Grant Williams: The Rising Danger Of A Bidless Market
Grant Williams, veteran portfolio and strategy advisor, as well as proprietor of the economic blog Things That Make You Go Hmmm returns to the podcast this week to discuss his great concern about the liquidity risk underlying financial markets long-addicted to central bank rescue stimulus.
Through life, behavior is reinforced by consequences. And since 2008, everything possible has been done to avoid the consequences.So it’s no great surprise to me to that investors are back here again so soon, because what should have happened in '08-09 was not allowed to run its course. Given the speed with which trillions of dollars of printed money brought things back to where they were before, people did not really feel the consequences. At the time people lost jobs and that’s real — that problem is still working itself out — but in the markets, investors were basically back-stopped by governments and central banks and so they did not feel those consequences. It's like the kid falling out of the tree and getting caught: well, he's going to climb the tree again. If he had fallen out and broken his leg, he'd think twice about doing it again.And so a band-aid was put over the first problem without really addressing the cause of it: too much debt in the world. So what have we done? We've gone and added another $60-70 trillion dollars of debt onto the amount that caused the problems in 2008. Everything that has been done has been intended to stave off an outbreak of reality. Unfortunately, history is replete with examples that there's really not much you can do to stop natural, cyclical forces. You may be able to suspend them for a time — which is what they've done — but ultimately, they end up expressing themselves in ways and places that are far more dangerous than they were to begin with.Look, we've got a bunch of people now who are essentially paid to believe central banks. Guys who invest assets, whether it be in mutual funds or pension funds. They've been forced into equity markets these days because they've been willing to accept capital gain as a substitute for income in the bond markets for the last few years. That's coming to an end. We've reached negative rates now. You can argue that we could go further negative, but realistically the upside for rates is unlimited, whereas the downside has a limit on it. They've nearly reached that lower limit and so capital managers have been forced to move into the equity market where there's some semblance of a return.The danger to me has become one of liquidity. In a rising market, I will always find you an offer. If you want to buy shares in a rising market, there are always some for sale. I don't know what the price may be, maybe it's a little bit higher as people get greedy, but there's always stuff for sale. What people have forgotten since 2008 — which was such a sharp wakeup call — is: in really full markets, there are sometimes no bids. Every flash crash that we've seen in the last five or six years has been a preview of what's going to happen when confidence goes, because people will move to the exits. Everything that's been done — again we come back to these rules that put in place to deflect the last crisis: Dodd-Frank, Basel III, banks being forced not to mark-to-market anymore — we will see all the unintended consequences of these actions come out when people want to hit a bid and there's not a bid there. It could get ugly.This is not a time for panic, but it is absolutely a time for a great deal of caution. You need to understand A) Why you're still invested in markets and B) What your plan is to get out of them if you suffer a shock. Because if a shock comes and we get a move down like we did in January/February, and it's one that coincides with a whole-scale or widespread loss of confidence in central banks, they're not going to be able to turn this thing around. People need to have a plan at that point.
Click the play button below to listen to Chris' interview with Grant Williams (58m:38s). And after listening to the podcast, be sure to watch Grant's new video Crazy which does an excellent job laying out the unsustainable state of the "long rescue" the world's central banks have been engineers.
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Grant Williams: The Rising Danger Of A Bidless Market
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Chris: Welcome to this peak prosperity podcast. I am your host Chris Martenson. of course, and it is July 5th, 2016. Well, here we are we are just a couple of weeks post the infamous Brexit vote, which is still reverberating around the financial and political worlds. Now, in prior times, such a thing as the UK detangling itself somewhat economically and politically from the rest of the EU would not be sending such massive shock waves through the system; but today that is happening; and the reasons why are numerous and themselves all tangled up with each other.
Now this is a very important podcast in our series, because it is entirely possible that ill-advised era of central bank medaling is coming to an ugly end, and a new regime is about to take over. If so, literally everything is up for grabs, and nothing is certain. So, you should really listen to this one carefully; and I am beyond delighted to have back on the show one of the very best and I mean that, thinkers and observers in the business to help us find the signal in a choppy sea of noise is Grant Williams, who has to his own amazement, and chagrin, I hear, 30 years of experience in investing and finance and who writes the very popular investment newsletter, “Things that make you go hmm” of which I am a huge and unabashed fan. His writing is always witty, full of context, accurate, easy to follow. Welcome Grant; real pleasure to have you back today.
Grant: Oh, Chris, thank you it is always a thrill to chat with you.
Chris: Well thanks. Well, I want to start with Brexit obviously. It caught me by surprise; mainly because there have been very few cases in my lifetime where the ruling elite did not get their way and they clearly wanted remain to win the day. Didn’t happen. So, it is sending shock waves. Are these shockwaves deserved, undeserved; was this just a case of a bubble seeking a pin and that pin was Brexit, or is there something that we really should worry about here?
Grant: I think the shockwaves are deserved, but perhaps not for the reasons that most people would expect. I think, you put it so beautifully in your introduction there, in terms of this era of what Ben Hunt calls the golden era of the central bankers coming to an end. And I think that is potentially the real shock wave here and I was not as surprised as many people that this Brexit vote happened, and I write a piece about this in February, I think. Yeah, the Brits have a long history of A, not liking being told what to do by outside observers and B, voting for things and doing things that perhaps other people would think might not be in their best interest. We have a history of that. So, I think going into the—there is one chart that is absolutely fascinating if you look at the polls for people to remain or leave going into the moment where Barack Obama threw his hat in the ring and told the Brits that they would be foolish to leave the EU, and how we would go to the back of the line for a trade deal. From that day the support to leave skyrocketed, which was fascinating to me, and I think the establishment underestimated the damage being done by bringing more outside observers: Barack Obama, Angela Merkel, Christine Lagarde; they all weighed and why—you Brits would be foolish to leave; and it just put British backs up; and I think that the debate unfortunately was dominated on the remain side by economic fear mongering and on the leave side to a large extent by the immigration issue; and I suspect it was the immigration issue that probably won the day, looking at the part of the country that voted strongly to leave; and I think what people will see in the long term is that Britain made the right decision, arguably at the time for the wrong reasons, and I think in the long term it’s going to be a positive for Britain because I think the EU in its present form certainly is finishes and it is going through the motions of its death knell now; and if the British leaving is a catalyst for change in the EU, then I think it is unreservedly good thing.
Chris: Now, the EU being finished because it was a quasi-political union and monetary union without full taxation, so it was just structurally wrong, or is there just something about what happens when you try and get that many bureaucrats together to try and do something? Is it just too many cats to heard, is that the issue or what do you mean by saying that the EU is finished here?
Grant: It was a noble cause at the outset and then it morphed into something far greater. The reach extended way too far into national culture, national identity and to have a monetary and increasingly political union without a fiscal union was never going to work in times of stress, and we have seen that since the dark phase of 08, 09 particularly in Europe 2011, ‘12. When really until Draghi’s whatever it takes speech the entire project was hanging by a thread. It was unsustainable and what they have had to do to keep it together goes beyond the realms of normal central bank remit and it’s increasingly unsustainable. There has not been a single policy out of a central bank in ten, some would say 20 years. And so they are constantly reacting to the last crisis and next crisis, and putting measures in place that no right thinking person would actually look at when they were trying to establish a structure like this; and so as the Brexit vote goes through, we are looking at potential votes in places like Holland, Austria, Finland where there is strong anti EU sentiment. The big problem is going to be France, where the disapproval rate if the EU now runs into the 60 percent level; and the dissatisfaction, which I think is why you are seeing a lot of talk out of the EU about how tough this is going to be on Britain. They have to kind of make an example of Britain. In a normal world, you would expect adults that each want to do a good trade deal to sit around a table, but the idea of the Brits being punished for leaving this tells you they are worried about the Brits leaving, and it not being a disaster, because that would send signals to the Dutch and the Finns and the Austrians that, hey you know what, being on your own with your own currency and a trade deal might not be the worst thing in the world. So, if you look at Italy, there is a referendum coming up in Italy which is going to be held no later than October; and it is a purely domestic referendum, but it is a chance for the people to speak, and one can infer from what has happened in Britain that the old saw about people don’t actually vote for the issue, they are being asked about they vote for the state of their lives, it is going to be a very interesting thing, because if he loses, the prime minister has already said that he would step down, so there is another vacuum with the Five Star party in its lead being very strong with the public at the moment and on an anti EU, exit the EU and get rid of the Euro and go back to the Lira platform. So there are a myriad of things that can go wrong for the EU and the Brexit vote looks to me like it will not only be the catalyst for that, but a convenient thing to blame all around the world for the Fed not being able to hide rates, for example. They are going to blame that on Brexit they will blame further disruption on Brexit, and I think that is wholly unfair. I think Brexit is a catalyst; not part of the problem.
Chris: Now let us—I love how you said that maybe Brexit was the right vote at the right time for the wrong reasons I will tell you, so immigration I can see both sides of the issue very complex. One trend that I do not think is that hard to understand is that with all of the globalization, with the centralization what is inarguably happened, and of course you and I wrote about this long ago that when you print lots and lots of money and shove it into the financial system you will almost by definition create a massive gap in wealth disparity between the ultra-wealthy and everybody else. Those with first access to the trough with their noses in there do better, and that is just not hard to understand. The feds professed ignorance as to how this all arose but it is really, it is not that hard to understand so I think it is false ignorance but could we not see Brexit as part of a—maybe part of that was a referendum of people saying, we are just unhappy with the direction things are going. My common average life is not getting better it is getting harder, and you guys at the top seem to be a little tone deaf to that trajectory. Let’s stop this while we can.
Grant: Absolutely; and the evidence is so clear of you look at the electron map of the UK; you just need one look at that. What you will find is Scotland voted to remain and Scotland feels far more a part of the EU that it does of the UK, as we saw in the fairly close referendum where they try to leave. Northern Ireland, again a province if you like of Great Britain, but then if you look at the map of England, which I did in the recent piece I wrote I took those two out of the equation, you see the leave vote blanketing the country, and the only obvious places where there was strong support for remain are, guess what, where those wealthy people live. It was central London and the places around London. It was the home county, Buckinghamshire, Oxfordshire, where a lot of those people live. So, it was a clear vote between the haves and the have nots, the have nots who, going back to my earlier point about the referendum in Italy are unhappy with their lot with the status quo and the people that have the assets have the money who are very happy for things to carry on, I mean it was such a clear picture of the vote and why it happened I really do not think you need to look at anything else to understand it, frankly.
Chris: Well excellent, yeah, I certainly agree with that. Now Italy, this is going to be fascinating that this vote coming up because I am looking at the Wall Street journal and finally Italian banks have hit the front pages here in the United States, although you and I discussed this last year and how could we not have. I mean, 18 percent non-performing loan ratio means their entire banking system is utterly insolvent to the tunes of hundreds of billions of euros, while the stabilization fund they put up; what, maybe five billion euros, if I have my numbers right. Woefully not up to the task and the Italian government really cannot step in for a variety of reasons here and I am sure they are peaking over the border checking out what happened with Greece and the austerity and how the EU has handled all of that. It seems to me there is an extraordinary systemic risk here just in the Italian banking system alone. Would you agree with that, and should investors maybe be thinking about that a little more carefully?
Grant: I agree absolutely, but I would extend it to the entire European banking system. You have to look at the charts of these banks to really understand what is going on here and people—the banking system was the epicenter of the crisis in 08, and the narrative has been ever since, well, we have got the banks in order, we have fixed that, we have put stress tests in place, we have—Basil III is coming in. The banking system is fine. Well, you have one look at the charts of Deutsche Bank, for example, which is arguably has the biggest systemic risks on the face of the planet. The equity is telling me something there, it is telling me that it is going to zero and if you look at Credit Suisse, look at UBS. These are banking giants in Europe. They are all looking really sick and then you get to Italy and it is really worrying and to my point earlier on about reacting to the last crisis; you know we saw in Cyprus, when we had the crisis in Cyprus. The response to that was the bail in rules and at the time, again, it was something that I do not think people understood what happened there I mean depositors had money confiscated by the government to pay for rescuing the banking system. Now those rules are now in place across Europe. Well, ironically the problem is being seen now in the Italian banking system are hampered by the bail in rules. So the rules they put in for the last crisis mean that the Italians cannot step in and save their banking system, unless they find a way to change these rules again. So putting a band aide over these things every time they happen only lasts for so long, and I think ultimately, this comes back to your point at the very start of this conversation about this confidence in central bankers which is so important. I mean, I cannot stress how important it is to maintain that, and it is weakening by the day and so the Italian banking system is the canary in the coal mine. The numbers are just head scratchingly ridiculous, frankly, I mean the five billion in liquidity, the Atlanta fund to bail out the banks which was rather cutely named after Atlas because the idea was that this fund would hold the sky up if something falling on Italian banks and they blew through half of the capital in the first six weeks. This thing was in operation and now they are talking about another forty billion needed to be thrown into the Italian banking system for saving. Now these are real numbers or they use to be, we are talking trillions now and so people think, well 40 billion that is not so much money right? It is real money, it adds up and the fact that these guys are largely hamstrung by their own prior actions is at some point going to matter, and we will have another crisis in the European banking system again. It’s coming. You can see it.
Chris: Well Grant if you just take that 40 billion and you match it up against the stated value of the nonperforming loans and let me guess perhaps that there are some bankers in Italy that are let us say incentivized to under report that number. Right? Just the 40 billion against the reported nonperforming loans is eight percent; so that is saying we are going to get a 92 percent recovery rate on these, or that is all the capital we need to make these work again. Clearly, that is not sufficient. So even that number as large as it is insufficient. Where would they get even 40 billion, but where would they get more than that in the current climate?
Grant: Well, funnily enough you ask that, the next tranche of this they are talking about coopting money from the pension funds into it to try and find the capital to try and bail these things out. I mean, you cannot make this stuff up. There was a piece written by a good friend of mine, Danielle DiMartino Booth, author for the Italian job, and she looked at the numbers here and the non-performing loans is a total she counted 408 billion euros of non-performing loans on the bank balance sheet in Italy. Now, investors think that unsecured they are worth about five cents on the dollar, and secured they would be worth somewhere between 25 and 35 cents on the dollar. They are marked on bank balance sheets in between 50 and 65 cents on the dollar. So, the gap there is unbridgeable essentially, without money, who knows how much money and that 408 billion euros of non-performing loans is 20 percent, not of the banks’ market caps but of Italian GDP. So, we are talking numbers here that are unworkable without the suspension of belief and a serious change in the rules and some more whatever it takes by central banks. So, it is coming. It is going to have to happen at some point and when it does the only real question is, do the pigs get greedy again and stick their nose in the trough, because they have that central bank back stop or does a little bit of reality return, and people say, you said whatever it takes last time; here we are again; we do not believe you anymore and it is at that point when I think this whole thing crumbles.
Chris: Now this is I think the center of the entire discussion, which is, so we are down the rabbit hole at this point. We are in this faith based model at this point in time, and really investing, double air quotes around that word today, seems to boil down to, how much are you willing to suspend that belief; how much disbelief; how much are you willing to ignore fundamentals and believe that the central banks have your back? Well apparently that is a big part of the equation, if not the dominant part at this stage. So this central belief in the central bankers is really all important. I—here is my question – I hardly even know how to phrase it, whenever I talk to somebody who has been in the business for a while Grant, I cannot find anybody who really believes in the central bank. I have not found that die hard person who is willing to say, oh they have totally got our backs. They will pull us though. Everybody is nervous about this. Who is really do you think holding onto this belief that seems to be holding the markets up? Who is the carrier of that torch?
Grant: Well, look you have got a bunch of people who are essentially paid to believe them. Guys who invest assets whether it be in mutual funds or pension funds. They have been forced now into equity markets because they have been willing to accept capital gain as a substitute for income in the bond markets for the last few years. That is coming to an end. We have reached negative rates now. So you can argue that we could go further negative, but realistically the upside for rates is unlimited, the down side – there is a limit on it and so as they have reached that point and they have been forced to move into the equity market where there is some semblance of a return. The danger to me has become one of liquidity and as I keep saying to people when I talk about this, in a rising market I will always find you an offer. If you want to buy shares in a rising market, there is always some for sale. I do not know what the price may be, maybe it is a little bit higher people get greedy, but there is always stuff for sale. What people have forgotten since 08, which was such a sharp wakeup call, is in really fully markets there is sometimes no bids and every flash crash that we have seen in the last five or six years has been a preview of what is going to happen when confidence goes, because people will move to the exits and everything that has been done, again we come back to these rules that put in place to deflect the last crisis: Dodd-Frank, Basel III, banks being forced not to martk-to-market anymore; we will see all the unintended consequences of these actions come out when people want to hit a bid and there is not a bid there; and it could get ugly and for investors this is a—I said to someone today, this is not a time for panic but it is absolutely a time for a great deal of caution, and you need to understand A, why you are still invested in markets and B, what your plan is to get out of them if you suffer a shock; because if a shock comes and we get a move down like we did in January, February, and it is one that coincides with a whole scale or widespread loss of confidence in central banks they are not going to be able to turn this thing around, and people need to have a plan at that point.
Chris: Now, you have had some fantastic interviews on real vision TV, and I want to talk about one with Kyle Bass, because it is aligned with this point you are making. I thought he made some really great points in that interview; one of which was that if we really want to understand things today, we would do well to put the numbers and the financial analysis aside, and turn towards psychology, and particularly understanding belief systems. So, let me preface this question by revealing my person disbelief system. I can’t believe that we are this fully down the bubble rabbit hole again so soon, but here we are. It seems to me that people are making the same mistakes all over again. It seemed Kyle was making that point. Do you agree with that?
Grant: No. I do. I mean, Kyle is a brilliant guy and, you know, just humble and nice. It is a treat to talk to these guys. When you get to talk to these guys, well, you know, it is just a real thrill to be able to pick the brains of guys like that; and I think the problem to me is that behavior is right the way through our lives is reinforced by consequences, and what has happened since 08 is everything possible has been done to avoid the consequences. So, it’s no great surprise to me to be honest that investors are back here again so soon because what should have happened in 08, 09 was not allowed to run its course, and while it was frightening at the time, the speed with which trillions of dollars of printed money brought things back to where they were before, people did not really feel the consequences. At the time people lost jobs and that’s real—still going on that problem is still working itself out but in the markets investors were basically back stopped by governments and central banks and so they did not feel those consequences. It is like the kid falling out of the tree and getting caught. Well, he is going to climb the tree again, if he fell out and broke his leg he is going to think twice about it and so again the an aide is put over the first problem without really addressing the cause of it which was way too much debt in the world. What have we done? We have gone it and added another 60, 70 trillion dollars of debt onto the amount that caused the problems in 08. So, everything that has been done is to stave off an outbreak of reality and unfortunately history is replete with examples of the outcome eventually making itself known, and there is really not much you can do to stop natural, cyclical forces. You may be able to suspend them for a time, which is what they have done, but ultimately they end up expressing themselves in ways and laces that are far more dangerous than they were at the time.
Chris: Now, this seems fairly obvious to me, and you make it sound so completely obvious as well. I get the sense from listening to, oh, Janet Yellen or any other central banker, that they just do not seem to get this part of it. It feels a little bit like—listen, I have a lot of education in my background, was even on the professor track for awhile. I understand academics well. It has been one of my chief critics of the federal reserve is that it is staffed with academics and lawyers two very unique and wonderful specialties, but they have a worldview that I do not share. When I look at the broader view of things. Of course, I include resources in this story. I am looking at demographic trends. I am thinking about things beyond little growth equations and tailor rules and things like that but do you think at this point is there any signs that you’re seeing that currently sitting central bankers are beginning to understand that this just is not working?
Grant: Well, I think maybe at the margin they think maybe it is not working. My fear is that their solution to that is to do more of it until it does work that tell us what I worry about and the first thing I think post Brexit when you look at Janet Yellen and the story that she spins every news conference is that the economy is picking up and we are on the way to where we need to be, and full employment and stable inflation and the next quarter we are going to start to see things, etcetera, etcetera; and then you look across the pond in the UK at Mark Cooney, who is now at the head of an establishment which did not get what it wanted, and suddenly he is talking about, well your people need to watch out there is possible mortgage bubble and things are going to be really bad. And I find that fascinating, that the person on the UK side of the channel who really should be doing what Janet Yellen is doing and saying to people look, we have got this, we are behind you, we can stop this and there is some back stop here – is starting to roll out the fear card possibly to help drive this thing somewhere that; I do not know. Whereas, in the US where Janet Yellen should be warning people that, hey look we have got a tempered recovery at best here and people need to be prudent, no she is going all guns blazing about how everything is going to be fine and we are where we want to be. So the message is getting confused, the motives behind the message which were coordinated very tightly up until last year are starting to diverge; and then when you throw in the real unintended consequences of this Brexit move which is the yen looking like it turned into 95, and it becomes a real problem because the Japanese have only got one thing to do and it is more of the same. So, what we may see out of our bay and Kuroda, I dread to think, but to your point I think they do realize it is not working but there solution is more cow bell, which is really worrying.
Chris: More cow bell. Now, let us turn to them that quintessential basket case of all of this and of course the place that does confuse me the most, which would be Japan. First announcing negative rates back in January shocking the world, apparently going to go more negative at this point in time because a little bit did not work so more is obviously the answer, speaking to your idea that when something does not work for these people they will just do more of it. Japan really surprised me that they have not managed despite their best efforts to really ruin their currency, At this point in time,. Is this just a function of carry trades do you think, are people really thinking yen is just a tasty place to be or is this just a math function that happens when you have the size of the speculative bets hanging out there, needing to be unwound this is the direction things go, is that what we are seeing here? I am totally confused by the yen doing what it is doing.
Grant: Yeah it is baffling, but the ability for money flows to move around the world the way they do at the click of a mouse just tells you that people will move to the next place to go, and if sterling is going to be sold, well what do you buy against it? And people are now worried about the dollar, they are worried about the euro, well what other G7 currencies do you have that you can actually take as the other side of that peer trade and right now it is the yen and so that is where people have gone. I do worry and I think the day that Kuroda instituted negative interest rates is going to be a day that we look back on as a crucial, crucial part of this unwinding, because of you look at what happened having ten days prior assured the world that not only was he not going to institute negative rates, but in his own words negative rates were not even on the table. To come back ten days later and shock the world with a move to negative rates. Now, from the central bank play book that smacked of the, hey we’ll use shock and awe. This will really surprise them and this will get things really moving in that direction and what happened, if you look at the charts that day you will see that the instant that announcement hit the tape the yen, which was supposed to weaken considerably went stronger and the Nikkei, which is supposed to go stronger fell a thousand points in 30 minutes. Now, that was the gut reaction to a surprise from the markets and that gut reaction told me, oh my God, they have lost control. Now, the rest of that day once the spin came out, press conferences what have you they kind of rallied both of them, the yen and the Nikkei went back to roughly where they were before that announcement got made, but if you look over the next week, the next two weeks rather they have moved 16 percent in the opposite direction they were supposed to; and that to me was the first sign that markets were starting to get nervous. That these guys are now making it up as they go along, or they are doing things which are going to have really bad outcomes. So, I am watching that really closely now and I think the ball moved away from the Japanese through Brexit and back to Europe. Now, with the yen doing what it is doing in the post Brexit moves the ball is going to be back in Abe and Kuroda’s court, and I think with the Japanese have a habit of very much voting for the status quo. Quite the opposite to what we are seeing around the world, when things get panicky the Japanese vote for the status quo so I suspect the LDP which is the ruling party in Japan, when the elections come up late this year, they will actually end up with a stronger position as the incoming party and that may give them the green light to do God knows what. but whatever it is it will be more of the same only harder then I will have to admit defeat and give up and that could spell a whole new escalation in the currency war and the cause state of easing process.
Chris: Now this is just extraordinarily fascinating to me particularly with respect to Japan because Japan by the numbers should be an easy case for investors to solve over the long term. It is the world’s largest floating retirement colony. They are losing population right now, they are rapidly aging every sign say that Japan ought to be a case for a managed economic contraction of the economy was in service to the people but the economy is a subset itself of supporting the financial system and Japan to me just seems to be a case example, like HBR will write these up, of how a people and a political process became enslaved to the needs of the banking system or the financial system, as it were, because they are trying to get more growth, they want more cow bell, they need growth but it clearly demographically a little shrinkage might not be a bad thing over there, but if we do not have this growth it seems to me that all my analysis Grant, leads to this conclusion, it is what Richard Russell said a long time ago. It is, either you are inflating the credit in a system or it dies. It does not feel like a particularly wonderful stable system but it is the one we got. How is it that Japan has gotten itself to a point where if I have these numbers right I was just looking at their 40 year bonds, which were hands down one of the best investments this year, up 90 something percent this year yielding a tasty .08 percent, if I am reading the numbers right. I just, I cannot make any sense of that except to understand that the Japanese government bond market is wholly a subsidiary of their central bank, and everybody else has sort of given up on that market being anything other than a policy tool of the central bank. I am just confused by where this goes except to everything ultimately being owned by the central bank, or it collapses.
Grant: Well, I did a presentation recently, all crazy, which I am very happy to share a link to listen to if they want to watch it and if you look at the numbers and they do not intend the consequences of this move by the bank of Japan is extraordinary. They now own 52 percent of the ETF market in Japan; and what that has done inadvertently has meant that the bank of Japan is now a top ten shareholder through their ETF holdings in 90 percent of the companies, the Nikkei 225; and when you say thing like this out loud you kind of—the whole point of this presentation was to outline gradually how crazy this has all got, and it happens incrementally and it is the boiling frog analogy. Whatever you want to call it but when you step back and you look at how crazy this has all become, it has to end badly somewhere and somehow but I think in Japan's case the problem with demographic trends is they are so big and they are so long term that people struggle to make investments around them, because you always feel like you are going to die before they work out. But they are some of the most predictable outcomes you are ever going to find in any investment scenario that the Japanese, when I moved to Japan in 1989, I remember reading an article not long after I got there talking about how in 25 years the Japanese population was going to be net shrinking by 25 thousand people a month and guess what happened, 25 years later right on cue it happened. And
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