Tokyo’s strategy requires every economic assumption ever made to be proved wrong.
Words spoken last year by UCLA’s Dr Michael J Burry at the 2012 graduation of his students:
“At the highest levels of economic thought in government, questions are not tolerated. It is as if we are dealing with the binary judgement of a fundamentalist religion. Finance theory and practice fare no better. The continuing crisis makes a mockery of the principles which have guided credit policy and risk management since the 1960s. As it turns out, information is not perfect, volatility does not define risk, markets are not efficient and the individual is adaptable. But the dark age of finance allows no such light…”
“Over the course of your lives you will experience withering but stealthy attacks on your quality of life as government attempts to manage its faltering finances. You will see declines in the quality of healthcare, the quality of education, the quality of public safety and the quality of our currency. Of course, this is a false prophecy – I’m simply describing what is already happening.”
Well, there goes another of those pesky conspiracy theorists. Here we are a year later, and the only thing I’d delete from the above is ‘stealthy’. Stealthy went out of the window some three months ago. I posted last Thursday and again on Friday to describe what I see as the painters retreating into the corner. I posted last night to suggest evidence of the main players sandbagging their positions. Overnight, Slogger AOH left this telling thread:
‘I met with a friend of over 40 years this weekend who is an expert in the precious metals market. He said that Soros was more long in his fund than he had ever been despite the propaganda. In addition, JP Morgan was massively long gold contracts on a net basis to offset its (shrinking) net short position in silver contracts in which it is trapped and unable to get out of because of the shortage of the metal. In other words, serious money is protecting and positioning itself. Surprise, surprise. Serious money is also taking delivery of its physical gold and storing it in the Far East.’
These remarks reflect my feedback pretty much to the letter.
Der Spiegel reports now that the IMF is refusing to participate in further rescue programmes for Greece unless financing for the nation is secured for the next 12 months – in other words – a new haircut for Greece will be required to cover the €4.6 billion funding shortfall. So Athens needs another bailout, and the Troika just became a duo.
And the rest of the signs continue the trend I wrote about last week/over the weekend. Nothing based on essentials: Silver dropped 30 cents immediately Asia opened last night, and is now bobbling along in the $21-22 range. Gold continued Friday’s inexplicable fall, and is currently (11am BST) at $1378. Oil prices rose, with forecasters generally posting a TREND UP signal for today. ….but now it’s falling.
But the saw is now halfway at least into the 4th big leg on the global stool. The Japanese Yen – having been dragged down from $102cents to 96.6 is at 98.7. Thus, Tokyo continues its bananas attempt to devalue sharply as a stimulus to exports, neighbours continue to complain, and everyone continues to counterattack. The Japs like it like this: they are Asia’s Millwall FC – “Nobody likes us and we don’t f**kin’ care” – but I retain my firm opinion that what they’re doing is pointless and destructive.
Consider: even though the yield on 10-year Japanese Government Bonds (JGB) is 1%, the interest on that will exceed 22.3 trillion yen in the fiscal year that begins in July. This is one-quarter of the general account budget. If the bond yield rises to, say, 2%, the interest expense would surpass the total expected tax revenue of 42.3 trillion yen. Should the bond yield rise? Yes, of course it should: Japan’s budget deficit is still far too high, with an eye-popping 44 trillion yen in net additional borrowing admitted for the next fiscal year. The rationale for a good Nipponese policy outcome assumes deflation will continue; but with massive QE, why should it? And if it does, deflation will shrinks the real GDP and cut tax income. So Tokyo will fall behind on its debt repayment. And bond yields will rise as the risk continues. As with the ECB and the USFed, the BoJ is painting itself into a corner.
If course you wouldn’t expect the national Bourse to twig this, because bourses are, by and large, peopled by coke-fuelled jerks. Hence the 5% leap in the Nikkei today to 13,500. Like the Dow and the FTSE, the valuation is built on bollocks.
I repeat: no timescales, because that’s a mug’s game. But there is absolutely no turning back now, and the potential mega-losers are getting ducks in a row. Everyone else is taking the Evil Knievel view that accelerating towards the edge just might get the lawnmower over to the other side of the Grand Canyon. The EU is leaking capital, its credit is drying up, and its peripherals are treading water. The US recovery is stalling and its export markets are falling. China has openly said growth is off the agenda for the foreseeable future. That sinks Australia – where the currency has dipped, and the Sydney property market is nervous.
And of course, in the dear old United Kingdom, Mervyn King applies ECT to a dead cat, while Osborne shouts at it to lose weight. Our main export market is flatlining, and on the verge of All Stop. Since April 2012, the Office of Budget Responsibility (OBR) has cut the 2013 growth forecast from 3% to 0.6%. As the OBR is politically independent, I think we can safely assume that this is closer to reality than the drivel put out by senior crooks at the Treasury. Mark Carney arrives on July 1st with the heavily leaked intention of doing precisely what Japan is doing. Oh dear: and we’re falling behind in our debt repayment already.
I’m still moving forward on heavy asset purchasing and arriving at minimal liquidity for the time being. It won’t make me wealthy, but it stands a reasonable chance of helping me not wind up wiped out. What you do is your concern: but the writing on the wall now is so thick and big, it is only a matter of time before the wall falls over.