The Weekend Is Over, And The Japanese Market Is Diving
The weekend is over, and trading has officially whirred to life in Asia.
The big market that everyone’s watching is obviously Japan, which crashed 7% on Thursday, before coming back modestly in Friday trading.
That comeback, however, faded as Nikkei futures traded throughout the day, and now the Nikkei cash market is catching up.
The Nikkei is currently off 2.8%, and USDJPY is below 102.
MAULDIN: Japan Is On The Brink Of Disaster
The Mother Of All Painted-In Corners
Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.”
“I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”
– Alice in Wonderland, Lewis Carroll
I wrote several years ago that Japan is a bug in search of a windshield. And in January I wrote that 2013 is the Year of the Windshield.
The recent volatility in Japanese markets is breathtaking but characteristic of what one should come to expect from a country that is on the brink of fiscal and economic disaster. I don’t mean to be trite, from a global perspective; Japan is not Greece: Japan is the third-largest economy in the world. Its biggest banks are on a par with those of the US. It is a global power in trade and trade finance. Its currency has reserve status. It has two of the world’s six largest corporations and 71 of the largest 500, surpassed only by the US and comfortably ahead of China, with 46. Even with the rest of Asia’s big companies combined with China’s, the total barely surpasses Japan’s (CNN).
In short, when Japan embarks on a very risky fiscal and monetary strategy, it delivers a serious impact on the rest of the world. And doubly so because global growth is now driven by Asia.
Japan has fired the first real shot in what future historians will record as the most significant global currency war since the 1930s and the first in a world dominated by true fiat money.
At the risk of glossing over details, I am going to try and summarize the problems of Japan in a single letter. First, a summary of the summary: Japan has painted itself into the mother all corners. There will be no clean or easy exit. There is going to be massive economic pain as they the Japanese try and find a way out of their problems, and sadly, the pain will not be confined to Japan. This will be the true test of the theories of neo-Keynesianism writ large. Japan is going to print and monetize and spend more than almost any observer can currently imagine. You like what Paul Krugman prescribes? You think he makes sense? You (we all!) are going to be participants in a real-world experiment on how that works out.
Large Risk of Instability in Japan; Rates Climb Even With Japan Buying 70% of New Issuance
Gold And The Fiat End-Game
Our current fiat currency standard is terminal, nations around the world are dropping the U.S. dollar as a medium of exchange, central banks are buying gold, and Americans are seeing price inflation during an economic downturn. In order to avoid a systemic financial crisis here in the U.S., we need to focus on solutions. This mini-documentary expounds the problems and a solution to the real economic crisis hiding under the safety blanket of an equity market at all-time highs.
Japan Opposition Accuses Ruling Party Of Creating Stock Bubble
But what is most amusing, is that politicians, now completely powerless to attack their adversary’s policies in the hope of gaining political brownie points and incremental votes as those same policies are meaningless in a world in which the only thing that matters is if Central Bank X will inject another $YY billion next month, are only left with resorting to such hilarious attacks on whether or not the market is in a bubble.
Case in point Japan, where the now-opposition, Democratic Party of Japan, was left to debate on prime time TV with the ruling Liberal Democratic Party whether or not stocks are in a bubble.
As Bloomberg notes, “fluctuations in Japan’s stock market that pushed the Nikkei Volatility Index to a two-year high last week signaled a “bubble,” Mitsuru Sakurai, policy chief for the main opposition Democratic Party of Japan, said on public broadcaster NHK’s “Sunday Debate” program today.”
Of course, with one party forced to resort to such cartoonish allegations as whether or not 30x P/E is indicative of a bubble, the only logical response is just as childish: the market reflects the outlook for the economy.
Ruling Liberal Democratic Party policy chief Sanae Takaichi countered by
saying Japan’s economy is responding to efforts by Prime Minister
Shinzo Abe to stimulate growth.
Uhm, no it doesn’t, as otherwise the US economy would be growing at between 4 and 8%, and not plunging the unchanged line every quarter, and forced to resort to such cheap gimmicks as including intangibles in the definition of GDP.
But never let facts get in the way of propaganda.
So here is a good sample of what political discussion will look like going forward: the political party in opposition saying there is a stock bubble…
Sakurai on Market Turbulence: “What has been behind the recent stock rally has been large inflows of hot money. As the real economy has not caught up to speed, it may be signaling a bubble. The lives of people, especially those on pensions, are becoming more difficult as import price increase.”
Banking insider: The Japanese have lost control of their bond market …(“V” Makes The News!!!)
On May 24, a financial analyst and former head trader at the Royal Bank of Scotland spoke on the Hagmann and Hagmann Report regarding the current state of the global economy. Known in the public sphere under the pseudonym of ‘V’, and labeling himself the Guerrilla Economist, this high level insider stated that the Japanese have completely lost control over their bond market, and the threat for a collapse of the Nikkei equities market is very likely.
V: I basically just got this hot off the press, and hot from the board rooms over here. The Japanese, and this is official… I’m going out on a limb saying this, and you can take it for all it’s worth… the Japanese have lost control of their bond market.
Doug Hagmann: V, for financial neophytes like me, what does that mean?
V: What that simply means is… see the stock market has been rising in Japan, as well as over here because of bond prices. Were in a very unique environment where, if the bond market goes bust, you’re going to see the Nikkei go bust with it, as well as real estate.
Christine Hughes, President and Chief Investment Strategist, discusses details of Japan’s radical monetary policy.
the key part of the video, for ease of viewing: