Saturday Hark Back - 15 Apr 2023
Capturing the themes of the week when there’s time to digest them.
Easter hangover continues but Warren goes visiting the cherry blossom
The Easter hangover continued in markets this week with light volumes and even a muted reaction to US CPI which was, in any case, all but reversed by the close of the week. Hopefully, the looming crucial central bank meetings at the end of April and beginning of May will loosen things up a bit especially when we take a step back and we see that a lot of the major markets are sitting close to critical levels.
The S&P is not far off the 4200 level. The last time we spent any decent time above there was back in August of last year; pre Powell’s Jackson Hole pushback. The VIX is on its lows from back in late 2021. The EUR tried the 1.1050 level, the high from a year ago, this week and is still not that far off it. Gold, the recent darling of the market, is starting to lose steam and 2000 is looking more likely than a press for fresh highs with 1950, beyond that, putting paid to the goldfingers out there. Finally the US10y is also sitting on its 200dma and not that far off the pivotal 3.70 level.
The breakout levels are there we just need the news and momentum to take us there.
One piece of news, however, that did catch my eye was out of Japan. The new BoJ Governor Ueda held his first press conference this week where he stated his, and the Banks, commitment to maintaining the two pillars of its monetary policy; yield curve controls and negative interest rates. This was followed later in the week with press reports that Ueda had told his G20 partners that the Bank would maintain its existing monetary policy stance with inflation expected to slow in the coming year. Martin Wolf, in the FT this week, wrote an excellent article on the high excess savings in Japan which have trapped the country in this negative rates/low inflation spiral for decades which is well worth sourcing.
Anyway, Ueda’s first uttering as the new BoJ head were of little new news to the markets but what added to the intrigue was the fact that Warren Buffet made his first visit in years, indeed decades, to the country this week. My attention was first grabbed by Weston Nakamura’s twitter thread from earlier in the week, which I post below. The gist of it is that Buffet has held stakes in the 5 largest Japanese trading houses for close to three years funded by selling low yielding Japanese bonds. This week he specifically went to Japan to increase those stakes, again via bond sales, despite not being physically present when he put those trades on originally. The conspiracy theorists have suggested that he went specifically to sound out the BoJ as to when/if borrowing costs are going to move higher.
All well and good but lets face it Japanese rates aren’t going lower so they can either remain the same or go higher. Nothing new there then. Surely he was merely locking in cheap rates while he could? Maybe he did speak to the BoJ but one could argue if he did, and they did give him the nod, then surely he would have bought more than the 2.5% of additional stakes in the trading houses that he put on this week?
Perhaps he just wanted to pay a courtesy trip and say a warm welcome to Ueda and get his ear for future reference, so to speak, and more importantly, spend time in the “autumn” of his life enjoying the cherry blossom season.
Either way, I thought it was a good story to share on another pretty dull week.
Fortune - Warren Buffet and Japan
Weston Nakamura - Warren Buffet's behaviour scream imminent BoJ rate hike
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