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
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
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.