BOJ Panicks, Circus Ride Continues, But Gold Warns

As the late great Hunter Thompson said, "when the going gets weird, the weird turn pro."

Just when the world couldn't get any weirder, Japan showed everyone who's who.

Basically the BOJ has panicked. Bank of Japan Governor Haruhiko Kuroda raised the BOJ’s annual target for enlarging the monetary base from 60 to 70 trillion yen to 80 trillion yen ($724 billion).

Sure, it's only a 14 to 33% increase, but it's a signal to the markets that the central banker clowns have not left the circus.

The point is that it was an act of desperation, that there will be more desperate acts, and that they will all fail. There is simply not enough play money in the world to reverse a change in psychology once it happens.

Indeed, the BOJ said it was aiming to end Japan’s “deflationary mindset.” But with inflation projections still failing to reach the BOJ’s 2% inflation target, and with a decline in demand following the April sales tax increase, Abe Kuroda & Co. are clearly screwed.

The BOJ has even flagged the drop in oil prices as putting downward pressure on prices.

And yet Prime Minister Shinzo Abe is considering whether to go ahead with raising the sales tax again. Even though the increase from 5 to 8 % this year tipped the economy into the deepest contraction in more than five years, he is pushing for another one scheduled for October 2015, up to 10%. He fails to see that this affects the deflationary mindset even more.

There is nothing like a government that sees your money as its own.

News of the BOJ buying spree sent e-mini futures straight up in the air last night, and it looks like there is more to come. Futures have hit new all-time highs; it remains to be seen what happens in the cash market but, but one should assume it too will reach new highs as well.

However gold is already throwing cold water on the BOJ. Gold being down nearly 3% telegraphs deflation, and says that the gold market does not believe that the BOJ will succeed.

I share this disbelief. And while I wanted to see the market back at all-time highs, I did not want to see highs achieved with yet more smoke and mirrors from central banking. But that's what we've got.

Oil is down too, below $80, and if it stays below it, the circus ride could come to a rough end.

2019.26 is the key level. In my opinion, it's gotta get hit today, for window dressing, or else.