By: Chris Tell at http://ift.tt/146186R
We can all pretend that debt doesn’t matter. We can pretend that demographics don’t matter. We can pretend that raising taxes aids rather than frustrates an economy, and we can pretend that citizens will continue to bend over and be sodomized by central bankers.
But we’ll only ever be pretending, because in the real world all of these things matter, and in the real world human beings will always look out for #1. Darwin was right.
This is universal, but today I’m talking about the land of the rising sun, the land of Toyota, Mitsubishi, Saki, Yakuza and glowing fish. Fukushima dealt a huge blow to Japan’s economy, not least because Japan is no longer energy independent, but what will really kill Japan’s economy is its state of finances.
We edge ever closer to a day when things in Japan go from manageable to, “Oh my God we’re all going to die…” unmanageable. Betting on such an event is not only intellectually sound. It is financially appealing, since the amount of risk required to bet this way is heavily skewed in our favour.
Asymmetric trades which allow for substantial payoffs is exactly what my friend and partner Brad’s strategy has been for decades. Decades which have earned him tens of millions of dollars from applying methodical strategies based on his core thesis of finding global deep-value asymmetric trades.
Why do we think the day of reckoning is close? Well, financing debt requires capital inflows. Japan has managed to finance truly absurd debt levels due in no small part to its previous trade surplus and domestic savings pool. Both of these elements are being systematically eroded in rapid fashion, leaving Japan looking a lot like Wile E Coyote as he runs of the edge of a cliff, just prior to plummeting towards the earth.
Firstly, let’s deal with the domestic savings pool. This pool of capital is, as we’re all by now well aware, mostly held in JGBs. It isn’t growing while the debt burden grows, and it cannot grow, as the demographic headwinds facing Japan are the most severe in the developed world. But don’t let such a dire situation get in the way of a solution. The government are funding so called “match making” parties in a desperate attempt to boost the birth rate. As if that was not absurd enough, they’ve turned to creating a robot baby. I kid you not. What, I hear you asking, is, “What is this meant to do?”
Well, it appears that the Japanese population is so devoid of emotion that they require these “bots” to “trigger the maternal/paternal instinct, causing people to “want” to have a baby. Trust me, I’ve had young babies and a crying baby, let alone a robot does nothing to stimulate anything in me, other than a headache. It is the last thing on earth likely to drive any rational human being to want to get horizontal!
Hopeless!
Now let’s move on to a trade. I found this in the Wall Street Journal. It shows Japan’s waning trade. Put simply, the fundamentals for Japan are terrible.
According to this recent Bloomberg article, Japan have just reported a widening trade deficit with exports by volume falling the most since June last year.
The deficit quadrupled from a year earlier to $1.45 Trillion yen ($14.1 Billion), larger than a 1.08 Trillion yen projection by economists. On a seasonally adjusted basis, the deficit grew to 1.71 Trillion yen.
All the while JGBs hold steady, the yen remains supported in large part right now from the uncertainty in Europe, with Ukrainian headlines causing capital to run to “safety”. Volatility in the Yen is low and the pricing of it is nothing short of unbelievable. Once again ideal hunting grounds for Brad.
– Chris
“Japan is a bug searching for windshield.” – John Mauldin
via Zero Hedge http://ift.tt/1sDxWho Capitalist Exploits