Deflation Talks Rattle Japan Markets

[Sam Spade]

With what's gone on with the Yen today, I don't expect to see things to improve much in Japan tonight.  Basically, we're below the point of what Japan can allow their currency to appreciate and still be profitable as an exporting country.  The Yen this strong simply destroys Japan, without fail.

Let's just hope that the "why" this is occurring is nothing more than "dollar weakness."

Btw, Beet (off-topic) - Have you been on the gold parabolic move since 1050? (I know I called buying the breakout of the old high (bragging), but this one I played with a tiny bit of skin )  Such moves really are so beautiful when you catch them properly.  And I suspect there's probably, at minimum, another hundred bucks in it, possibly within a couple of months. 

But it's a very dangerous trade, so maybe not (depending on your risk level).    It'll be fun to watch it fall apart when it does too.  If we get a dollar carry unwind at the same time, well...

[Sam Spade]

Sam Spade, did Japan ever really clean up its sick financial institutions, e.g., by making them account for the value of its loans at true market rates?

Not really.  Nearly every one of the banks was eventually pulled under, but the original problem was never "cleared", at least when it would have actually mattered.  By the point these institutions were finally made insolvent, the Japanese personal savings was all gutted and you had an insane debt-to-GDP ratio (which continues to get more insane, btw).

And when that cleared, you still had the Yen carry trade (because of ZIRP).  Btw, the unwind of that carry trade in the last half of 2008 was one of the key elements to the nastiness behind the collapse of the credit and equity markets.  It f-ed a whole lot of financial institutions because of the leverage they were using against it.

Speaking of which, we have a new 15-year high on the Yen this evening.  Broke the December 2008 lows.

[Sam Spade]

I made my first gold buy since last December on Wednesday, actually. I've always felt that the fundamentals for gold are strong, with only the extreme deflation scenario countering. Hard to say what's caused the breakout now, though. Perhaps the realization that the Fed will not raise interest rates soon, and the dollar 'carry trade' could last for some time?

Actually, I think the fundamentals for gold are weak, but the chart is insanely strong.  The breakout didn't really occur on any news of note, which is the reason why I bought in the break of the all-time high.  Commodities charts often have these huge spikes and then collapses, so I have a pretty strict exit point that I've been moving up every week (remove 1/2 at 1150 right now).

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In other words, Japan is f-ed.  I agree.

[Sam Spade]

- look at them precious metals (well, gold and silver) run.

know this probably belongs in some damn trading thread, but I raised my remove 1/2 to 1170 (the bottom of the last level where gold hesitated for a while).  I am taking 1/2 off if we reach 1250 (that area looks like a possible termination or retrace point to me), but I'm going to let the other half run even past that point.  No need to get too greedy, even after a present 15% gain in one month.