Japan continues to dominate the economic news. The latest move concerns Prime Minister Abe’s new economic policies to cut corporate taxes. He also announced plans to run a shakeup at Japan’s political ministries.
This is “Plan B” for Abe who has found that his policy of “Abenomics” or pushing the Bank of Japan to print even more money has failed to stimulate Japan’s economy.
Abe won in a landslide last September on his platform of urging the Bank of Japan to do more. This platform ignored the failure of QE to stimulate growth in Japan in the previous 20 years (Japan had already engaged in QE programs equal to 25% of the country’s GDP). It also ignored the risks of unfettered money printing, namely higher inflation.
Sadly, Abe has discovered that ignoring both of these key issues, while good politically, has been disastrous economically. Abe won the election and the Bank of Japan announced a record $1.4 trillion QE effort in April 2013. To put this number into perspective, this would be the equivalent of Ben Bernanke announcing a $3.75 trillion QE plan in the US. Suffice to say it was a “shock and awe” move.
Unfortunately, it hasn’t worked. Japan’s industrial production fell 3.3% month over month in June. At the same time, Japan’s consumer price index registered its first increase in 14 months in June. The pace of increase was the fastest since 2008 when commodity prices were at record highs.
In plain terms, the Japanese economy is failing to respond to Abenomics. This is the single most important issue for the global financial system today.
The economy and financial markets have been moving in a zig-zag pattern ever since 2008 with drops in asset prices and GDP being met by intervention and stimulus by the world’s Central Banks.
However, thus far no Central Bank has gone “all in” with QE. The larger efforts have been focused on specific timelines (six months to a year) and the ongoing efforts have been tied to economic developments (the Fed claims it will taper QE when US employment falls to an acceptable level).
Never before has a Central Bank stated point blank that it’s firing a bazooka at the economy. Japan has done this. It has failed. And this failure has effectively been the “Emperor has no clothes” moment for Central Bank interventions.
And the markets are taking note.
Traders and investors do not respond to sea changes instantly. The smart ones take note and begin adjusting their portfolios and hedging their bets. This doesn’t result in massive market moves as these investors are sophisticated enough to move out of old positions and into new ones without drawing too much attention
It’s only when the investment herd en masse realizes that something has changed that you begin to see market Crashes.
This process has begun in the world. The smart money is leaving the market. And the market rally is being driven by fewer and fewer companies. This is classic Bubble Topping signals.
This is not to say that the market will crash tomorrow. But the sea change has hit and it’s now a matter of time. The likelihood of a full-scale market Crash similar to 1987 occurring in the coming months has increased dramatically.
So if you are not taking steps to prepare your portfolio for some major price movements, you need to start now. Pinpointing the exact date of a market Crash is darn near impossible. But one thing is clear: once it begins it’s far too late to save your hard earned capital.
Chief Market Strategist
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Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.
Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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