It is perfectly understandable that media focuses nearly exclusive coverage on Japan. TV works that way. We fully appreciate the concern about Japan. We have written about it several times. In addition, we have taken our Japan investment exposure to zero.
Last November, the University of Michigan and Reuters stopped allowing third parties to update their Michigan Sentiment Index Charts. Maybe that’s because they didn’t want you to see how deep in the toilet we really are. Reuters is now apparently paying the University to keep the charts secret, just like Bloomberg paid off ABC News to buy and keep their Consumer Comfort long term historical data out of the pubic eye.
The disaster in Japan has hit stocks across the world. But the bull market was already rolling over even before the quake hit. Dominic Frisby asks: what happens next?
It is prudent from a planning and risk-management perspective to gain a better understanding of:
How long should we remain defensive? Where should we redeploy our cash? How far could stocks fall?
Our opening chart looks at the broadest measures of cash and credit in the US money supply, M2 and M3. We can see that both measures have been expanding this decade. Note: The Federal Reserve stopped reporting on M3 after 2006 due to what they consider low importance to the measurement of money in the system.
Japan's market opened under pressure, and when prime minister Kan suggested that the radiation problem was not contained, all hell broke loose. The Tokyo Stock Exchange has various kinds of circuit breakers and, as a consequence, that market quickly reached the point where it was not trading, with all the action spilling over into the futures market in Singapore
Last week the Japanese earthquake darkened the skies with an unexpected flock of black swans. On top of an act of nature, we have the persisting presence of eurozone debt fears, currency wars, the Middle East unrest, and the near bankruptcy of many states in America.
The global financial markets continue their tailspin today in the wake of the devastating quake and tsunami which struck the world's third largest economy last week.
Given the stark contrast between asset class performance before and after the implied announcement of QE2, the Fed’s statements related to quantitative easing in the coming weeks will have a significant impact on the outlook for stocks and the relative attractiveness of asset classes, market sectors, and subsectors.
These policies on face value imply severe economic distress for several years as they are implemented starting in 2011 and thus require the continuing lubricant of near zero interest rates backed up by quantitative easing aka money printing to inflate the economy (consumer and asset prices) in an attempt at offsetting public sector deflation so as to prevent a nominal double dip recession.