Global bear rally will deflate as Japan leads world in sovereign bond crisis

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locklimitdown's picture
locklimitdown
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Global bear rally will deflate as Japan leads world in sovereign bond crisis

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6927923/Global-bear-rally-of-2009-will-end-as-Japans-hyperinflation-rips-economy-to-pieces.html

Milton Keynes will be vindicated. Lord Keynes will lose some of his new-found gloss. The Krugman doctrine that we should all spend our way back to health by pushing deficits to the brink of a debt spiral – or beyond the brink – will be seen as dangerous....

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Yields on AAA German, French, US, and Canadian bonds will slither back down for a while in a fresh deflation scare. Exit strategies will go back into the deep freeze. Far from ending QE, the Fed will step up bond purchases. Bernanke will get religion again and ram down 10-year Treasury yields, quietly targeting 2.5pc. The funds will try to play the liquidity game yet again, piling into crude, gold, and Russian equities, but this time returns will be meagre. They will learn to respect secular deflation.

Weak sovereigns will buckle. The shocker will be Japan, our Weimar-in-waiting. This is the year when Tokyo finds it can no longer borrow at 1pc from a captive bond market, and when it must foot the bill for all those fiscal packages that seemed such a good idea at the time. Every auction of JGBs will be a news event as the public debt punches above 225pc of GDP. Finance Minister Hirohisa Fujii will become as familiar as a rock star.

Once the dam breaks, debt service costs will tear the budget to pieces. The Bank of Japan will pull the emergency lever on QE. The country will flip from deflation to incipient hyperinflation. The yen will fall out of bed, outdoing China's yuan in the beggar-thy-neighbour race to the bottom. By then China too will be in a quandary. Wild credit growth can mask the weakness of its mercantilist export model for a while, but only at the price of an asset bubble. Beijing must hit the brakes this year, or store up serious trouble. It will make as big a hash of this as Western central banks did in 2007-2008........................much more

JAG's picture
JAG
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Re: Global bear rally will deflate as Japan leads world in ...

This article was featured in Mauldin's latest Outside The Box letter. Great perspective.

Johnny Oxygen's picture
Johnny Oxygen
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Re: Global bear rally will deflate as Japan leads world in ...

Yep. here it is again. Get ready for the bond bust!

 

The Nine Steps of Hyperinflation 

  1. BOOM. Markets rise. Creation of asset bubbles.
  2. BUST: Market Crash. Inflation goes negative. Central Banks overreact and cut interest rates. Money injections.
  3. BOND BOOM: Government debt balloons. Debt issuance soars.
  4. STABILIZATION: Stocks and commodities recover. Bonds stabilize. Volatility declines.

YOU ARE HERE

  1. BOND BUST: Inflation goes positive. Bond buyers pull out. Central Banks step in and buy bonds (Quantative Easing). This gradually crowds out and scares off real buyers.
  2. CURRENCY CRISIS: Money flees inflated currency, at first a trickle then a flood.
  3. INFLATION SOARS: Quantitive Easing. Currency weakness pushes prices. Inflation accelerates. Commodities rise. Inflation reaches pre-bust highs.
  4. POINT of NO RETURN: Central Banks are slow to contract money supply. Government continues to spend more. Deficits continue to grow. Real economy is still slow. Prices spiral.
  5. CURRENCY DESTRUCTION: Double digit inflation. Currency devaluation. Bond market crash. Inflation goes logarithmic. Confidence in money is destroyed. Eventually even monetary contraction will not help as demand for cash evaporates.

 

 

guardia's picture
guardia
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Re: Global bear rally will deflate as Japan leads world in ...
Lock Limit Down wrote:

 Finance Minister Hirohisa Fujii will become as familiar as a rock star.

Aaah, too bad for him, he has just resigned!

Samuel

locklimitdown's picture
locklimitdown
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Re: Global bear rally will deflate as Japan leads world in ...

Here we go again

Got competitive devaluation?

Makes gold shine even brighter

New Japanese finance minister calls for weaker yen

TOKYO (Reuters) - Japan's new finance minister called for a weaker yen on Thursday and said he would work with the Bank of Japan to achieve an appropriate level, prompting a sharp slide in the currency against the dollar......

http://www.reuters.com/article/idUSTRE60612720100107?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28News+%2F+US+%2F+Business+News%29

guardia's picture
guardia
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Re: Global bear rally will deflate as Japan leads world in ...
Lock Limit Down wrote:

Makes gold shine even brighter

New Japanese finance minister calls for weaker yen

Ouch ouch.. I've been waiting for gold to come down a bit before buying more, but it ain't going down and my yen is just going to hell! ...

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