Thursday, December 18, 2008

Chris Puplava Calls It Turning Japanese

Posted yesterday: With US Fed Rates At 0.25% (or Zero), Would US Turn Into A Japan Redux?

FinancialSense market commentator, Chris Puplava, made the following editorial,
Turning Japanese?

  • With the two major headwinds of slowing credit growth and an unfavorable demographic trend facing the U.S. economy, sub par economic growth and a continuation of the current secular bear market will dominate the years ahead. The U.S. is likely to mirror the Japanese experience, though probably to a lesser extent due to a more aggressive central bank and strong fiscal policy. It already appears the U.S. is indeed following the experience of Japan as our stock market (S&P 500) has followed closely with the path of the Japanese Nikkei 225 index. Real stock prices for both the S&P 500 and the Nikkei 225 have displayed uncanny resemblance as seen below, with the real S&P 500 from 1984-2008 overlaid with Nikkei 225 experience from 1974-2008.

    The experience in Japan could very well play out in the U.S. as the rally Japan experienced from late 1998 to 2000 would correspond with a cyclical bull market beginning in the first half of 2009 through 2010. This coming cyclical bull market will be supported by a massive fiscal policy by the Obama administration and continued QE by the Fed as well as an oversold market. As the rest of the world begins to recover, foreign governments and investors will be diverting more of their assets towards strong emerging market growth as the case for emerging markets is not dead but simply taking a breather (and thus indirectly for commodities). Foreigners will also become increasingly concerned with the Fed’s balance sheet as well as record U.S. budget deficits for the next two years, which will likely weigh on the US dollar as the decade closes. By the Fed keeping long-term interest rates low through the purchase of buying U.S. Treasuries, the Fed will have to look the other way as the dollar weakens. A weaker USD will lead to higher import inflation and higher commodity prices. This renewed inflation threat may contribute to another recession down the road, which is likely why the Fed is considering issuing its own debt to help mop up the liquidity they’ve thrown at the system.

  • The current rally may have some legs left in it to push the markets back up to their November highs, but further downside action and consolidation are likely ahead before the bears head back to their caves. Support for further downside action comes from the FSO Financial Stress Index, which has greatly recovered from the lows seen in October, though still at the extreme levels seen in the last bear market. Clearly the Fed and Treasury’s efforts are starting to pan out, but what is also clear is that they still have work to do to return normalcy and stability to the markets. We are getting closer to a bottom, though the time to deploy sidelined cash will be in 2009 as risk still remains elevated.

See also: Bernanke's Japanese edge


Gamelion said...

This desperate action clearly indicate that the Fed is operate a similar trillion times Madoff giant PONZI SCHEME of robbing the law abiding prudent savers to pay the unlimited reckless and bankrupted borrowers high leverage gambling bet in the financial casino market. This time they go for the bet of winning everything or nothing !!!!!!!!!!!!