stock bubble

Insider

We're All Turning Japanese

Japan is the proxy for our future
Tuesday, September 10, 2013, 1:40 PM

Executive Summary

  • As goes Japan's efforts to rescue it's economy, so will go the U.S. and E.U.
  • Japan's options:
    • Outsource its manufacturing base
    • Replace as much human labor with automation as it can
    • Rush to trade its depreciating currency for hard assets around the world
  • What Japan is telling us about the Keynesian endpoint

If you have not yet read Part I: Abenomics' Dismal Anniversary, available free to all readers, please click here to read it first.

Japan Is Reflecting the Future of Western Economies

While many observers continue to follow Europe as the proxy for post-growth dynamics in the OECD, it's actually Japan that merits the closest analysis.

Much farther along in its post-growth phase, bloated with government debt and having tried a number of big-bang initiatives over the decades, Japan not the U.S. or Europe is leading the way. The country has never really recovered from the gigantic property and stock bubble over twenty years ago.

As proof, just consider the biggest trading story of the past 12 months. Was it the Federal Reserve's intention to taper? How about the chaos in emerging market currencies in countries like India and Indonesia? Or perhaps the continued economic depression in peripheral Europe, as countries like Spain, Portugal, and Greece re-run the 1930s, with mass unemployment and people burning wood from forests to say warm? No, not even such dramatic suffering in Europe was enough to move markets or the EUR currency much this past year.

Instead, it was Abenomics and the front-running (and then chasing) of wildly huge moves in both the Nikkei and JPY that helped drive liquidity and speculative juices across all markets. It is not a coincidence that the peak of this frenzy in May heralded the peak in many markets.

But Japan has more than a financial problem. Despite the hand-wringing about Japan's debt, the world has ignored for some time now Japan's debt-to-GDP, GDP on an absolute basis, and Japan's low cost of capital. Japan borrows. Japan prints. Japan devalues. But the world doesn't care.

An issue the world may finally begin to care about, however, is that Japan has failed to launch itself out of deflation and is making very little progress in its struggle now. Indeed, Japan has a demographics problem and a resources problem that far outweigh its financial problems. To this point, instead of launching into recovery, Japan is running with the resources Red Queen, as every step of its currency devaluation is met with rising costs to import the raw materials Japan uses to make its goods... » Read more

Podcast

Bill Fleckenstein: Hold Tight To Your Gold

Why it's going to go "one hell of a lot" higher
Sunday, April 21, 2013, 12:35 PM
The bond market is an accident waiting to happen.
 

When the bond market finally does crack, it is going to be one epic nightmare that is going to make 2008 and 2009 seem like a picnic. It will be a different kind of a crisis; but it will be an enormous crisis. These people that are bullish about stocks and bonds and the bond market, they do not understand anything.