Japan is following in the footsteps of the man who laid the groundwork
for the greatest global inflationary operation of the modern era. We see the
Yen in the top panel of the chart below forming a similar pattern to that
which USD made from 2000 to 2002 as an epic bubble in credit expansion was
being fomented in the US.
The similarity in the charts (with a decade stagger) is striking and
it is probably no coincidence that Japan has chosen to leverage its currency
– which had been chronically strong since the 2007 beginnings of the
US-triggered global financial meltdown – just as the US did with the
once strong ‘King’ dollar in and around 2001.
According to now widely known macro fundamentals Japan is indicated to
be following in the US’ footsteps’ as well. Mr. Shinzo Abe has taken power with a vow to pull Japan out
of deflation through “bold economic measures”, which is another
way of saying “I have got a similar currency setup to that of Mr.
Greenspan a decade ago and I am going to use it.”
Of course pulling Japan out of deflation is likely to mean that this
graph will break to the upside out of a 20+ year consolidation as Japan has
apparently voted for higher prices of goods and services.
Ten years ago the Greenspan inflation was still fairly new and the US
stock markets were mired in a cyclical bear. Greenspan and his scheming
successor pulled and have kept the US out of what would have likely been a
fierce and secular deflationary bear market by employing ever more stimulative money tricks to give us what we have now;
diminishing returns and soaring debt loads. A massive bailout of the
financially powerful at the expense of the nation’s seed corn and its
very future.
Now we have Japan, finally deciding the time is right to join the
global party and devour some of its seed corn. But it can be argued that
Japan, a country that has routinely been the top global net creditor year
after year after year, has enough seed corn to do as it pleases. US citizens
should cringe at the thought of what Japan might want to do with some of its
massive hoard of Treasury bonds. But that is a story for another day.
The point here is that global policy makers are inflating against a
deflationary force that seeks to unwind decades of excess in an over extended
and global paper money system. While we wait for the shenanigans in the gold
market to play out (as the prime inflationary barometer is put upon by
natural and unnatural forces alike), it is worth looking out into the world
for more conventional opportunities.
Japan has qualified for a termination to its secular bear market. It may
also qualify for an inflationary growth cycle and attendant rising asset
markets. The key to remember is the ‘inflationary’ part, because
that is what this would be. Just like the thing Greenspan created over a
decade ago.
A big difference between the two is that Japan would be initiating its
major inflationary operations after a secular and deflationary bear market.
In the US, we could not even endure a cyclical bear that followed a massive
secular bull without panicking into full on inflation. A future article or
NFTRH edition will seek to flesh out the meanings of any differences this
could signal, but my gut tells me that Japan’s two decades in the
desert will bode well for it on a relative basis to the US.
NFTRH uses a model portfolio to try to illustrate and
take advantage of some of these global themes, and the Japanese stock market
may be part of a balanced plan. The currency swings in the Euro/USD battle
and the potentially major turning point in the Yen are likely to provide
short and longer term opportunities in 2013. Be ready
for change.
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