I haven't posted for a long time, but didn't really see the need to. There probably aren't many left to read this.
I believe a cycle of events that will ultimately result in an implosion of both the emerging markets and specifically in the implosion of Japan and it's massive government debt is beginning. In a way, what is about to occur in the world is a long time coming and is somewhat the fault of Japan. They led the way early in how to avoid the pain of actually reducing governement costs and controlling debt and instead developed the equivalent of financial 3 card monty in order to allow the game to continue through the use of QE and other methods of tricking the market into believing that they were still a high quality borrrower.
8 months ago I wrote a short essay, noting that Japan would lead the way and it would start with the Yen entering a deflationary period of strength. I believe that is starting now.
I do not know how long it will last, but I suspect the Yen will continue gaining strength, even as the Japanese government will, I'm sure, initiate more shock and awe QE programs in attempts to reverse course. I believe they will now fail, as I am now certain that they have lost all control and credability as a central bank.
This will cause massive damage to world markets as the Yen carry trade is unraveled.
But the damage caused by the carry will just be an appetizer to the ultimate collapse of Japan and possibly even debt collapse in China. Debt may also collapse many emerging markets that have followed the lead of Japan and the United States.
I hope this crisis at least results in new thinking here in the United States relative to debt and central banking and that the likely destruction of Japan's economy somehow saves our future.
Monday, February 3, 2014
Thursday, June 6, 2013
Preview of America, how the Yen will go from Priceless to Worthless
How the Yen will go from priceless to worthless
A long time ago in the early days of the housing collapse, I participated on a forum for economic discussion to talk about the danger hidden within our banking system. A contributor that went by the screen name of NoThing had an interesting theory. Her, (at least we think she was female), theory in the shortest form possible is that during an economic collapse, that is created by excess debt, the currency will go through 2 polar final stages where initially the currency slowly rises in value and then shoots sharply to a very brief moment of time where it is nearly priceless and then this state is followed suddenly by a collapse where it is shredded into toilet paper.
For some of you, the first thought might be,.. "That's not what happened in Weimar Germany." Which would be correct, except we aren't talking about a hyperinflationary collapse, we are talking about a DEFLATIONARY collapse.
Your next thought might be,.. "How will the currency collapse in a deflationary environment?"
Inherently, deflation is caused by a reduction in available credit, reduced velocity of money, and a steady slide in prices as a result. Deflation becomes a mindset of "Why should I buy XXX when XXX is going to be cheaper 6 months from now." People hoard money, no one borrows because the principal becomes increasingly more expensive to pay off, and competition from retailers for your money drives prices lower.
That is Ben Bernanke's nightmare.
But I digress, lets get back to the question at hand,.. how will the currency collapse in such an environment? Increased bond yields, decreased velocity of money and a contraction of credit should all result in increased value of your currency as less becomes available.
The answer is simple, it will collapse because the crisis was caused by excess debt.
At the time in our discussions, we did not foresee to what extreme the central bank would go in order to try to "fix" the problem. We simply saw massive amounts of excess debt piled up in an asset class that was a bursting bubble. Conspiracy theories aside, had nothing been done, half the banking system would have collapsed and a deflationary crunch would have ensued. However, ... we MAY have survived. At the time, our national debt was 30% lower than it is today and a reset of prices lower may have eventually repaired our country to a degree after some short term severe pain. Much like Japan though, this was not the path we chose.
Japan is a preview of the future of the United States.
Japan has a long standing demographic problem of an aging population. The United States has 10,000 baby boomers retiring a day. Japan had a housing bubble and resulting real estate crash in the late 80's and early 90's. The United States had a housing bubble and resulting crash in 2007. Japan has spent 19 years trying to slay the deflation boogey man and as a result has compiled a national debt that is in excess of 250% of GDP. The United States has used both debt monetization and huge budget deficits to try to stimulate the economy in order to slay the deflation boogey man and now has national debt that is nearing 110% of GDP.
If deflation is creeping into your economy because of excess debt defaulting, the worst thing you can do for the long term future of your economy is try to fix the problem by using more debt.
The past sins of Japanese central planners are coming back to haunt them now. They are losing control because they have exhausted their credibility. It took a long long time, but here they are. Had they taken the pain a long long time ago, what would Japan be like today? No one really knows... but what we do know is that they chose to avoid the pain and to try to delay it into infinity through the use of the printing press and excess debt. There is no way they can survive now. If they lose the last little bit of control they have left, the card on the bottom has been pulled. There is no saving them with national debt at 250% of GDP. They will default.
But first, the Yen will spend awhile on the rise because deflation will finally win. Japanese rates will rise, the Yen will rise, prices will fall in Japan.
The rise in the Yen will continue along with bond yields until credit and velocity of money grinds to a hault. The hoarding will then begin and be followed by the great collapse of a nation and their currency in a relative instantaneous hyperinflation.
This is our own future and we are going to watch it happen right in front of our eyes.
I hope congress is watching and that it opens some of theirs.
A long time ago in the early days of the housing collapse, I participated on a forum for economic discussion to talk about the danger hidden within our banking system. A contributor that went by the screen name of NoThing had an interesting theory. Her, (at least we think she was female), theory in the shortest form possible is that during an economic collapse, that is created by excess debt, the currency will go through 2 polar final stages where initially the currency slowly rises in value and then shoots sharply to a very brief moment of time where it is nearly priceless and then this state is followed suddenly by a collapse where it is shredded into toilet paper.
For some of you, the first thought might be,.. "That's not what happened in Weimar Germany." Which would be correct, except we aren't talking about a hyperinflationary collapse, we are talking about a DEFLATIONARY collapse.
Your next thought might be,.. "How will the currency collapse in a deflationary environment?"
Inherently, deflation is caused by a reduction in available credit, reduced velocity of money, and a steady slide in prices as a result. Deflation becomes a mindset of "Why should I buy XXX when XXX is going to be cheaper 6 months from now." People hoard money, no one borrows because the principal becomes increasingly more expensive to pay off, and competition from retailers for your money drives prices lower.
That is Ben Bernanke's nightmare.
But I digress, lets get back to the question at hand,.. how will the currency collapse in such an environment? Increased bond yields, decreased velocity of money and a contraction of credit should all result in increased value of your currency as less becomes available.
The answer is simple, it will collapse because the crisis was caused by excess debt.
At the time in our discussions, we did not foresee to what extreme the central bank would go in order to try to "fix" the problem. We simply saw massive amounts of excess debt piled up in an asset class that was a bursting bubble. Conspiracy theories aside, had nothing been done, half the banking system would have collapsed and a deflationary crunch would have ensued. However, ... we MAY have survived. At the time, our national debt was 30% lower than it is today and a reset of prices lower may have eventually repaired our country to a degree after some short term severe pain. Much like Japan though, this was not the path we chose.
Japan is a preview of the future of the United States.
Japan has a long standing demographic problem of an aging population. The United States has 10,000 baby boomers retiring a day. Japan had a housing bubble and resulting real estate crash in the late 80's and early 90's. The United States had a housing bubble and resulting crash in 2007. Japan has spent 19 years trying to slay the deflation boogey man and as a result has compiled a national debt that is in excess of 250% of GDP. The United States has used both debt monetization and huge budget deficits to try to stimulate the economy in order to slay the deflation boogey man and now has national debt that is nearing 110% of GDP.
If deflation is creeping into your economy because of excess debt defaulting, the worst thing you can do for the long term future of your economy is try to fix the problem by using more debt.
The past sins of Japanese central planners are coming back to haunt them now. They are losing control because they have exhausted their credibility. It took a long long time, but here they are. Had they taken the pain a long long time ago, what would Japan be like today? No one really knows... but what we do know is that they chose to avoid the pain and to try to delay it into infinity through the use of the printing press and excess debt. There is no way they can survive now. If they lose the last little bit of control they have left, the card on the bottom has been pulled. There is no saving them with national debt at 250% of GDP. They will default.
But first, the Yen will spend awhile on the rise because deflation will finally win. Japanese rates will rise, the Yen will rise, prices will fall in Japan.
The rise in the Yen will continue along with bond yields until credit and velocity of money grinds to a hault. The hoarding will then begin and be followed by the great collapse of a nation and their currency in a relative instantaneous hyperinflation.
This is our own future and we are going to watch it happen right in front of our eyes.
I hope congress is watching and that it opens some of theirs.
Wednesday, August 8, 2012
08.08.2012 -- Topping or break out..
My 7 month old got hand, foot and mouth disease. Its a virus sort of like chicken pox, you only get it bad once. Its not fun. They cant sleep, so therefore, neither do you.
Short answer here for an update is that we are either on the verge of a breakout or breakdown.
There are quite a few arguments against breakout.
1) Volume is pathetic
2) Earnings have damaged quite a few previous growth leaders
3) Lots of divergences (DJT, Russel 2000, SOX) .. all lagging the S&P and DOW
4) Lots of falling RSI's on rising indicies
.. that said.. the market is basically ignoring anything negative. Anything negative just means more QE. Its all about flow... there's just a lot of money that needs to go somewhere. Central banks around the world and just crapping money and it has to be put somewhere. Always remember that cash is a liability on a bank balance sheet. Even if the investment earns negative return, think Swiss T-bonds which have a negative yield, it's better than having cash for the bank because it's still considered an asset on the balance sheet even at a negative yield. (which is kind of stupid btw) but this is a new world and a new situation with new rules.
I'm not going to bother posting a chart tonight. My focus is not on super short term movements anyways.
1422 is a line in the sand here. After 1422... flow takes over and just massive amounts of money that needs to go somewhere other than cash could push this thing to new all time highs. Even when you have Rosendickbag on TV saying they should do endless QE.
This is a mess folks. It really is..
You have insane monetary policy pushing money into assets with a economy that refuses to respond and the money that should be driving inflation higher to stop the insanity, is doing nothing except driving stocks, PMs and energy prices higher.
Guess what... stocks, PM's and energy are not in the calculations for inflation measures.
We could totally crash sometime soon... or we could end up with the S&P at 1600, Gold at 2500, and Oil at 175$ a barrel.
Japan is our only reference for what might happen going forward here... but their situation was just different. So much so, that I don't think it can serve as any frame of reference for what will occur here.
Long story short... we can go to new highs... or we can crash. Either way... over a long period of time... nothing good will come of whats happening now. It will be all bad.
I predict right now that 95% of people currently in their 30's and younger (and some in their 40's) will never retire and be destitute in their "golden" years. 30 years from now the US will be full of poor old people. Very different from now. The US will ultimately resort to what many asian countries do. The grandparents (those in their 30's now) will move back in with their children to raise their childrens kids while their kids work. Not completely by choice but mostly out of necessity for both parties.
I formally declare this market and country as being FUBAR'ed.
GL
CJ
Short answer here for an update is that we are either on the verge of a breakout or breakdown.
There are quite a few arguments against breakout.
1) Volume is pathetic
2) Earnings have damaged quite a few previous growth leaders
3) Lots of divergences (DJT, Russel 2000, SOX) .. all lagging the S&P and DOW
4) Lots of falling RSI's on rising indicies
.. that said.. the market is basically ignoring anything negative. Anything negative just means more QE. Its all about flow... there's just a lot of money that needs to go somewhere. Central banks around the world and just crapping money and it has to be put somewhere. Always remember that cash is a liability on a bank balance sheet. Even if the investment earns negative return, think Swiss T-bonds which have a negative yield, it's better than having cash for the bank because it's still considered an asset on the balance sheet even at a negative yield. (which is kind of stupid btw) but this is a new world and a new situation with new rules.
I'm not going to bother posting a chart tonight. My focus is not on super short term movements anyways.
1422 is a line in the sand here. After 1422... flow takes over and just massive amounts of money that needs to go somewhere other than cash could push this thing to new all time highs. Even when you have Rosendickbag on TV saying they should do endless QE.
This is a mess folks. It really is..
You have insane monetary policy pushing money into assets with a economy that refuses to respond and the money that should be driving inflation higher to stop the insanity, is doing nothing except driving stocks, PMs and energy prices higher.
Guess what... stocks, PM's and energy are not in the calculations for inflation measures.
We could totally crash sometime soon... or we could end up with the S&P at 1600, Gold at 2500, and Oil at 175$ a barrel.
Japan is our only reference for what might happen going forward here... but their situation was just different. So much so, that I don't think it can serve as any frame of reference for what will occur here.
Long story short... we can go to new highs... or we can crash. Either way... over a long period of time... nothing good will come of whats happening now. It will be all bad.
I predict right now that 95% of people currently in their 30's and younger (and some in their 40's) will never retire and be destitute in their "golden" years. 30 years from now the US will be full of poor old people. Very different from now. The US will ultimately resort to what many asian countries do. The grandparents (those in their 30's now) will move back in with their children to raise their childrens kids while their kids work. Not completely by choice but mostly out of necessity for both parties.
I formally declare this market and country as being FUBAR'ed.
GL
CJ
Thursday, August 2, 2012
08.03.2012 -- Short term pivots
Today confirmed what I suspected, and the last chart in yesterdays post is significant. I finally figured out what pivots/trends that this short term move is using.
Not much else to add really except that it still feels like the PPT is involved here, likely due to the elections coming up. Obama certainly does not want a market falling apart into November, so much will be done behind the scenes to keep it as presentable as possible. With so much poor economic news, downward GDP revisions, Spainish and Italian bonds falling apart again, the FED disappointing.. certainly didn't expect to see the S&P still sitting at 1368 after all that. Even add on top the general loss in market confidence with the Libor scandal and Knight Capital HFT SNAFU.
Anyways.. here's the short term pivots/trends to watch. Until these are broken north or south, we will just bounce around inside them.
Not much else to add really except that it still feels like the PPT is involved here, likely due to the elections coming up. Obama certainly does not want a market falling apart into November, so much will be done behind the scenes to keep it as presentable as possible. With so much poor economic news, downward GDP revisions, Spainish and Italian bonds falling apart again, the FED disappointing.. certainly didn't expect to see the S&P still sitting at 1368 after all that. Even add on top the general loss in market confidence with the Libor scandal and Knight Capital HFT SNAFU.
Anyways.. here's the short term pivots/trends to watch. Until these are broken north or south, we will just bounce around inside them.
Wednesday, August 1, 2012
08.01.2012 - 1368 first stop
No real change from yesterday. Not a lot of market movement.
I will say though, there are some important sectors that have been underperforming the entire ramp and this selloff.
Today for example, DOW down 37, S&P down 4.
The NAS was down 19 or .66%, the Russel 2000 was down 1.65% and the DOW Trannies were down 2%.
The only area that seems to be doing o.k. that is a growth indicator is the SOX.
Next movement is still up in the air... but we at least appear to be targeting 1368 before the next movement decision;
I will say though, there are some important sectors that have been underperforming the entire ramp and this selloff.
Today for example, DOW down 37, S&P down 4.
The NAS was down 19 or .66%, the Russel 2000 was down 1.65% and the DOW Trannies were down 2%.
The only area that seems to be doing o.k. that is a growth indicator is the SOX.
Next movement is still up in the air... but we at least appear to be targeting 1368 before the next movement decision;
Was messing around and these also look like important trend lines short term;
Tuesday, July 31, 2012
07.31.2012 - Dual pattern..
So, I tried to make sense of the short term chart. The SPX hourly over a 10 week period. I couldn't make heads or tails of it, which is pretty rare. Usually I can find a dominant pattern, but its just chaos. There's no less than 10 different channels, wedges, megaphones, etc. that you could make on it. So for now, I'm just avoiding it. Short term, I have no idea whats going to happen.
I did find something of interest though in the daily and weekly charts.
The Daily chart ( 7 months ) and Weekly chart ( 7 years ) are sporting the exact same pattern. It's actually quite striking how similar they are.
The only problem is that both patterns are at the same exact point in their development. So there's nothing to foreshadow.
What I can say though, is whatever happens next will be confirmed in all 3 longer term timeframes. The Monthly, Weekly and Daily. Because they are all sporting the same pattern.
Here they are;
I did find something of interest though in the daily and weekly charts.
The Daily chart ( 7 months ) and Weekly chart ( 7 years ) are sporting the exact same pattern. It's actually quite striking how similar they are.
The only problem is that both patterns are at the same exact point in their development. So there's nothing to foreshadow.
What I can say though, is whatever happens next will be confirmed in all 3 longer term timeframes. The Monthly, Weekly and Daily. Because they are all sporting the same pattern.
Here they are;
Sunday, July 29, 2012
Weekend update
The following chart will pretty much show everything that needs to be shown right now for the short term. If the S&P gets past 1402, we'll be heading for new highs and potentially all time highs through the election.
There are still lots of reasons on the longer term charts to think this is a fake out though. Including all the Daily, weekly and monthly charts for the S&P rising with a falling RSI for quite awhile now.
But for now, Friday was a strong day, lots of growth stocks (like AMZN??) powering ahead.
The market obviously believes we are going to get a strong round of Fed intervention soon.
Heres the short term chart (SPX hourly)
There are still lots of reasons on the longer term charts to think this is a fake out though. Including all the Daily, weekly and monthly charts for the S&P rising with a falling RSI for quite awhile now.
But for now, Friday was a strong day, lots of growth stocks (like AMZN??) powering ahead.
The market obviously believes we are going to get a strong round of Fed intervention soon.
Heres the short term chart (SPX hourly)
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