Submitted by Charles Hugh-Smith of OfTwoMinds blog,While all eyes are on the absurdist tragicomedy playing out in Europe, Japan is quietly circling a financial black hole as its export economy is destroyed by its strong currency and the global...
Nonsense from the otherwise excellent Charles Hugh-Smith. By focusing on nothing but the debt situation and how the strong Yen impacts exports, he is missing the other very obvious par t of the equation, that imports are cheaper. This is simple import/export stuff that has been forgotten in all of the idiotic mercantilism propagated constantly and parroted by poeple who should, frankly, know better.
Japan's companies are deploying those strong Yen in the trillions around SE Asia and in doing so are effectively getting younger, the same way that China is. This notion that political borders determines a countries demographics is worthless and clouds rational analysis. Young, cheap Vietnamese working in a suzuki Factory are economically tied to Japan's production base and Vietnam's consumption base.
It's economic dual-citizenship.
I've been hearing for years how the strong Yen will kill Japan's export markets but it hasn't happened yet. Only in 2011 when a large chunk of their economy was swept out to sea nad rendered unusable from radiation did they finally run a current account deficit even though the Yen has been strengthening around the world for more of the century, oh by the way.
The strong Yen shook compaies like Toyota up and made them wake up to the quality of their competition. And it is making their cars better, which is why they'll sell 10 million cars and trucks this year.
The rout in U.S. Treasuries is becoming biblical. 30 Year Bond futures dropped 1.5 points, crashing through horizontal support at 147 and 146.5 to close Wednesday afternoon’s trading at 146.01. The yield climbed to 2.91%. 10 Year Treasury yields rose to 1.80%, up 0.071%. This sell-off in Treasuries is particularly worrisome because there has not been a commensurate rise in equities. The S&P 500 (AMEX:SPY) rose just 1.60 to close at 1405.53 (0.11%). If the money is rotating out of U.S. Bonds and Securities and not flowing into U.S. equities, where is it going?
I'm not sure Draghi has put anything concrete in place like Axel is suggesting but he's certainly making it very clear as to what he wants. An integrated Euro is what has been on the table for over 60 years and this is just one more move in the game.
There is still a significant amount of risk in the system that central planners like Draghi and Bernanke cannot account for. Axel Merk is smart enough to know that there are many forms of tail risk. Yes, Draghi's words have made it clear that he has lessened the most important source of it: uncertainty in the competence of the E.C.B.'s leadership. That creates a put underneath the fear trade.
I'm one to bet on stability in almost all things as the most likely outcome. In the end we play the probablities, and the probabilities state that there is enough will on the part of central bankers to preserve their system at our expense even if they get the timing wrong and it costs them more than they wanted it to.
But, chaos is also a possibility that has to be accounted for. In either case Gold wins as an investment.
Last week we explained why while endless promises may be enough to confuse the market and force endless rounds of short covering as weak hands are flushed out of positions under threat (but never action) of Fed intervention, banks are no longer in...
The Fed is in "Do as I say not as I do" mode, telling the markets they won't start a new round of QE but are expanding the money supply anyways. While everyone is focused on 'to QE or not to QE" the truth is as ZH implies, the banks have levered up as far as they can go having mobilized just over $200 billion of excess reserves.
This is just the beginning of the next wave of printing and the headlines will be silent now that both Bernanke an Draghi have talked the markets down from the ledge last week.
Expect a run to around 1450 on the S&P and gold to break through $1650.
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