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The 1% Rule September 28, 2014

Posted by hslu in Debt and deficit, Economics, stocks, Taiwan.
Tags: , , ,

Governments in Japan and Taiwan like to play fire with the stock markets.

BOJ is following an unwritten rule, called “the 1% rule” by traders, where it buys ETFs after the Topix index falls around 1% in the morning session. It artificially props up the Nikkei because it is still 58.34% from its all time high of 38,957.44 on December 29, 1989.

Taiwanese government likes to do that too and it has done it quite successfully. In fact, The Taiwanese government even uses the capital gains it made from the stock market to pay for federal deficits. In 2014, the capital gains will be NTD $50,000,000,000. The government does have a term for this money it makes from investors: 釋股預算. The stocks involved are: 合庫金, 兆豐金, 第一金, 台積電, 中鋼, 漢翔 and a few more technology stocks.

The reason for this unprecedented stock market maneuver is this: the Taiwanese government has to rely on debt financing to function. In fact, 馬英九’s government will be short of NTD $300,000,000,000 for its 2015 budget.

What I don’t know is who the suckers were in these transactions in the past and who the suckers are in the future when Taiwanese stocks go down eventually in the future.

You better be careful out there.



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