Thursday, February 22, 2007
It's Starting to Fall Apart
EUR/USD 1.3103 Hi 1.3146 Low 1.3081
USD/JPY 121.35 Hi 121.43 Low 120.81
AUD/USD 0.7893 Hi 0.7920 Low 0.7874
EUR/JPY 159.04 Hi 159.14 Low 158.54
So how are we doing? Well let's see. Dick Cheney made a trip to Japan. What was the official reason for that visit? No idea. Now he's in Australia, where the Australian public are cheering and waving flags. Well no, not exactly. But the Australian Prime Minister, John Howard, does a good grovel. And Dick Cheney loves being grovelled to, so that's all going well. Unfortunately, in the meantime, the BoJ hiked rates. (Bad news for the Carry Trade and U.S. Treasuries but for now the PPT is holding the fort.)
Oh and Tony Blair just announced that because the Anglo-American WAR on Iraq was in such great shape (see Cheney was right) and so obviously POPULAR that the British are withdrawing troops. The Danish are also withdrawing troops. The U.S. is still going with the SURGE because, well, what else would they do with all their billion dollar bases which they purpose built in the middle of the GREEN ZONE in Baghdad and in strategic points all over the country? Seems a shame to waste them.
In Italy the Italian Prime Minister was forced to stand down because he lost a crucial vote in Parliament. On what? Oh nothing really, just foreign relations. Specifically though on keeping Italian troops in Afghanistan and increasing American Military Bases in Northern Italy. The Italian public was not impressed. It seems a pity to lose a guy who knows how to use a Ouija Board in a pinch and who helpfully released a whole lot of dangerous prisoners as one of his first acts of Government, resulting in a Crime Wave. Didn't Saddam Hussein do something similar just before the U.S. invasion? What is going on? Anyway now Italy has lost two sterling public figures: Berlusconi, the well-known member of the P-2 Masonic Lodge, and Prodi, the guy who knows how to work a Ouija Board. If you ever wondered why Italians feel justified in NOT paying taxes EVER, unless it is completely unavoidable, wonder no more. Perhaps they could persuade Cicciolina to run for Parliament again? You never know it just might improve the tone of the place.
So there in a nutshell is why Italians are religiously devoted to withholding their hard earned cash from their Government. Tax Avoidance is a nationally accepted sport which Italians play at a professional level. And that is why the Italian Government has accumulated such a massive level of debt. Otherwise the country is doing just fine. In fact Italy seems to work better when there is no discernible Government. Perhaps Britain should try that. After all Tony Blair hasn't exactly covered himself in glory these past 10 years.
Otherwise everything is going to plan. Well, apart from the U.S. economy which keeps producing bad headlines and worse statistics. But that doesn't matter. Every time some bad data comes out, some bad company report (and they have been pretty bad lately), we get our boys to step in. Which accounts for the bizarre way the market is trading. First the bad number then the sharp sell off and then the rally on the back of nothing at all. How long can they keep this up??? Well the FED prints the money, derivatives are unregulated and Hedge Funds can do whatever they want. The answer then is: probably not much longer.
But then they got a lot on their plate: the USD, Treasuries, Stocks, Gold (which is the only one they really want to see fall). So far the USD is holding. Could be tricky going forward because, unfortunately, the FX MARKET is not a DOMESTIC market. Stocks they are doing better with. (Hedge Funds buying). Treasuries, well, they haven't recovered from the slump but there is no panic selling. YET. And GOLD, well never mind.
OIL 60.06
GOLD 682.00
The PPT gave GOLD its best shot this week. The huge slide in GOLD didn't last long though. And that's even with the timely press and the judicious use of the derivatives market. So here we are and GOLD appears to have broken through its recent high. It's still a long way from making a multi-year high but GOLD bugs can count on a number of favourable factors: Helicopter Ben is in charge at the FED, the U.S. Government is currently planning an attack on Iran and no-one is really comfortable holding the USD any more.
USD/JPY 121.35 Hi 121.43 Low 120.81
AUD/USD 0.7893 Hi 0.7920 Low 0.7874
EUR/JPY 159.04 Hi 159.14 Low 158.54
So how are we doing? Well let's see. Dick Cheney made a trip to Japan. What was the official reason for that visit? No idea. Now he's in Australia, where the Australian public are cheering and waving flags. Well no, not exactly. But the Australian Prime Minister, John Howard, does a good grovel. And Dick Cheney loves being grovelled to, so that's all going well. Unfortunately, in the meantime, the BoJ hiked rates. (Bad news for the Carry Trade and U.S. Treasuries but for now the PPT is holding the fort.)
Oh and Tony Blair just announced that because the Anglo-American WAR on Iraq was in such great shape (see Cheney was right) and so obviously POPULAR that the British are withdrawing troops. The Danish are also withdrawing troops. The U.S. is still going with the SURGE because, well, what else would they do with all their billion dollar bases which they purpose built in the middle of the GREEN ZONE in Baghdad and in strategic points all over the country? Seems a shame to waste them.
In Italy the Italian Prime Minister was forced to stand down because he lost a crucial vote in Parliament. On what? Oh nothing really, just foreign relations. Specifically though on keeping Italian troops in Afghanistan and increasing American Military Bases in Northern Italy. The Italian public was not impressed. It seems a pity to lose a guy who knows how to use a Ouija Board in a pinch and who helpfully released a whole lot of dangerous prisoners as one of his first acts of Government, resulting in a Crime Wave. Didn't Saddam Hussein do something similar just before the U.S. invasion? What is going on? Anyway now Italy has lost two sterling public figures: Berlusconi, the well-known member of the P-2 Masonic Lodge, and Prodi, the guy who knows how to work a Ouija Board. If you ever wondered why Italians feel justified in NOT paying taxes EVER, unless it is completely unavoidable, wonder no more. Perhaps they could persuade Cicciolina to run for Parliament again? You never know it just might improve the tone of the place.
So there in a nutshell is why Italians are religiously devoted to withholding their hard earned cash from their Government. Tax Avoidance is a nationally accepted sport which Italians play at a professional level. And that is why the Italian Government has accumulated such a massive level of debt. Otherwise the country is doing just fine. In fact Italy seems to work better when there is no discernible Government. Perhaps Britain should try that. After all Tony Blair hasn't exactly covered himself in glory these past 10 years.
Otherwise everything is going to plan. Well, apart from the U.S. economy which keeps producing bad headlines and worse statistics. But that doesn't matter. Every time some bad data comes out, some bad company report (and they have been pretty bad lately), we get our boys to step in. Which accounts for the bizarre way the market is trading. First the bad number then the sharp sell off and then the rally on the back of nothing at all. How long can they keep this up??? Well the FED prints the money, derivatives are unregulated and Hedge Funds can do whatever they want. The answer then is: probably not much longer.
But then they got a lot on their plate: the USD, Treasuries, Stocks, Gold (which is the only one they really want to see fall). So far the USD is holding. Could be tricky going forward because, unfortunately, the FX MARKET is not a DOMESTIC market. Stocks they are doing better with. (Hedge Funds buying). Treasuries, well, they haven't recovered from the slump but there is no panic selling. YET. And GOLD, well never mind.
OIL 60.06
GOLD 682.00
The PPT gave GOLD its best shot this week. The huge slide in GOLD didn't last long though. And that's even with the timely press and the judicious use of the derivatives market. So here we are and GOLD appears to have broken through its recent high. It's still a long way from making a multi-year high but GOLD bugs can count on a number of favourable factors: Helicopter Ben is in charge at the FED, the U.S. Government is currently planning an attack on Iran and no-one is really comfortable holding the USD any more.
Labels: Berlusconi, BoJ, Cheney, PPT, Prodi, Tax, USD
Monday, February 19, 2007
Cheney in Japan. Serendipitous Coincidence?
EUR/USD 1.3131 Hi 1.3165 Low 1.3127
USD/JPY 119.55 Hi 119.75 Low 119.21
AUD/USD 0.7855 Hi 0.7889 Low 0.7855
EUR/JPY 157.02 Hi 157.38 Low 156.85
Well how about that? The BoJ has to make a decision about monetary policy this week and Dick Cheney is in Japan!! There have been all sorts of noises made about the Japanese economic recovery (which technically suggests that a rate hike is possible), the Carry Trade (which depends on favourable interest rate differentials) and the risks to Japan of a precipitous decline in the USD/JPY (exporting may become more difficult). Remember this is the country which continued to run a favourable trade account with the U.S.A. BEFORE, DURING and AFTER the Plaza Accord, which saw the USD/JPY depreciate by 50%. So the potential risks may lie elsewhere. Japanese exporters can obviously handle a stronger currency.
So what are the risks for the U.S.A.? Well, as it happens, there are quite a few. The U.S. is in the middle of number of wars of conquest at the moment. And, it appears, an attack on Iran is currently being planned. Deviants at the Pentagon just can't wait to try out their new weapons arsenal. There is only one small problem: the U.S. doesn't really have the money for all these exciting new plans for world domination and the USD isn't exactly performing well on international markets, the one exception being the USD/JPY, which is holding up largely because of the Carry Trade.
And the Carry Trade depends on favourable interest rate differentials. Now the interest rate differential between the U.S. and Japan is currently 5.00%, which is quite a lot. But it seems that the powers-that-be are concerned that should that differential shrink by a mere 25 basis points then the game will be lost. What does this say about the DOLLAR? Well pretty basic really: the USD is in big trouble.
The Saudis might be helping to support the currency but, despite the little fillip in the price of the OIL which the Iraqi invasion and the Israeli attack on Lebanon provided, the price of OIL has languished since. The Saudis have cash but the Japanese and the Chinese and the Russians have more. Hence Cheney's little trip to Japan. Which is quite unusual. Cheney doesn't make foreign trips often. Not surprising really. He might smile at someone and scare them half to death. Best he's kept in his bunker to plot in private. The last trip he made was to Saudi Arabia where he was summoned on Thanksgiving 2006. But here he is suddenly turning up in Japan trying to drum up support for his Wars and for the USD. Obviously the situation for the U.S. is quite dicey, otherwise he wouldn't bother.
With a WAR in Afghanistan, a WAR in Iraq and a WAR planned for Iran, the U.S. needs to keep those foreign capital inflows coming. That task might be just a little difficult if the USD really starts to show signs of wear and tear on international foreign exchange markets. No-one likes to lose money. U.S. Treasuries might look like a great bargain, given the trouble the U.S. economy is in, but factor in Foreign Exchange risk and even the most naive foreign investor is likely to get the shakes. The U.S. Government's funding requirement isn't going to get any smaller any time soon and even if they concentrate all the Government Spending in the military sector that still won't be enough for the insane Military Plans of George W. and Company. Foreign investor support for the U.S. Government is therefore crucial to the success of their mission.
So who better to send off to "convince" people than that "people-person": Dick Cheney? Yes they may have the plan, but the execution isn't all that great. Arrogance, incompetence, years of inter-breeding? Who's to know? That's the trouble with being a deviant: the people on your side tend to be slightly repellent. How desperate do you have to be to send Cheney as your front man?
Asia is a place where saying NO is considered impolite. So they don't. Say it that is. But that doesn't mean they mean YES. If we all cross our fingers the Japanese won't say NO but they will withdraw funding for the obscene military adventurism of the current U.S. Administration regardless. What the BoJ does won't really impact anyone but the speculators. And speculative support for the USD is merely phantom. It is not real money. So the writing is on the wall. The USD decline continues.
We may see the USD/JPY appreciate mildly during the Cheney visit. That would be nothing more than a bit of forelock tugging for a tyrant. The longer term trend for the USD/JPY is down. And once Cheney leaves Asia that is likely to accelerate. Selling USDs on rallies is still the recommended strategy.
Stock Markets of the world continue on their upward trajectory, oblivious of existing conflicts and the potential for new and more disastrous Middle East wars. Well I suppose some people are making money out of these wars so perhaps Stock Markets are celebrating that. It could get interesting if the destruction spreads. Some people would have us believe that WAR is good for the economy but you don't have to live in Sudan to know that's a lie.
OIL 59.00
GOLD 674.40
GOLD remains bid. And with more war on our doorstep and no solution in sight, that is expected to continue.
USD/JPY 119.55 Hi 119.75 Low 119.21
AUD/USD 0.7855 Hi 0.7889 Low 0.7855
EUR/JPY 157.02 Hi 157.38 Low 156.85
Well how about that? The BoJ has to make a decision about monetary policy this week and Dick Cheney is in Japan!! There have been all sorts of noises made about the Japanese economic recovery (which technically suggests that a rate hike is possible), the Carry Trade (which depends on favourable interest rate differentials) and the risks to Japan of a precipitous decline in the USD/JPY (exporting may become more difficult). Remember this is the country which continued to run a favourable trade account with the U.S.A. BEFORE, DURING and AFTER the Plaza Accord, which saw the USD/JPY depreciate by 50%. So the potential risks may lie elsewhere. Japanese exporters can obviously handle a stronger currency.
So what are the risks for the U.S.A.? Well, as it happens, there are quite a few. The U.S. is in the middle of number of wars of conquest at the moment. And, it appears, an attack on Iran is currently being planned. Deviants at the Pentagon just can't wait to try out their new weapons arsenal. There is only one small problem: the U.S. doesn't really have the money for all these exciting new plans for world domination and the USD isn't exactly performing well on international markets, the one exception being the USD/JPY, which is holding up largely because of the Carry Trade.
And the Carry Trade depends on favourable interest rate differentials. Now the interest rate differential between the U.S. and Japan is currently 5.00%, which is quite a lot. But it seems that the powers-that-be are concerned that should that differential shrink by a mere 25 basis points then the game will be lost. What does this say about the DOLLAR? Well pretty basic really: the USD is in big trouble.
The Saudis might be helping to support the currency but, despite the little fillip in the price of the OIL which the Iraqi invasion and the Israeli attack on Lebanon provided, the price of OIL has languished since. The Saudis have cash but the Japanese and the Chinese and the Russians have more. Hence Cheney's little trip to Japan. Which is quite unusual. Cheney doesn't make foreign trips often. Not surprising really. He might smile at someone and scare them half to death. Best he's kept in his bunker to plot in private. The last trip he made was to Saudi Arabia where he was summoned on Thanksgiving 2006. But here he is suddenly turning up in Japan trying to drum up support for his Wars and for the USD. Obviously the situation for the U.S. is quite dicey, otherwise he wouldn't bother.
With a WAR in Afghanistan, a WAR in Iraq and a WAR planned for Iran, the U.S. needs to keep those foreign capital inflows coming. That task might be just a little difficult if the USD really starts to show signs of wear and tear on international foreign exchange markets. No-one likes to lose money. U.S. Treasuries might look like a great bargain, given the trouble the U.S. economy is in, but factor in Foreign Exchange risk and even the most naive foreign investor is likely to get the shakes. The U.S. Government's funding requirement isn't going to get any smaller any time soon and even if they concentrate all the Government Spending in the military sector that still won't be enough for the insane Military Plans of George W. and Company. Foreign investor support for the U.S. Government is therefore crucial to the success of their mission.
So who better to send off to "convince" people than that "people-person": Dick Cheney? Yes they may have the plan, but the execution isn't all that great. Arrogance, incompetence, years of inter-breeding? Who's to know? That's the trouble with being a deviant: the people on your side tend to be slightly repellent. How desperate do you have to be to send Cheney as your front man?
Asia is a place where saying NO is considered impolite. So they don't. Say it that is. But that doesn't mean they mean YES. If we all cross our fingers the Japanese won't say NO but they will withdraw funding for the obscene military adventurism of the current U.S. Administration regardless. What the BoJ does won't really impact anyone but the speculators. And speculative support for the USD is merely phantom. It is not real money. So the writing is on the wall. The USD decline continues.
We may see the USD/JPY appreciate mildly during the Cheney visit. That would be nothing more than a bit of forelock tugging for a tyrant. The longer term trend for the USD/JPY is down. And once Cheney leaves Asia that is likely to accelerate. Selling USDs on rallies is still the recommended strategy.
Stock Markets of the world continue on their upward trajectory, oblivious of existing conflicts and the potential for new and more disastrous Middle East wars. Well I suppose some people are making money out of these wars so perhaps Stock Markets are celebrating that. It could get interesting if the destruction spreads. Some people would have us believe that WAR is good for the economy but you don't have to live in Sudan to know that's a lie.
OIL 59.00
GOLD 674.40
GOLD remains bid. And with more war on our doorstep and no solution in sight, that is expected to continue.
Labels: BoJ, Carry Trade, Cheney trip to Japan, USD/JPY
Thursday, January 18, 2007
If this is recovery why did the BoJ stand pat?
EUR/USD 1.2934 Hi 1.2980 Low 1.2895
USD/JPY 121.36 Hi 121.61 Low 120.46
AUD/USD 0.7879 Hi 0.7895 Low 0.7853
EUR/JPY 156.95 Hi 157.39 Low 155.94
Suddenly everybody is standing pat. Well except for the Bank of England which is hiking. The BoJ is standing pat, the European Central Bank is standing pat and Commodities are tumbling. What's the problem? I thought economic recovery was a slam dunk. I mean how strong can the Japanese economy be if it can't take a 0.5% cash rate? Somewhere, someone is not telling it like it is.
And if the Global Economy is in trouble, which is what the BoJ, the ECB and the Global Commodities Market is telling us, then now is not the time to load up on USDs. Because of all the major economies the U.S. economy is the most at risk right now. It is an economy built on debt and military expansionism. If you want a manufacturing job in the U.S. right now the only real industry in expansion is the military machine. Everything else has or is being outsourced. The U.S. doesn't have a balanced, well-managed economy. Which is why they have a Trade Deficit, a Current Account Deficit and a Government Deficit. Oh and a Household Sector which is up to its eyeballs in debt. And you just have to take a look at the leadership over there to know that effective economic management is just not what they do. So don't hold your breath waiting for the cavalry to arrive. There is no cavalry.
And they don't do crisis management either. Which is why no-one is dealing with the Iraqi debacle. They haven't a clue. What the U.S. leadership does do is work out how they can use their positions to gain more power and money, but that really won't do the U.S. economy much good in its entirety. It's called stealing. Or if you prefer War Profiteering. But it comes pretty much to the same thing in the end. And that's bad news for Mr and Mrs Joe Average; only out in Couch Potato Land they haven't really worked that out yet. I don't know where Cheney's bunker is but when Mr and Mrs Joe Average work out what's happening he may need to use it.
Today we saw the release of some fairly positive (well better than expected anyway) data related to the Housing Sector in the States. This hasn't done much to console the Stock Market, which is the only market still holding. Fixed Interest Markets have taken a hit, the Commodity Bubble has deflated but Stocks are holding. For now. What everyone is talking about on financial markets, while the Pundits Hype the Economic Recovery Story, is the rate of Housing Foreclosures in the States and what will happen when ARM Floating Rate Mortgages start to reset in 2007. And with CPI and PPI coming out higher than market expectations the chance of relief in the form of RATE CUT has evaporated. So things don't look so good for Mr and Mrs Joe Average.
The USD/JPY got a mild boost overnight by the failure of the BoJ to hike rates. The USD hasn't performed quite so well against the Euro. And the outlook for the USD is still clouded. Since year end the USD has climbed on short covering and interest rate differentials. There is also a weird theory making the rounds that slower global economic growth will be beneficial to the USD. Why I don't know. That theory doesn't seem to be based on anything more than conjecture. With the BoJ non-event now out of the way it is probably time to buy the rumour and sell the fact. And a USD/JPY correction would certainly add weight to overall USD weakness.
OIL 53.36
GOLD 635.20
The OIL price is following the Commodity Bubble down. A break below USD 50 could be ugly. Or at least we could see some stops triggered. Despite the recent turn for the worst in U.S. weather the OIL market has no legs. When you consider the potential for further trouble in the Middle East and the Bush Administration's psychotic (though not yet official) plan for an attack on Iran, the failure of the OIL market to make any gains AT ALL starts to look like a worrying indication that global industrial growth may be in more trouble than is presently being forecast by Global Equity Markets.
One of these two markets is wrong. Either Commodities start to see strength or Global Stock Markets start to reflect the economic weakness that Commodity Markets are currently predicting.
USD/JPY 121.36 Hi 121.61 Low 120.46
AUD/USD 0.7879 Hi 0.7895 Low 0.7853
EUR/JPY 156.95 Hi 157.39 Low 155.94
Suddenly everybody is standing pat. Well except for the Bank of England which is hiking. The BoJ is standing pat, the European Central Bank is standing pat and Commodities are tumbling. What's the problem? I thought economic recovery was a slam dunk. I mean how strong can the Japanese economy be if it can't take a 0.5% cash rate? Somewhere, someone is not telling it like it is.
And if the Global Economy is in trouble, which is what the BoJ, the ECB and the Global Commodities Market is telling us, then now is not the time to load up on USDs. Because of all the major economies the U.S. economy is the most at risk right now. It is an economy built on debt and military expansionism. If you want a manufacturing job in the U.S. right now the only real industry in expansion is the military machine. Everything else has or is being outsourced. The U.S. doesn't have a balanced, well-managed economy. Which is why they have a Trade Deficit, a Current Account Deficit and a Government Deficit. Oh and a Household Sector which is up to its eyeballs in debt. And you just have to take a look at the leadership over there to know that effective economic management is just not what they do. So don't hold your breath waiting for the cavalry to arrive. There is no cavalry.
And they don't do crisis management either. Which is why no-one is dealing with the Iraqi debacle. They haven't a clue. What the U.S. leadership does do is work out how they can use their positions to gain more power and money, but that really won't do the U.S. economy much good in its entirety. It's called stealing. Or if you prefer War Profiteering. But it comes pretty much to the same thing in the end. And that's bad news for Mr and Mrs Joe Average; only out in Couch Potato Land they haven't really worked that out yet. I don't know where Cheney's bunker is but when Mr and Mrs Joe Average work out what's happening he may need to use it.
Today we saw the release of some fairly positive (well better than expected anyway) data related to the Housing Sector in the States. This hasn't done much to console the Stock Market, which is the only market still holding. Fixed Interest Markets have taken a hit, the Commodity Bubble has deflated but Stocks are holding. For now. What everyone is talking about on financial markets, while the Pundits Hype the Economic Recovery Story, is the rate of Housing Foreclosures in the States and what will happen when ARM Floating Rate Mortgages start to reset in 2007. And with CPI and PPI coming out higher than market expectations the chance of relief in the form of RATE CUT has evaporated. So things don't look so good for Mr and Mrs Joe Average.
The USD/JPY got a mild boost overnight by the failure of the BoJ to hike rates. The USD hasn't performed quite so well against the Euro. And the outlook for the USD is still clouded. Since year end the USD has climbed on short covering and interest rate differentials. There is also a weird theory making the rounds that slower global economic growth will be beneficial to the USD. Why I don't know. That theory doesn't seem to be based on anything more than conjecture. With the BoJ non-event now out of the way it is probably time to buy the rumour and sell the fact. And a USD/JPY correction would certainly add weight to overall USD weakness.
OIL 53.36
GOLD 635.20
The OIL price is following the Commodity Bubble down. A break below USD 50 could be ugly. Or at least we could see some stops triggered. Despite the recent turn for the worst in U.S. weather the OIL market has no legs. When you consider the potential for further trouble in the Middle East and the Bush Administration's psychotic (though not yet official) plan for an attack on Iran, the failure of the OIL market to make any gains AT ALL starts to look like a worrying indication that global industrial growth may be in more trouble than is presently being forecast by Global Equity Markets.
One of these two markets is wrong. Either Commodities start to see strength or Global Stock Markets start to reflect the economic weakness that Commodity Markets are currently predicting.
Labels: BoJ, Economic Recovery or Global Recession, Stocks versus Oil Markets
Sunday, November 12, 2006
Financial Shell Games
EUR/USD 1.2840 Hi 1.2900 Low 1.2826
USD/JPY 117.59 Hi 117.17 Low 117.92
AUD/USD 0.7676 Hi 0.7660 Low 0.7697
EUR/JPY 150.98 Hi 150.26 Low 151.46
There is an entire Doomsday Crowd waiting for cracks to appear in the USA and there is no shortage of pundits who suggest that everything in the USA will all end in tears very soon. Certainly economic management in the USA has been poor and it shows. We could line up all the data, from Construction Spending to Retails Sales and shake our heads about the poor financial position of that Great Consumer of Last Resort which America has come to represent to the rest of the world. Quite. But there are problems which are just as severe and entrenched in other parts of the world which are being entirely ignored. Indeed MOST financial newspapers and professional forecasters are either blithely nonchalant about the looming crisis or even more blithely bullish.
Think of a country where Household Debt to Income ratios are sitting somewhere around 150% and Gross Government Debt to GDP is currently sitting at around 170% with no sign of a coherent plan to address the problem.
Think of a country where the Central Bank has flooded the market with liquidity for the better part of a decade in the mad hope that simply printing money would solve all their problems. And PUNDITLAND has quietly endorsed this policy approach. Cheered even.
There have been no comparisons made with the doomed monetary policy of the Weimar Republic and the assumption has been widely accepted that fiddling with interest rates and printing money was the right approach to a domestic debt crisis brought on by excessively cheap money, which at the time was seen to be an appropriate response to the sharp adjustment in exchange rates imposed on Japan via the Plaza Accord. It's some kind of crazy loop.
In hindsight it seems so entirely crazy that printing money could be seen to be an appropriate response to real economic distress that it’s a wonder that anyone bought into the idea. But they did: in droves. In an era of new paradigms Japan was the ultimate new paradigm. First you fiddle with the exchange rate, then with interest rates, then everyone goes broke then you fiddle with interest rates some more and then, as a last resort, you crank up the printing presses and print money as fast as possible.
What’s more the story went out a couple of years ago that an economic recovery was in the offing in Japan and Offshore Funds rushed into the Stock Market. The stock market rallied over 2005 and the bullish pundits rejoiced. This year the major Stock Market Index is flat as a pancake and the economic data is starting to look very uninspiring indeed.
Japanese Household Spending
Japanese GDP
Japanese Profits and Stocks Disappoint
Japanese Machinery Orders Fall
But there seems to have been no adjustment in PUNDITLAND. Still nary a bearish call out there with regard to Japan.
What’s the deal? Does Mercantilistic Theory has everyone in thrall? As long as the Japanese International Trade Account is in Surplus then everything is just fine? The Japanese Trade Account is indeed one of the world's greatest economic success stories. But the Japanese capacity for financial management seems to be slightly less than brilliant. While the Japanese are diligently working away producing stuff to sell to the rest of the world the fruits of their industry seem to have been recklessly squandered. Or rather recycled into U.S. Treasuries. Which comes pretty much to the same thing.
It seems that Japan might have painted itself into something of a financial corner. So now we really get to test these new paradigms. What happens next? I have no idea. But if cracks start to appear in the Nikkei, as looks likely, it is unlikely that the U.S. Stock Market will keep rocketing skyward without a care in the world. The Japanese are, after all, providing the U.S. with what is essentially free money and they have been doing that for some time. But as the financial shell game winds up things could start to be just a bit tricky.
The Doomsday Crowd, bless their souls, should switch their gaze eastward. We have lots more data out of Japan this week. And the Nikkei is shaky. What this means for the YEN is uncertain, though more ugly economic noises and an exodus of Foreign Investors from the Japanese Stock Market are unlikely to provide room for a rally.
OIL 59.59
GOLD 629.50
GOLD is holding on. Should financial market shakes be added to all the other uncertainties out there, including Central Bank Diversification, then there is scope for more gains in the price of GOLD.
The OIL story is slightly more complicated. We have a potential global economic slowdown looming, rather closely, and the Republicans just got a good kicking which means that the situation in the Middle East is far from clear but there is potential, just potential, for LESS violence, which wouldn't be good for the price of OIL. It's a bit early to take a clear position on this one. So sit on sidelines and wait to see what gives.
USD/JPY 117.59 Hi 117.17 Low 117.92
AUD/USD 0.7676 Hi 0.7660 Low 0.7697
EUR/JPY 150.98 Hi 150.26 Low 151.46
There is an entire Doomsday Crowd waiting for cracks to appear in the USA and there is no shortage of pundits who suggest that everything in the USA will all end in tears very soon. Certainly economic management in the USA has been poor and it shows. We could line up all the data, from Construction Spending to Retails Sales and shake our heads about the poor financial position of that Great Consumer of Last Resort which America has come to represent to the rest of the world. Quite. But there are problems which are just as severe and entrenched in other parts of the world which are being entirely ignored. Indeed MOST financial newspapers and professional forecasters are either blithely nonchalant about the looming crisis or even more blithely bullish.
Think of a country where Household Debt to Income ratios are sitting somewhere around 150% and Gross Government Debt to GDP is currently sitting at around 170% with no sign of a coherent plan to address the problem.
Think of a country where the Central Bank has flooded the market with liquidity for the better part of a decade in the mad hope that simply printing money would solve all their problems. And PUNDITLAND has quietly endorsed this policy approach. Cheered even.
There have been no comparisons made with the doomed monetary policy of the Weimar Republic and the assumption has been widely accepted that fiddling with interest rates and printing money was the right approach to a domestic debt crisis brought on by excessively cheap money, which at the time was seen to be an appropriate response to the sharp adjustment in exchange rates imposed on Japan via the Plaza Accord. It's some kind of crazy loop.
In hindsight it seems so entirely crazy that printing money could be seen to be an appropriate response to real economic distress that it’s a wonder that anyone bought into the idea. But they did: in droves. In an era of new paradigms Japan was the ultimate new paradigm. First you fiddle with the exchange rate, then with interest rates, then everyone goes broke then you fiddle with interest rates some more and then, as a last resort, you crank up the printing presses and print money as fast as possible.
What’s more the story went out a couple of years ago that an economic recovery was in the offing in Japan and Offshore Funds rushed into the Stock Market. The stock market rallied over 2005 and the bullish pundits rejoiced. This year the major Stock Market Index is flat as a pancake and the economic data is starting to look very uninspiring indeed.
Japanese Household Spending
Japanese GDP
Japanese Profits and Stocks Disappoint
Japanese Machinery Orders Fall
But there seems to have been no adjustment in PUNDITLAND. Still nary a bearish call out there with regard to Japan.
What’s the deal? Does Mercantilistic Theory has everyone in thrall? As long as the Japanese International Trade Account is in Surplus then everything is just fine? The Japanese Trade Account is indeed one of the world's greatest economic success stories. But the Japanese capacity for financial management seems to be slightly less than brilliant. While the Japanese are diligently working away producing stuff to sell to the rest of the world the fruits of their industry seem to have been recklessly squandered. Or rather recycled into U.S. Treasuries. Which comes pretty much to the same thing.
It seems that Japan might have painted itself into something of a financial corner. So now we really get to test these new paradigms. What happens next? I have no idea. But if cracks start to appear in the Nikkei, as looks likely, it is unlikely that the U.S. Stock Market will keep rocketing skyward without a care in the world. The Japanese are, after all, providing the U.S. with what is essentially free money and they have been doing that for some time. But as the financial shell game winds up things could start to be just a bit tricky.
The Doomsday Crowd, bless their souls, should switch their gaze eastward. We have lots more data out of Japan this week. And the Nikkei is shaky. What this means for the YEN is uncertain, though more ugly economic noises and an exodus of Foreign Investors from the Japanese Stock Market are unlikely to provide room for a rally.
OIL 59.59
GOLD 629.50
GOLD is holding on. Should financial market shakes be added to all the other uncertainties out there, including Central Bank Diversification, then there is scope for more gains in the price of GOLD.
The OIL story is slightly more complicated. We have a potential global economic slowdown looming, rather closely, and the Republicans just got a good kicking which means that the situation in the Middle East is far from clear but there is potential, just potential, for LESS violence, which wouldn't be good for the price of OIL. It's a bit early to take a clear position on this one. So sit on sidelines and wait to see what gives.
Labels: BoJ, Exchange Rates, Japan, Nikkei, Plaza Accord
