at the time) was with regards to the last crisis.



The Fed either didnt see it coming or lied. Game Over with regards credibility IMO.

 

[lomiller]

what? what part of the above example of selling (short) the Yen and buying (long) the Nikkei, do you not understand? I am a foreign (non Japanese) trader, and I have done just that. /QUOTE]

I understand all of it, you however seem to to be utterly confused. First of all you started by claiming buying and selling the Nikkie itself and said nothing about futures contracts at all. Then you tried to move the goalposts to talk about future contracts without realizing that the scenario you were presenting would not impact of the value of either the yen or Nikkie the way you claimed.

 

[lomiller]

we have very different definitions of this, I was talking more of Ferbus & his PHD cult.

ps with regards the "blogger" let me know when you get invited to speak to the PHDs at Google (2009) regarding how prescient your (Time.com 's #1 economics blog at the time) was with regards to the last crisis.



The Fed either didnt see it coming or lied. Game Over with regards credibility IMO.

And the Gish Gallop continues...

 

[kevsta]

what? what part of the above example of selling (short) the Yen and buying (long) the Nikkei, do you not understand? I am a foreign (non Japanese) trader, and I have done just that. /QUOTE]

I understand all of it, you however seem to to be utterly confused. First of all you started by claiming buying and selling the Nikkie itself and said nothing about futures contracts at all. Then you tried to move the goalposts to talk about future contracts without realizing that the scenario you were presenting would not impact of the value of either the yen or Nikkie the way you claimed.

you apparently still understand none of it at all in fact and you clearly read entirely your own versions of things.

Perhaps you got confused when I said "selling" and thought this can only mean somebody taking his excess Yen from his cupboard draw and going down to the Travel exchange to get $ for it?

selling = shorting. what meaning you choose to believe I meant by the word is beyond my control.

and if I am shorting Yen, by buying the crosses as above, as I have explained to you multiple times now:

ALL FOREX TRADING IS DONE IN CONTRACTS and so Forex trading done by 1000's of (me's all around the world) as above, wouldn't affect the price?

and a million tiny voices all hitting the Nikkei futures bid overnight doesn't affect the Nikkei open price the next morning? whether or not they have simultaneously shorted the Yen or not?

you are simply incorrect.

And what percentage of the western world's traders you think would bother to try and register with a Japanese broker to trade the cash Nikkei, deposit dollars into a Yen account, and try and stay awake through the middle of the night to trade the Japanese markets?

as opposed to just banging the Nikkei Futures in their usual trading app like everybody else?

lulz. I think we are done here, until you can answer any of my questions properly, your apparent "understanding of market mechanisms" makes me think you're just trolling.

there is some education required on the world of shadow banking, start here. (although I am certain I am wasting my time)

 

[kevsta]

interesting BB article on the rapid rise of Mr Wattanabe the Day Trader

http://www.bloomberg.com/news/2013-...-japan-stock-volatility-hits-2-year-high.html

Abe Spurs Day Traders as Japan Stock Volatility Hits 2-Year High
By Jason Clenfield, Toshiro Hasegawa & Anna Kitanaka - Jun 23, 2013 5:01 PM GMT+0200

Sitting before a cluster of computer screens in an apartment with the drapes shut, it took Naoki Murakami seconds to make $3,500 betting $1 million that Tokyo Electric Power Co. (9501) shares would fall a fraction of a percent.

The 34-year-old day trader first sold 50,000 shares at 558 yen ($5.70), then three more lots at 1-yen intervals as the stock dropped. He got out $2,500 richer, repeated the trade, and seconds later had $1,000 more. Within minutes of the market opening, the former water-purifier salesman had made more than the average Japanese person earns in a month.

Pedestrians walk past an electronic stock board outside a securities firm in Tokyo. The Nikkei 225 Stock Average has plunged 15 percent in four weeks, deflating a rally that had boosted the gauge 80 percent in just over six months as Abe took power.

Stringing together 20 or 30 similar trades each day, Murakami said he’s almost doubled his money to $750,000 this year. He calls himself the smallest player in a group of seven day traders who chat with each other online, vacation together, and cumulatively buy and sell almost $100 million in stocks each day, using leverage to increase the size of their bets.

Day trading helps explain why Japanese individuals now account for more than 40 percent of the nation’s equity volume, or about as much as the overseas institutions that once were the biggest traders. They’ve also helped make Japan the most volatile developed market, which is good for some and bad for others.

Dramatic price movements aren’t the only thing that’s made Japan a day trader’s paradise. Deregulation of margin trading opened the flood gates, Murakami said. After rules were relaxed in January, investors can borrow three times as much as their brokerage account balances and turn loans over the instant they exit a trading position.

‘Borrow Endlessly’

“Now you can borrow endlessly,” Murakami said. Pointing at price charts on his screens, the trader explained how each day he borrows millions of shares of fast-moving stocks like GungHo Online Entertainment Inc. (3765) and Fast Retailing Co. (9983), the most-heavily weighted company on the Nikkei 225, and sells them short.

 

[psionl0]

it took Naoki Murakami seconds to make $3,500 betting $1 million that Tokyo Electric Power Co. (9501) shares would fall a fraction of a percent.

If only it was that easy eh?

 

[kevsta]

If only it was that easy eh?

sometimes it is, but making 20 or 30 trades a day is pretty intense, I'd like to see the win:loss and risk:reward figures to see how viable that really is.

 

[kevsta]

Nikkei looks to be settling into a compressing triangle.

so are the smart money accumulating longs, or shorts? (buying or selling, for the terminologically challenged)

what we can probably expect to see for a while yet is range trading between these 2 trendlines with stop run pins through both high and low lines, until it decisively breaks either way.

and quite likely a good headfake (first orange oval) in the wrong direction first before starting the real trend, like gold did 2 weeks ago

 

[kevsta]

Schiff's latest

In many ways the 75% nine month rally in the Nikkei 225 (that began when Abe was elected prime minister in September 2012), and the subsequent crash that began on May 22, is not all that different from the turbocharged rally, and spectacular crash, that occurred in technology heavy Nasdaq more than a dozen years ago here in the United States.

At the time that Pets.com (the company behind the iconic Sock Puppet) made its IPO, other high flying tech stocks had racked up 1000% gains. While investors scratched their heads, pundits offered reasons why common sense no longer applied to the new economy. We were told that valuations, revenue and profits no longer mattered. And to an extent that now seems absurd, the investing establishment bought into the insanity. But then a funny thing happened, investors woke up and realized that they had nothing but a handful of magic beans that couldn't grow a beanstalk. When the fog lifted, stocks plummeted...Wile E. Coyote style.

... Chart Nikkei vs NASDAQ

Initially at least the economic data seemed to confirm the success of Abe's program. The leading indicator was the yen itself, which dropped like a stone. Given the widely held view that a weak currency is the key to economic success, the 25% decline in the yen was welcomed as good news. Soon thereafter, the inflation that Abe so eagerly sought began to materialize in various sectors of the economy. When the Nikkei reacted positively to these developments, momentum traders from around began to take notice, thereby creating self-fulfilling prophecy.

While the broad economic data failed to impress, economists and investors were nevertheless hopeful that Abenonmics would eventually work its magic. But recently the bottom has fallen out in a way that should have surprised no one, but somehow managed to do just that. Beginning in April Japanese Government bonds began to sell off sharply. Previously, the Japanese government could borrow funds for 10 years at just 36 basis points.

The truth is that the sub 40 basis point yield on Japanese Government bonds was the most important data point for their economy. At those levels, Japan needed to spend 25% of its tax revenue to service its outstanding debt. While that figure is high, most it is manageable given Japan's high savings rate. However, with a national debt that exceeds 200% of GDP, the Japanese government could quickly become insolvent in the face of higher debt service costs. If rates on 10 year debt were to ever match the 2% of their inflation target, more half of total tax revenue would be needed to service debt payments.

But the central premise of Abenomics seems to be that the Bank of Japan could push up inflation to 2% without raises the rates on long-term debt. To do this one would have to assume that bond investors would accept negative interest rates, even while a falling yen was eating away at principle and returns on alternative investments would be expected to be more attractive. Such an outcome is not consistent with human behavior.

As a result, in late May a strong sell off in Japanese government bonds caused yields to nearly triple to almost 100 basis points on 10 year debt. And while one percent doesn't sound like much, it was the rapidity of the ascent that got everyone's attention. This grim, but very simple, reality seems to have hit Japanese stock investors with a panic unseen since Mechagodzilla took aim at Tokyo. Knowing that even moderately higher rates could counteract any economic gains made by stock market or export growth, the faith in Abenomics has seemed to evaporate almost overnight. Sounds a little like the dot-com bubble, doesn't it?

 

[Puppycow]

I think Abe was elected in December, not September.

 

[Puppycow]

Must be my lucky day. At lunch time I found a 100 yen coin on the sidewalk. Then after work just now I found a 500 right in the middle of the sidewalk. I wonder how many people walked past those coins without noticing. I wasn't looking for coins or anything.

Must be Abenomics!

 

[kevsta]

Must be my lucky day. At lunch time I found a 100 yen coin on the sidewalk. Then after work just now I found a 500 right in the middle of the sidewalk. I wonder how many people walked past those coins without noticing. I wasn't looking for coins or anything.

Must be Abenomics!

haha, excellent, now tell me, did you spend your windfall, or are you squirreling it away?

and I think you're right on election date, not a great start to the article, granted.

 

[Puppycow]

Already spent on dinner. I even splurged for a beer (250) to go with my food (790).

To be honest I would have bought the food anyway but I don't always buy a beer. (^o^)v

 

[kevsta]

Already spent on dinner. I even splurged for a beer (250) to go with my food (790).

To be honest I would have bought the food anyway but I don't always buy a beer. (^o^)v

so on a micro level it seems to be working ok then.