Fearful of a renewed rise in the US dollar, Saxo's chief economist Steen Jakobsen expects a "nasty March" as this will kill commodity stabilization as well as the ability of emerging markets to live up to their expectations to revitalize the global economy. Despite The Bank of Japan's clear "example of how not to do things," Jakobsen warns other central banks will follow Kuroda's cue and, as he explains below, is "shorting everything" as he sees two major canaries in the coalmine.
//saxobank.23video.com/v.ihtml/player.html
March could be a critical month in monetary policy, and as Jakobsen (via TradingFloor.com) warns, there are at least two canaries in the coalmine to fear...
Two leading FX pairs : GBPUSD and USDJPY have sold of dramatically. The canary in the coal mine? I think so. JPY is the go-to risk-off currency, particularly because the Bank of Japan's evidently failing model of low and negative interest rates. Banking stocks are down by more than 20% since negative yields were introduced. Twenty percent!! This is what is coming to European banks (and later US banks). GBP is offered and for good reason as I wrote in What Brexit really means. Uncertainty is the market's worst enemy and there is plenty to come from the UK – again the bigger casualty could be EUR and the European Union itself. Now we have a fully two-tiered Europe.
The Topix Japan Banking Index is down 46% since its post-Abenomics peak! (Remember all crises come from banking – and most crises in the past 40 years have started in Japan!)
Comment: We have lost most if not all of the “gain” from Abenomics!
I have been allowed to forward my friend Rick Atkinson's time-series analysis of the USDJPY which I asked him to do. It’s not for the fainthearted by the way: Rick sees USDJPY in sub 50 region (and he has been excellent in timing other markets). I will provide full details in a "Steen’s Chronicle Special" tomorrow called: Japan leads the world into trouble.
Meanwhile, GBP is under severe pressure, it's at its lowest since… 2008/2009!
One the market's best "timers", Tom McClellan, has an interesting chart for you:
Source: McClellan Financial Publications: McClellan Market Report
I firmly believe Asia leads DM markets. China via growth and demand, and Japan by having the “model not to follow”. In other words, Japan is leading us down the wrong path and it is clear for all to see that the “Japanese solutions” are just not working.
Japanese-style demographics, lack of productivity, rejection of immigration and antagonism to female participation in the workforce is exactly what we should not do ourselves. Unfortunately, what the European Central Bank is now doing on monetary policy and what British prime minister David Cameron and the EU are doing on immigration, are mirroring Japan's failed policies. We are simply NOT addressing the mal-investment and insist on being non-productive with an incentive structure which increasingly is penalising the saver, the investor, and anyone who is trying to do their best.
March could be a critical month in monetary policy. I have declared central planning dead for the past few weeks. The facts first, and and now price action too, support this thesis.
Strategy:
My model – price based – is short GBPUSD, DAX, S&P, USDJPY, GBPJPY, and AUDJPY. I bought bunds yesterday and am very close to triggering short commodities – all a reflection of my old theme: The USD is everything. With Fed insisting on being hawkish, slightly rising wage costs and EU is two tiers I don’t really see a lot of good things for the next 40 days, but then again I have been wrong many times before, but consider yourselves forewarned.
"Forewarned, forearmed; to be prepared is half the victory" – Miguel de Cervantes.