Monday Market Manipulation - BOJ Now Owns 10% Of The Nikkei

Includes: EWJ, SPY
by: Philip Davis


The Bank of Japan is a top 10 shareholder in over 200, 90% of the N225, companies.

The QE end-game is upon us, and the repercussions of that could be catastrophic.

Sadly, it's all going according to plan.

This is getting silly.

The Bank of Japan is already a top shareholder in 90% of the Nikkei 225 companies, so, on any given day, if you're selling shares in a Japanese company, chances are it's the BOJ that's taking it off your hands. 3,000,000,000,000 Yen is the current annual buy-in from the BOJ, and the Central Bank is talking about doubling it - putting it on a pace for $1Bn/week of stock buying in an economy 1/4 the size of the US.

If the BOJ accelerates its ETF purchases this week to an annual rate of 7Tn Yen (the pace predicted by GS), the Central Bank could become the #1 shareholder in about 40 of the Nikkei's companies by the end of 2017, according to Bloomberg calculations. It could hold the top ranking in about 90 firms using HSBC Holdings Plc's estimate of 13Tn Yen.

This is a MASSIVE distortion of the markets, and, to some extent, the same thing is beginning to happen in the US and Europe. As I was saying last week, this is the problem with TA as you can't discover value when there's an underlying buyer who will take shares at any price - regardless of the actual value of the company in question.

It's doubly bad because the BOJ is also buying 55% of the ETFs, which, in turn, are indiscriminate buyers of stocks and, even worse, by inflating the price of the ETFs, the BOJ suckers the citizens of Japan into grossly overpaying for the ETFs and, as a throughput, for the underlying stocks. We're not dealing with reality here, folks, and, to some extent and to some degree, this is being done by all of the World's central banksters in a desperate attempt to prop up the stock holdings of their Top 1% masters. As former Fed Chairman Alan Greenspan admitted last week in a CNBC interview:

"Monetary policy has done everything it can, unless you want to put additional QEs on and QEs on, they're not helping that much.

What ultimately determines whether or not you're getting an effect from the QEs are what has happened to the price/earnings ratio, and that obviously has done what you'd expect it to do.

You bring long-term rates down, and the price/earnings ratios in the equity markets go up, which is exactly what they planned to do and it's happened that way."

As Greenspan notes, the additional flow of Central Bank money that buys equities at any price, without regard to their actual valuation, can only serve to inflate the price of stocks relative to their actual earnings and that's what the Fed wants too because it makes stocks a poor deal compared to bonds - even when the bonds pay no interest at all! At least the bonds aren't that likely to drop 20% on the next market mishap. In fact, they actually gain value when that happens, right?

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As you can see from this chart, we're well into the red zone on P/E multiples while testing record highs, and it has nothing to do with other, rational investors buying alongside you, but mindless, wasted taxpayer dollars being pumped into the mix by the central banks in an effort to stabilize the portfolios of the Top 1%, which includes their member bankster citizens as well, of course (thanks Citizens United!).

This is how you are being ROBBED every single day and your children are being robbed (through the debt we are piling on to maintain this farce) and your grandchildren are being robbed, and no, I'm not saying you need to do something of it other than acknowledge what is happening here so you can get a realistic perspective for your long-term investing.

There WILL be a crash. I don't know when but there will be. Who knows how long central banks can keep pumping money into the markets - Japan has been doing it for decades and is 250% of its GDP in debt and it is talking about doubling down on QE - the US is "only" 105% of our GDP in debt, so another $30Tn before we catch up to Japan - just enough to double the US stock markets before it all explodes!

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Frankly, if we're all going to go bust (because we sure aren't paying $20Tn back!) or we're all going to hyperinflate until we can afford to pay off the debt (just as bad for debt-holders, but we get to pretend we paid them off), then it would be a DISSERVICE to our citizens if we didn't spend as much money as possible and max out all possible credit prior to the adjustment, right?

Already the United States is trapped because we owe $20Tn, and 1% interest on $20Tn is $200Bn, so if the Fed raises rates 0.5%, our government will have to pay $100Bn more interest on what it already owes. If the Fed allows rates to go back to pre-crisis levels of 5%, that would add close to $1Tn per year in interest payments alone, so, CLEARLY, that is not an option - is it?

Think about that when Donald Trump or Ted Cruz say they want to audit or curtail the Fed and let the market set rates. Unless those rates are set to negative by "market forces," they are talking about bankrupting this country, which will allow our creditors (the Top 0.01%) to foreclose on our national assets - the way Greece was picked apart in its time of crisis.

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This isn't a joke - this is what Greece had to do to raise money to forestall its creditors - it sold islands, national parks, forests, mineral rights, water rights, government buildings - pretty much anything that could be sold was sold and utilities were privatized as the Capitalists took over the country and THEN they were bailed out by the Central Bank - once the interests of the Top 0.01% were aligned with the interests of the country - BECAUSE THEY OWN IT NOW!

Look at our discretionary spending budget ($1.3Tn out of $4Tn in total government spending) - what programs will we have to cut to make room for another $1Tn in interest payments? The answer would be ALL OF THEM and cut the military in half and we'd still be looking for $200Bn.

This is what the Conservatives want; they want to create a crisis that, like Greece, FORCES the US to slash social welfare, cut all government services and roll back benefits and, if it happens because of "market forces" - so much the better as they can blame it all on someone else's spending while they preside over the tearing apart of the US government. This is not a secret agenda - it's their long-term policy platform (known as "starving the beast")! The secret is simply making the connection between shutting down the Fed and the end result, which would be runaway interest and an explosion of mandatory payments that FORCE us to cut everything else.

This is the end-game folks - and your country is at stake. Frankly, I don't have any serious answers other than looking for another country to live in, but for people who don't have money - that's not an option. You could vote for the Democrats, but unless we get a filibuster-proof majority in the House and the Senate with a Dem President, it won't help. We're on an unsustainable path that's very, Very, VERY likely to end in disaster but when - who knows?

As I said above, $30Tn is a lot of money to pump into the economy and the move in market valuation would be similar to what we saw between 1996 and 2000 - that's a good four years more of this nonsense before things really blow up. Heck, people are paying 500 times earnings now for Amazon (NASDAQ:AMZN) so why stop at just one $300Bn company that should be $30Bn - we can do that with Netflix (NASDAQ:NFLX) and Tesla (NASDAQ:TSLA) and Under Armour (NYSE:UA) and Nvidia (NASDAQ:NVDA), etc.

Those are some of the stocks I've been thinking of shorting, but shorting is a very scary thing when you are fighting the Fed(s). That's why we've been CAREFULLY adding hedges, but, so far, we still have a ton of long-term bullish positions in three of our four member portfolios because it could be years (and 100% gains) before this thing finally falls apart.

Until then, be careful out there!

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Disclosure: I am/we are short AMZN, TSLA, SPY, DIA, QQQ, IWM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Positions as indicated but subject to RAPIDLY change (currently mainly cash and an otherwise slightly bearish mix of long and short positions - see previous posts for other trade ideas). Positions mentioned here have been previously discussed at - a Membership site teaching winning stock, options & futures trading, portfolio management skills and income-producing strategies to investors like you.