(OT) Performance of East Asian Stock Markets in 2013

Maybe this is one of the reasons Japan's Abe decided to go visit the war shrine, thinking his "Abenomics" has won...

From January 4 to December 30, 2013:

• Japan's Nikkei: up over 50%

• Hong Kong's Hang Seng Index: flat

• Shanghai's Composit Index: down 8%

• South Korea's Kospi: flat

(Chart created at stockcharts.com)

Of course the depreciating currency of Japan has helped a great deal.

Japanese yen, from November 2012 to December 2013:

The Japanese government and the South Korean government have reduced the size of the currency swaps since October 2012 to an insignificant level ($10 billion). Though the South Korean government has since expanded the currency swaps with China, it now has less ammo to cheapen its own currency.

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PM Abe's Chief Cabinet Secretary Stating the Obvious: "When Yen Was Higher, Yen Was Much Higher"

Thursday humor to tide you over to Fabulous Friday...

From Chief Cabinet Secretary Yoshihide Suga, on the second largest plunge of Nikkei this year and Japanese yen melting up past 94 yen (for a moment), according to Reuters Japan (6/13/2013; part):

「円高の際には７６円までいったのだから。現在は１ドル９４円。安倍政権の発足時に比べたら、株価は４割くらい上がっており、為替もきょうは円高に振れたとはいえ、１５円くらい円安になっている。そうした動きは一喜一憂することではない。株価は必ず調整局面があるのだし、実体経済や先行指標は間違いなくよい方向にあり、自信をもって政策を推進していきたい」

"When yen was higher, it went to 76 yen. Right now it is 94 yen against US dollar. Share prices are up by 40% now, compared to when the Abe administration came into power, and yen is 15 yen cheaper now, even though it was higher today. Such movements are nothing to worry about. Share prices adjust, real economy and leading indicators are definitely on the mend. We would like to execute our policies with confidence."

As if real economy (aka "main street") matters to algo bots and macro investors. In case you think like Suga, it doesn't. In addition, Mr. Suga seems to already and conveniently forgot that one of the leading indicators for private capex (capital expenditure), machine order, plummeted by 8.8% in April.

Close your eyes and click your heels three times...

When Reuters Japan initially reported the news, Suga's comment was extremely succinctly summarized, as:

「円高の時は、もっと円が高かった」

"When yen was higher, yen was much higher."

Exactly, Mr. Suga.

Suga also quoted Bank of Japan Governor Kuroda telling the Abe cabinet that the stock plunge is just a normal profit taking.

Exactly, Mr. Kuroda. It's also called "bear market".

Congratulations by the way for having the first major stock index in the world that has plunged down to a bear market territory (i.e. 20% correction from the top). Japan as the world No.1!

One glimmer of hope for Suga, Kuroda, and Abe, maybe, is that Goldman Sachs, who had recommended long Nikkei September futures in anticipation of BOJ's meeting results on Tuesday, is sticking to the recommendation even after the stop loss was triggered, according to Zero Hedge (6/13/2013):

...Instead, Goldman flagrantly ignores its own stop loss, and continues keeping the muppets in what is now a losing trade, and massively losing if one applied leverage.

The overnight price action in Asia has been extremely volatile, with all major equity bourses deeply in the red. The Nikkei closed more than -6% lower (and the Topix about -5%), with the JPY trading through 93 at one point (last 94.5). These sharp moves have also meant that the Nikkei September future traded through our stop of 12,700... Stay long Nikkei September futures (NKU3), opened at 13,215 on 10 June 2013, with an initial target of 14,500 and a stop on a close below 12,700, currently at 12,400.

Translation: Goldman has quite a bit more NKU3 in inventory to sell to muppets. And muppets, clueless as always, are gladly obliging.

(UPDATE) Goldman apparently exited the trade, according to Zero Hedge.

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(Anything Goes Series - 5) When Nikkei Is Under Pressure (Finally), Remove BOJ Governor

Why? You can see why. Yen tanks, and the Nikkei Stock index soars by over 4% in one day.

Bank of Japan Governor Shirakawa's tenure was to end in April. Instead, he said today that he would resign soon.

The results:

Yen

Nikkei

Two BOJ commissioners who opposed the 2% inflation target in the last policy meeting, Takehiro Sato (from Morgan Stanley where he was a managing director and chief economist) and Takahide Kiuchi (from Nomura Securities where he was the chief economist) now say they will do their utmost best to achieve that target.

If you think "WTF?" like I did, that's quite a historical, traditional mentality in Japan. During the warring days in 15th and 16th centuries, it was quite common for the soldiers and lords who were defeated to join the victorious and fight alongside the victor, to atone for the sins of the past of having dared oppose the victor. The game of "shogi", Japanese version of chess, allows the opponent's pawns that are captured to be used again, against the opponent.

Now defeated, the two commissioners will be vigorously push for the 2% inflation target that they opposed.

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LDP's Abe (aka "Curry Rice with Pork Cutlet on Top") Says Unlimited QE When He Becomes Prime Minister, Yen Tanks and Nikkei Surges

Japan is sure unique. Probably the only "developed" nation left in the world whose financial markets go up on the word "Quantitative Easing", even with the kicker "unlimited". Even the US market has stopped responding positively to the word from the Fed officials.

Yen dumps:

Nikkei up:

For now, uber-Keynesian Japanese celebrates the destruction of the financial markets that may come with QE 4Eva under the "curry and pork cutlet". Oh wait, in Japan's case, the financial markets been broken for 20 years anyway.

According to Nikkei Shinbun, Mr. Abe also mentioned "negative interest rate" to encourage lending. As if debt is capital and wealth.

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Bank of Japan Intervenes, Yen Goes from 75.32 to 79 Yen per US Dollar

Bank of Japan has successfully cheapened the currency for over two hours now. According to the reports BOJ continues to intervene throughout the day. It hit the highest ever of 75.32 yen to the US dollar earlier. BOJ's intervention reversed the move, and yen dropped 3 yen in 30 minutes.

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Japanese Yen Rises Against US Dollar

In Tokyo, it went as high as 80.60 yen/US dollar. The highest level since last November, according to Nikkei.

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After the Quake, Japanese Yen Jumps, Gold, Silver, Oil Down

Japanese yen has spiked against US dollars, Euro.





US stock market futures are all down significantly. Dow futures down 80, S&P500 futures down 8.80, Nasdaq futures down 16.25.

Gold is down, silver is down, crude oil is down.

Saudi Arabia's "Day of Rage" is today, and there is no POMO by Bernank today.

Batten down the hatches....

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Bank of Japan Intervention Sends Yen Back to Last Friday's Level

well, ever slightly above but not by much.

Still, Nikkei celebrates by reversing almost 300 points.

According to Nikkei Shinbun newspaper, the intervention was ordered by the Finance Minister at 10:30 AM Japan Standard Time, and Bank of Japan carried out the operation of dumping yen at 10:35 AM.

Wanna bet how long will this last?

Unlike the privately-owned Federal Reserve, Bank of Japan is 55% owned by the government. Unlike the Fed, the shares of Bank of Japan is traded on a stock exchange (Jasdaq Securities Exchange).

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Japan's DPJ to Elect Next Leader

in about hour and a half (2:00 PM Japan Time).

Naoto Kan (current Prime Minister after Hatoyama resigned) vs Ichiro Ozawa (the king maker). For stronger leadership, Ozawa would be a better choice for Japan. Probably more realistic than Kan or Hatoyama, who tried his best to ape Obama policies.

For forex traders and the US equity market traders, Ozawa would be better, as he is very likely to intervene in the currency market to (try to) stop the rapid appreciation of yen.

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Japanese Yen Hits 83.59 Against US Dollar, 15-Year High

Derisking continues, and yen continues to rise. No end in sight. Japan's Finance Minister Yoshihiko Noda held an emergency press conference but he did not commit to currency intervention.

Below is an intraday chart of USDJPY.


This is 15-year high for JPY against USD. JPY also hit 9-year high against Euro.

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UK Telegraph: Japan Mulls Monetization of Debt, Yen Devaluation

The true believer of Keynesianism sallies forth to where no other developed country has gone before. (Not after the World War II, that is.)

UK Telegraph's Ambrose Evans-Pritchard reports that the Democratic Party of Japan (DPJ) has drafted a bill that will require the Bank of Japan to monetize the government debt, set the "inflation target" at 2%, and devalue Japanese yen by 30%. And they call it a radical thinking.

Japan mulls monetisation of public debt and yen devaluation
(Ambrose Evans-Pritchard, 4/14/2010 Telegraph)

"A draft by 130 lawmakers from premier Yukio Hatoyama’s Democratic Party of Japan said the country needs a radical shift towards growth policies, calling for an inflation target above 2pc. The exchange rate should be steered to ¥120 against the dollar, from the current ¥90.

"Shizuka Kamei, financial affairs minister [and former policeman], said the central bank must monetise government debt to support the market for state bonds and prevent deflation becoming deeply lodged in the economy.

"The Bank of Japan’s governor, Masaaki Shirakawa, told lawmakers that it would illegal [sic] to fund state spending by printing money. “History has proven that central banks directly buying government securities caused severe inflation and dealt a blow to the economy. The BoJ is now providing adequate funds,” he said." [The article continues.]

The BoJ governor is right. This is crazy.

Japan's industrial output is on the upswing, so is the housing market. Stronger economies in Asia are revaluing their currencies upward against the basket of major currencies (China, Singapore). And Japan wants to debase their currency to cause inflation.

As if inflation is the sign of strength. Japan may not have had a significant inflation in its lost two decades, but it hasn't really had a significant deflation either. Monetary base has been stable, and price of goods and services has been stable. However, since the government takes away more from its citizens - increased taxes, increased national health care insurance premiums that hit pensioners particularly hard, the average Japanese do not have a sense that they are enjoying extra purchasing power.

The so-called "structural reform" by the previous administration under Prime Minister Koizumi has all but destroyed the employment safety net. Japanese saving rate has plummeted from high teens to low single digits, not because of higher spending but because of lower income. Now the Hatoyama administration wants to further destroy the savings (or what's left of them) of the citizens by debauching the currency intentionally.

Ever patient and philosophical, the Japanese would probably say "Shoganai (nothing we can do about it)" and accept their lot.

I hope they are buying gold and silver while yen is still strong.

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US Dollar to 50 Yen, Says Sumitomo Strategist

and the U.S. economy to double-dip in 2010.

Somehow I missed this cheerful news when it hit the wire, but here it is:

Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says
(Shigeki Nozawa, 10/15/09 Bloomberg)

"Oct. 15 (Bloomberg) -- The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.’s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy.

"“The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger,” said Daisuke Uno at Sumitomo Mitsui, a unit of Japan’s third- biggest bank. “The dollar’s fall won’t stop until there’s a change to the global currency system.”

" “We can no longer stop the big wave of dollar weakness,” said Uno, who correctly predicted the dollar would fall under 100 yen and the Dow Jones Industrial Average would sink below 7,000 after the bankruptcy of Lehman Brothers Holdings Inc. last year. If the U.S. currency breaks through record levels, “there will be no downside limit, and even coordinated intervention won’t work,” he said." [emphasis is mine.]

If anyone in the world knows about the futility of currency intervention, it must be Japanese. Bank of Japan's massive intervention to stem the rise of yen against U.S. dollar only profitted the currency traders.

According to the article, Mr. Uno bases his prediction on the Elliott Wave theory that tells him the dollar is heading for the trough of a 40-year super-cycle that started in 1971:

"The dollar is now at wave five of the 40-year cycle, Uno said. It dropped to 92 yen during wave one that ended in March 1973. The dollar will target 50 yen during the current wave, based on multiplying 92 with 0.764, a number in the Fibonacci sequence, and subtracting from the 123.17 yen level seen in the second quarter of 2007, according to Uno."

(You can read the entire article by clicking on the link above.)

I don't profess to know enough about the Elliott Wave theory, but I think "wave five" is the last wave before the new cycle begins. What's interesting to me is that Robert Prechter, president of Elliott Wave International called for a multi-year rally of the dollar back in August, looking at the same wave five. Mr. Prechter thinks wave five is already over, and Mr. Uno thinks it continues.

If you look at the long-term monthly chart of the U.S. dollar index, the target price seems to be even lower than Mr. Uno's. The chart is from the post I wrote back in May. It looks to me like a massive "head and shoulders" formation with neckline at 80, with the "right shoulder" already formed from 2004 to 2007 and the neckline is already broken once in 2008. A technical rebound from that low of 72 was to be expected, and it did happen. The neckline was broken again in July, and the index has never regained 80 since.




The price target of this head and shoulders pattern would be the neckline minus the height of the head: 80 - (120-80) = 40

By the way, the U.S. dollar index's current decline, which started in early March, coincides with the stock market rally. Almost a mirror image. Also, the dollar index decline (and stock market advance) seems to coincide with the unwinding of the Fed's central bank liquidity swaps. (See my post.)

Today, U.S. dollar is having a sharp rebound, as the stock market is dropping fast. Currently, Dow Jones Industrial Average is down 87 points, threatening to break 10,000-mark. Nasdaq is down 17 points to 2,158, S&P 500 down 9 points to 1,088. The U.S. dollar index is up 0.235 point to 75.745.

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