2015 should be a hoot!
But 2016 should be even more of a hoot.
Repressed interest rates are creating stock market bubbles as the search for yield gets desperate. Also, the leveraging of low cost loans into stock market profits, a sort of carry trade, will end and we will all become Japanese.
The JGB's rate reflects one bid and one bid only, the BOJ's. The Yen has plummeted and, given the ultimate limits of the BOJ's bid on the JGB, will continue to plummet. The Japanese people are now digging into savings to survive.
The coming Japanese blow up has begun to put enormous pressure on Indonesia, Malaysia, etc., some of which have oil but whose oil revenues have plunged.
The next crisis IMO might well start in that part of the world because there is no one, except China, who can support the Yen, and it has no reason to do so. In fact, the coming Japanese blow up will present China with historically significant opportunities, the kind that don't appear but once or twice every couple of centuries.
David Stockman has written a great piece on Japan:
davidstockmanscontracorner.com
Kyle Bass's big JGB short (if it is still in place) is getting ready to yield massive profits.
More of the same in the EU in 2015. Draghi's efforts to implement QE may or may not succeed. It makes no difference as economies which are relatively weaker than the American economy, e.g., Italy, sport interest rates lower or more or less equal to ours. A joke which will not end well.
In my view, the only question worth asking in 2015 is whether lower oil prices accelerate or delay the coming blow up of the bubble caused by low interest rates. I suppose it depends on the net impact on the individual economy.
The US is fairly strong, but subject to dislocation when stock market valuations are so high that they no longer are seen as justifying the internal carry trade financed by low interest rates. Will we see a slowly deflating stock market or a scarily plunging one? Who knows, not me, but one thing is sure, the Dow at 18-19K can't last. And if things in Asia get dicey (they will), then contagion is the risk. Of course, our rates will be lower and the USD higher as money seeks safety should this happen in 2015 so the impact on the US should be minimized.
I'm looking for Asia to light some fuses in 2015 but the real impact may not be felt until 2016. Gold? More of the same weakness, IMO, at least in USD terms but might be a crazy good trade in Yen. |
