Friendly Fire

4 Nov

As we all know in war there are rarely clear winners and losers. We have had the war on drugs, the war on terror, and now we have the war on ones one currency. The massive step up in BOJ policy, clearly designed to drive down the value of the Yen, was the right combination of surprise and heft. The question one has to ask is: if driving down the value of ones one currency is an effective monetary policy, then Venezuela should be knocking the cover off the ball. One also has to wonder whether this was  also  a clear shot across the bow of China, Germany, South Korea and others. If the BOJ wants to import inflation, then such a strategy can be effective, but is this really the “good” inflation that all Central Bankers so desperately seek. What is even more interesting about the market response(surprise surprise stocks rallied) was that there was so little concern about why a Central Bank would feel the need to so deeply immerse itself in the middle of their own domestic capital markets (stocks, bonds, reits,and currencies). Get ready for the criticism of Mr Draghi this week, as it would appear that whatever he does  will pale in comparison to the  monetary carpet bombing that just took place. The most egregious outcome however of this latest monetary science experiment is the sudden universal dislike for all things tangible. We are at complete odds to understand why the greatest brunt of the collateral damage associated with these currency wars would be that which is not a fiat currency. Don’t believe the deflation hype: BUY STUFF.

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