Price Instability – Doug Noland

Inflation Target Hits the Wall – LvM Institute

Stocks may “disappoint” after April or May after a “strong open,” Marc Faber, publisher of the Gloom, Boom and Doom report, said in a Bloomberg television interview from Hong Kong.

Western Policymakers Are Doing The Exact Opposite Of What South Korea And Indonesia Did Right – Simon Black

Policy Deserving of a Rant – Doug Noland

There’s a pretty boring status quo in Japan. The yen is strong. Bond yields are low: buy a 10-year Japanese government bond (JGB) and you’ll get a yield of under 1 per cent. And the equity market is cheap: smaller companies trade on an average price-to-book ratio of around 0.8 times – which means that, in theory, you could buy them, shut them down, sell their assets and walk away with a pile of cash. Last year, just after the Great East Japan Earthquake, a strategist told us that these valuations only made sense if “the very existence of Japan is at risk.” It isn’t and they still don’t.

At the beginning of almost every year, lots of people predict that at least one of these things will change. Some say that the yen will collapse, leading the country into a hyperinflationary nightmare. Others say that the long-awaited Japanese fiscal crisis will finally kick in and bond market yields will soar. And, of course, I predict that the equity market will start to move up to some kind of fair value (note that the average price-to-book ratio in the US is more than 2). How bored you must all get of us.

Everyone has their own excuse for their forecasting failures. Mine is the yen. Ask any Japan fund manager why their stocks are failing to deliver, and they will all say much the same as John-Paul Temperley, of the Martin Currie Absolute Return Japan Fund, did in December: it’s the “bloody currency”.

In 2007, you could get 125 yen for a dollar. Now you get about 78. The yen has also been rising fast against the currencies of its exporting competitors such as Germany and Korea. That makes anything made in Japan relatively more expensive. Japan’s big exporters still dominate the stock market (although exports make up only 11 per cent of GDP), so this matters. When the yen rises, the market falls. When the yen falls, the market rises.

So why is the yen so strong? The answer is that, for all Japan’s faults, it is a safe haven. In the world of currencies, everything is relative and among the global currencies the yen is the only one that doesn’t represent an area with an incurable problem. It might not be growing, but its banks are solvent, its corporate balance sheets are strong, and there are moves afoot to double – and then triple – consumption tax, to deal with its shocker of a budget deficit.

The Bank of Japan is also pretty much the only big central bank not to have wholeheartedly entered the global currency wars. Most of the world’s other big trading nations endlessly manipulate their currencies.

The US has indulged in huge QE (printing money tends to weaken your currency). So has the UK. China never stops with the interventions. Germany keeps its export economy going by staying in the euro and piggy backing off the currency weakness caused by Greece and Portugal. And even Switzerland, the one-time goody two shoes of international monetary policy, has drawn a line in the sand with its cap on the franc’s appreciation.

Yet the Japanese – whose “beleaguered manufacturers need a strong yen like they need a hole in the head”, as Société Générale’s Albert Edwards puts it – have done almost nothing to stop the rise of the yen. In Edwards’ opinion, that makes it time for Japan to ride roughshod over its central bankers and “intervene in unlimited quantities to drive the yen lower. It is time to do a Switzerland.”

That would, of course, come with a downside: Japan might also get a runaway rise in domestic money, a credit bubble, and a fast rise in asset prices.

On the plus side, that is exactly what most investors in Japan dream of. It is time, says Edwards, to make that dream (and as a pleasant side effect, my forecasts) “a reality”.

This isn’t going to happen immediately. The Bank of Japan has a remit to keep prices stable so 0 per cent inflation suits it well, as does Japan’s ageing population. Train fares haven’t risen in Tokyo in 18 years and that’s the way they like it.

However, politicians have started to go into battle on the subject and they now have good reason to step up the pressure. This week, Japan announced that it imported more goods than it exported last year. That’s the first time since 1980 – and it isn’t a good thing. It might even force the Bank to note the fact that, right now, success in a globalised world is all about having a weak currency.

I’m sticking with my Japanese holdings while they think about it.

Rising tensions could drive up oil prices, forecasters say – Edmonton Journal

Eindspel van de Arabische storm moet nog komen – Elsevier

‘Fool in the Shower’ to Give Fed a Good Scalding – Bloomberg

Bernanke Goes All In – Bruce Krasting

Volgens Lavrov is dat olie op het vuur gooien. Maar doet Rusland niet precies hetzelfde door een scheepslading wapens aan Assad te leveren?

‘De Europese steun voor de omverwerping van dictators in het Midden-Oosten is niet alleen naïef, maar ook een vorm van zelfmoord. Rusland gelooft niet dat het goed is kleine duivels te vervangen door grote. Na Assad zal misschien helemaal geen sprake meer zijn van Syrië. Je krijgt de genocide van christenen, de genocide van sjiieten, miljoenen vluchtelingen en honderdduizenden doden. Nu zie je riviertjes van bloed, dat zullen grote meren van bloed worden.

‘De westerse wereld is een instrument geworden van wahabitische regimes in Qatar en Saoedi-Arabië. Wat wil Qatar? Oorlog met Iran en salafistische dominantie in het soennitische deel van het Midden-Oosten. Daarom moet Assad weg: hij is Irans enige bondgenoot en een sjiiet. Turkije is klaar voor een nieuw Noord-Irak, waar het Turkse leger de grens overgaat en doodt wie het wil. Zijn jullie gek geworden?

‘Assad is een smeerlap, net als de rest. Maar wat hebben jullie in Libië gekregen? In plaats van de smeerlap Kadhafi heb je nu salafisten, Al Qaida en tribalisme – een soort mengeling van Somalië en Afghanistan. In Egypte hebben radicale salafisten nu meer dan een kwart van de zetels in het parlement. Het Midden-Oosten maakt zijn 1917-revolutie mee – en Europa helpt een handje.

‘Rusland past daarvoor en zegt: blijf af van deze duivelshoek. Verandering kan alleen stap voor stap komen, anders krijg je een nachtmerrie. Nu is er een soort evenwicht tussen Iran, de Arabische monarchieën en Turkije. Dat evenwicht mag gevaarlijk zijn en wreed, met duizenden doden, maar het alternatief is de herhaling van het Irak-scenario, met honderdduizenden doden en miljoenen vluchtelingen.’

Volgens critici is de les: Rusland stond aan de verkeerde kant in Libië en nu weer in Syrië.

‘Rusland staat aan geen enkele kant. Poetin weet als oud KGB’er dat spelen met religieuze fanaten zelfmoord is. Jullie staan achter de nieuwe klootzakken? Prima, wij staan achter de oude noch achter de nieuwe. Hebben jullie nog niet genoeg zelfmoordaanslagen en moorden als op Theo van Gogh gehad? Europa wordt het nieuwe radicaal-islamitische emiraat. Het zit gevangen tussen het fascistische radicalisme van ultrarechtse groepen en het radicale islamisme van het type Al Qaida. Of dat nu ‘de goede kant’ is’.

How Deflationary Forces Will Be Turned into Inflation – LvM Institute

Larry Summers Considered As US Choice to Head the World Bank – Jesse Café

‘Duitsland kan uit eurozone stappen’ – De Standaard

The Next War on Washington’s Agenda – Institute for Political Economy

Albert Edwards: De crash van de Chinese economie komt er aan – De Tijd

MUST BE SERIOUS: Zero Hedge And Paul Krugman Agree On Something – Bruce Krasting