Japan As A Model – Slaves To The Bank

Japan is the world’s third largest economy and a key trading partner to all of the large powers with a current “debt versus the country’s GDP” at 230% – the highest in the developed world. And if you add in corporate and private debt, total Japanese debt equates to more like 500% of GDP.

Think about that for a moment.

Any given year the country of Japan “owes” (lets average it out) 3X the amount of money that it currently “makes”. That’s what I call a serious credit card limit – totally maxed.

To illustrate just how fragile this situation is ( and possibly foreshadow a likely “similar” situation currently developing in the U.S ) if the base interest rates in Japan where to rise to a piddly 2% ( as the current rate is at 0.1% ) it would have “interest expense on government debt” equate to 80% of government revenue. That’s 80% of the countries GDP ( essentially ) going to pay the INTEREST on outstanding debt alone!

This “tiny jump” in interest rates would cause complete chaos in the bond market, be absolutely impossible to service, and likely lead to full-blown economic crisis.

So what’s the plan in Japan? Seeing that even the current stimulus plan ( 3X as large as th U.S current QE) is “barely” allowing them to hang on? More printing? More government bond purchases?

And of course when all else fails….what’s another great way a government can increase its revenue?

Raise taxes, and essentially make the people “work off the debt”.

Sound at all familiar?

Slaves to the bank. That’s what I see.

The “short Aussie” “post and subsequent trades of the last 24 hours have been spectacular as “indeed” the Australian Dollar took some serious damage overnight. Do I think it’s done? No way….The Aussie’s got a ways further to fall.

QE In Japan To Increase – U.S.A Next

Some tough new out of Japan here this evening for those fans of “money printing” and “easy money” policy. News flash – It’s not working.

With the current QE program in Japan currently 3X LARGER than that of the U.S Federal Reserve, the first 6 months “pump job” has most certainly stalled out ( ironically in May – as I suggested markets topped then ) then traded flat across the summer,  and now into the fall.

If you can believe it:

“The BOJ is likely to step up stimulus in the April-June quarter to support the economy after the levy rise, according to 20 of the economists surveyed.”

“The BOJ will need to fire another arrow aimed at devaluing the yen if the Abe administration is unwilling to risk a sharp economic slowdown,” Credit Suisse Group AG economists Hiromichi Shirakawa and Takashi Shiono wrote in a report.

Expect lower stock prices in Nikkei, then further easing come April.

Now do some of you have a better idea as to why I expect the Fed to also INCREASE QE moving forward?? The numbers are just too large for any of us to clearly understand. A couple more “zero’s” on the Fed’s balance sheet aren’t going to make a single bit of difference as financial markets continue “hanging by a life line/thread”.

They will print, print, print until they can’t print anymore – and continue kicking the can hoping for a miracle.

Japan’s program is 3X larger than the U.S and it’s already “a given” they will increase QE with continued attempt to prop up the economy. This, in the face of “global growth projections” now being lowered by the IMF and anyone else with half a brain in their head.

I’ll say it again – keep your eyes peeled friends…..a bumpy road ahead.

JPY And Nikkei – Thank You Japan!

I’m absolutely fascinated with “all things Japanese”.

In particular – The Yonaguni Monument (与那国島海底地形 Yonaguni-jima Kaitei Chikei, lit. “Yonaguni Island Submarine Topography”) a massive underwater rock formation off the coast of Yonaguni, the southern most part of the Ryukyu Islands. There’s debate as to whether the site is completely natural, is a natural site that has been modified, or is a human-made artifact.

Of course I’m convinced it’s evidence of “ancient aliens” but then again…..I digress.

I likely eat / prepare sushi 3 to 4 times a week, love saki….and am currently practicing some “simple spoken word” while not on the rooftop  – working on the spaceship.

A special thanks today – to Japan!

For all you have that’s wonderful, and of course the Nikkei! ( kindly respecting my wishes and turning downward), for JPY and it’s strength, for sushi, for sake, and all the other wonders of this incredible land!






JPY Takes Safe Haven Bid

In case anyone had any doubt about which currency would see strength during a flight from risk – The Japanese Yen was the clear winner overnight on fears of the U.S attacking Syria.

Kuroda and the Bank of Japan’s QE program (which is 3X as large as that of the U.S) has taken a serious hit here, as pairs such as AUD/JPY have more or less 100% completely retraced since the stimulus started back in 2012.

As I’ve mentioned here time and time again – JPY will always take a large portion of “safety flows” as the country of Japan holds most of its public debt domestically, providing little chance of default. When safety is sought – the Japanese Yen (JPY) makes sense for that reason alone.

I’d also suggested that the “easy money” being short JPY ( based in Kuroda’s QE plans set to continue) has already been made as we are now seeing what will likely happen should “global appetite for risk” come off. All the printing in the worlds can’t keep up with the flow of money “back into Yen” when risk is unwound.

What we “didn’t see” – is strength ( or further weakness for that matter ) in USD as today looks like “yet another” doji candle, and flat as a pancake.

I don’t believe USD is being considered a safe haven currency any longer, and am still of the mind-set that it will sell off.,,,regardless of further actions in a military sense.

I’ve entered several positions “long JPY” and continue to hold several positions “short USD”.

Kongonomics – Japan In Real Trouble

“The following is taken largely from the newletter of John Mauldin”

After the collapse of what might still be the largest economic bubble in history, in 1989, Japan is still mired in a 24-year non-recovery. Nominal GDP in 2011 was almost exactly what it was 20 years earlier, in 1991. You can find other ways to measure nominal GDP which indicate limited growth; but compared to the US and China, nominal growth in Japan has been virtually non existent.

Japan’s gross debt to GDP ratio is expected to top 245 per cent this year, according to estimates by the International Monetary Fund – which is considered to be “ridiculously high”.

They cannot continue to grow their debt at the current rate. There is a limit. No one knows for sure what that is, but it is getting closer. And they know it. So they have to get their fiscal deficit below the growth rate of nominal GDP.

If JGB (Japanese Government Bonds)  interest rates rise 2% in Japan, then the government must pay almost 80% of its revenues (as currently received) just to cover the interest on its debt. Even a 1% rise would be fiscally devastating.

The Abe government plans to raise taxes. Japan’s current sales tax is 5%, due to increase to 8% next year and 10% by 2015 with hopes of generating further revenues , but this will also hurt consumer spending. So round and round it goes.

The government of Japan has no choice. Prime Minister Shinzo Abe’s radical experiment with macroeconomic stimulus will create a debt and monetary overhang so huge that it may just bankrupt the financial system and quite possibly trigger hyper-inflation, and at this point – there is no turning back.

I’m watching this closely as my theory that the “EU Zone” would be our catalyst for “global fireworks ahead” may very well be replaced by Japan as this is developing extremely quickly.

I believe the “easy money” short JPY is now gone, and am currently positioned “long JPY”.

Nice call Kong! The Nikkei is down a wopping -2,500 points since your post : http://potstockwatch.com/2013/05/25/nikkei-20-year-chart-rejection/

Nikkei – 20 Year Chart Rejection

For the past several weeks the real story has been Japan’s amazing efforts to weaken the Yen – and in turn drive it’s stock market “The Nikkei” to the moon in the process.

Regardless of what you might think (with respect to recent data coming out of the U.S or even the latest stream of “upbeat earnings” from U.S companies) – the primary driver ( actually  “the only” in my view ) to higher equity prices in the SP500 has been the massive liquidity injections by The Bank of Japan coupled with Uncle Ben’s usual 85 billion per month.

We have now ( and finally ) reached a point where there is absolutely no question that we are in “bubble territory” as even the Fed is now doing what it can to “talk down” its own stimulus (which we all know can’t happen).

The correlations laid out here have been very straight forward. “Nikkei up = Yen down” and “SP 500 up = USD up”.

What’s interesting when we “zoom out” (and look at much longer term charts such as the last 20 or so years of  The Nikkei) we see that nothing is really that far out of wack.

The Nikkei has been rejected at the downward sloping trendline of “lower highs” – for the last 20 odd years running.



So once again we are left to consider if indeed the massive amount of money printing and central bank intervention can truly..TRULY…make a lasting difference in the growth of a given economy…or merely provide a brief “reprieve” from the pressures therein.

As the Nikkei corrects lower – so will USD.

I remain short USD….and look to get long JPY in coming days.

Japanese Bond Implosion – Explained

As I’ve pointed out many times before, it’s important to understand the relationship (and intermarket dynamics) played out between bonds, currency and the stock market. In this case we’re looking at Japan whos recent “money printing fiasco” may have set in motion a domino effect across these asset classes – with a potentially catostrophic result.

The Japanese stock market “The Nikkei” is down aprox -1000 points as of this writing. Tha’ts over 7% drop overnight alone.

The following video outlines the potencial pitfalls of access money printing, as well provides an excellent “road map” for where the U.S is headed shortly.



Nikkei Weekly – One Ugly Candle

I’m gonna make this quick as to get something else posted here before this site turns into a soapbox.

As per suggestion some days ago – the Japanese stock market has most certainly “corrected”. Unfortunately I got cold feet before the weekend and trimmed my positions considerably – only banking an addition 2-3% as opposed to the amount needed to purchase the yacht I’ve had my eye on. These things happen, – and I am no worse for it. Shoulda , coulda , woulda has no place in my trading, as the opportunities continue to present themselves in bountiful fashion.

I will sit patiently throughout the day, and allow volume to pick up from the “anemic state” we’ve floundered in over the past week. I’m not exactly sure where the hell everyone went – but assume “running with bunnies” and “gargling chocolate”  may have been on the list of activities.

In light of the sell off overseas – and its implications with respect to “risk aversion” – all is unfolding exactly as planned.

Come closer little rabbit – I’ve got some stocks I’d love to sell you here, come closer…a little closer…that’s right – just a little closer  – BAM!

Im 100% cash yet again – with orders in place “should JPY continue higher”.


Japanese Stocks – JPY Correlation

The typical correlation between the value of a given markets equities, and the value of its local currency is pretty well illustrated here. The Nikkei has come along way – and as I expect JPY to take a bounce, one can only assume it’s likely time for a correction in Japanese stocks as well.

The chart below is weekly – and the horizontal line of support and resistance should be drawn with a “crayola crayon” not a laser pointer. When viewing a weekly chart one has to keep in mind that a “turn” doesn’t happen overnight. Imagine even one or two more candles tucked up there around these price levels  – and you’re already looking out to mid April.

Nikkei Close To Correction

Nikkei Close To Correction

At times  – some of my trades take weeks to develop, and then even longer to pay off ( all be it… pay off well ). For those seeking “instant gratification” when trading foreign exchange – perhaps you’ll need to look elsewhere.

Finding the opportunities is one thing – being able to effectively trade them is another.

It’s been a real grind sideways in the majority of the JPY pairs over the past couple weeks, and the trade has tested me on several occasions. With volatility at extremes and a lack of clarity in market direction – JPY certainly hasn’t “taken off for the moon” on this expected move higher. As outlined in the chart above – the probability of a substancial move remains. 

Trading JPY – When Short Turns Long

If you’ve been trading the Japanese Yen (JPY) alongside me these past few months,  I’m sure that you agree….the currency has been a real friend. The steep and steady slide of JPY over the past few months has made for some excellent trade opportunities – for that I am thankful.

Once you’ve tracked and traded a currency this tight, for an extended period of time – you really start to get a feel for its movements. What time of the day holds action, when to sit out, when to step on the gas, or when to sit back and enjoy the ride. By now you’ve got 8 million horizontal lines of support and resistance drawn at levels you’ve now come to know in your sleep. You are now….one with Yen!

As we know nothing moves in a straight line, and no currency exists in a vacuum so….at some point the tides change and your “easy ride down” morphs into some “bumpy days sideways” until finally a correction “upward” is due.

Taking into consideration that JPY is still very much so considered a safe haven currency (as we’ve been over  – with Japan holding the majority of its debt domestically), coupled with current fundamentals shifting  “towards” risk off behavior I feel the time is coming very soon to flip this one upside down – and start looking LONG JPY.

For me this would manifest in taking “short positions” in AUD/JPY, NZD/JPY,CAD/JPY and possibly several others as markets continue across the top before making their move lower.

Bernanke is on deck for Wednesday with the FOMC minutes being released so…I imagine he’ll want to talk it up that QE is right on track and set to continue. This along with the current fluster of information out of the EU Zone makes for a pretty tricky couple days. I will be monitoring and watching all my previously drawn lines of S/R as they will all just get hit again on the upside.

In this case I am considering that buying JPY will align with “risk off coming into markets” for those of you looking to line up the fundamentals. JPY is a safe haven and is likely “bought” in times of risk aversion.