Tag Archives: Japan

Meeting with Axel Merk, World Economic Update

As mentioned earlier, Axel Merk, founder of the Merk Funds, a huge complex of currency Mutual funds, was in Dallas last week, and took time to come by the office and catch up.

A Few Interesting Items from Our Conversation

While our visit was brief (thanks again for the time), we were able to catch up on the World Economic situation in great detail.

Let’s start with our back yard, as Axel had recently co-chaired an event with Alan Greenspan in which Greenspan had some rather candid comments.

Greenspan, Federal Reserve, Inflation

  • Federal reserve does what congress asks (this may seem obvious, but recall they are supposedly “independent” …maybe not)
  • Question spawned from the above point, “Does this jeopardize the FED’s independence?” “I never said the Federal Reserve was independent” was Greenspan’s response (hmmm)
  • According to Axel, Greenspan stated inflation will HAVE to rise in the future and Gold will be much higher (our thoughts, bring it on!)

Moving On to Japan; Going all in

  • Axel believes Haruhiko Kuroda went all in recently in announcing huge purchases of securities to lower interest rates, of which we took note here, will be a failure (we are not so sure)
  • Japan will continue to debase its currency as long as possible, according to Merk
  • Interestingly, Sinzo Abe, Japan’s version of the president, if unsuccessful will fade into the sunset leaving very little dust if Axel’s vision come true

European Union; better late than never

  •  Mario Draghi (president of European Union) and company are on more on the right track according to Axel
  • They were very late in this economic cycle of getting started
  • Draghi’s attempt to do an American/Japan version of QE (purchase of assets to lower interest rates) is very difficult because of so many fragmented countries
  • France and Spain, according to Merk are not so good

What does it all mean?

Most interesting for me was the firm conviction of eventual inflation. We have been watching for it for some time and think a sip would be nice.

Time will tell.

Oh…here is a pretty cool chart from Axel’s group. This should make 2015 more interesting as the blue line will no longer be rising.

Merk Fed and S and P

Have a Great Day!

John A. Kvale CFA, CFP
www.jkfinancialinc.com
www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225

Japan Let’s the Dogs Out

Friday, October 31st 2014, Japan’s version of US Federal Reserve Chair (think Greenspan, Bernanke or  Janet Yellen) surprised the entire world.

Japan Goes All In

Bank of Japan Governor, Haruhiko Kuroda announces a major round of government induced stimulus, catching the world by surprise.Haruhiko Kuroda

Similar to the US’s quantitative easing, Kuroda upped his commitment of government purchase of Japan bonds to $750 billion. More interesting was the fact that Japan’s government pension plan, the largest by far ($1.3 trillion) in the world would, is also being mandated to double their equity holdings by reducing their bond/fixed allocations.

  1. Lower the value of your home currency
  2. Help locals with exports, due from number 1
  3. Push local investors into higher risk assets

Japan is the third largest economy in the world. If Kuroda is successful, the world will thank him, as another growing economy of this size would be very positive for the growth prospects of the globe.

As luck would have it, I have a private meeting with our friend Axel Merk later this week. Looking forward to his take … should be interesting!

Have a Great Monday!

John A. Kvale CFA, CFP

PS Equity markets around the globe cheered, this move was not fundamental based, only reactions to government intervention!

http://www.jkfinancialinc.com
http://www.street-cents.com
8222 Douglas Ave # 590
Dallas. TX 75225

Wednesday’s with Axel Merk Final Roundup !

As the conclusion to our Private Client Round table event with Axel Merk we wanted to review of our articles over the past month and briefly update our thoughts. Click on any of the headlines to go to the original article.

Axel Final

China Steps on the Gas

Recall Axel favored China as he stated candidly “China is not as bad as many may think” Shortly thereafter, China lowered lending requirements across the board, stepping on the accelerator, hard! UPDATE-Recent China economic reports have been better. Good Call Axel!

Japan, is the US similar?

Only time will tell, however it appears the infinity stimulus of asset purchases are about to slow via taper later this month. If a positive outcome, it may well become apparent that Japan and the US are NOT so similar.

Inflation or Deflation

With inflation as the most viable way out according to Axel, future higher interest rates, tangible assets and an avoidance of Deflation may be in the cards. So far this looks to be true, however this is a longer term journey.

Gold

As Axel’s steadfast holding, gold remains a core investment that Axel said may “Never sell gold” while too optimistic for us, we certainly agree with the current possibilities.

Austerity Choosers

According to Axel there is a hard/shorter term way out “Austerity” and there is an easier/inflation way out.  While pulling the Band-Aid off fast hurts more, it hurts for a shorter time and will heal quicker, according to Axel. With this one, we punt, as there are so many dynamics even after the book is written (story plays out) the reasons for success may not be clear. Bottom line, MAYBE SO!

Bubble Indicator

Axel repeated several times one of his favorite ways to find a bubble was “Complacency” On this we TOTALLY agree, we have long felt many market participants are being at best careless and in some cases reckless, leading to complacency. We like Axel’s analysis and will continue to remind ourselves of this in the future.

Well, there you have it. A Private Client Event and review that some thought would  never go away…haha…Kidding of course.

We really enjoyed the event, the review, and again a special thanks to all that attended and the terrific questions that spurred us on during and after the event.

Thanks Very Much!

John Kvale

http://www.jkfinancalinc.com
http://www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225

“Wednesday with Axel” … Japan? …. Is the US similar?

As we continue our Wednesday tour with Axel from our afore-mentioned Private Client Round Table event, this week we address, Japan.

Is Japan doomed?

According to Axel, in a word yes, and if they are not, they are going to have serious troubles reversing the slide of their currency and many of the policies they have set in motion. According to Axel, Japan is setting up for the great devaluation of currency in order to compete internationally via trading (lower currency makes you more competitive in the short run) but over the longer term, demographics (aging country) and personal characteristics (huge savers) will be a very formidable headwind for the foreseeable future.

Is the US Similar to Japan?

Again according to Axel, yes and no. Many of the policies set in motion over the last decade and magnified over the latest great recession (07-09) have the potential to drive the US to a similar place, however we are not there yet.  Most notable the US currency is the world reserve currency and this will not change for many decades. (As a side comment, Axel felt strongly on this point and made note that as China grows they will become more viable, but due to their current restrictive system they will not garner international currency  confidence.)

Axel Merk JK Financial Rountable Event IIMany policies, such as low-interest rates, high borrowings are putting downward pressure on the US dollar, a large similarity to Japan. Of course the US consumer has no similarity to Japan in that our national savings rate is low and US are spenders, for the good or the bad.

Lastly, on a question from the field if Japan could cause a global disconnect or collapse, while anything is possible according to Axel, his thoughts were not that dramatically negative, differing from many of the doom and gloom crowd today.

Have a great day!

John Kvale

http://www.jkfinancialinc.com
http://www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225

USA is just like Japan? Not so fast!

During these so-called struggling economic times, various comparisons of the United States and Japan have been made. In fact, I found myself asking a Mortgage Back Security Portfolio manager from Colombia Management last week if the US was headed down a Japan like Quantitative Easing, a story for another time.

Certainly we have similarities, and the concern is that Japan has been in an anemic economic growth patter for several decades. As the US begins to pull out of the latest deep recession, it is inevitable to make a similar fearful comparison of a Japan like extended recovery. As a side note the Japanese government has cut the path for Quantitative Easing and as of this time, Bernanke has attacked the lingering effects of the latest recession with the exact same sword, again I digress.

We think the US does not have the same extended recovery issues as Japan and here is why:

Japan’s population growth

popjapan

USA population growth

popusa

These are the same time periods and from the same source!

There is an elephant in the population room that no one is talking about.  In order for economic growth to occur, there must be, to some extent in a modern society, population growth. As you can tell the demographics are much different in the US and Japan, leading to much of the difficult economic resurrection issues of Japan, in our opinion. For those strongly opposed to more open immigration policies, take note, again a topic for another time!

In addition to the afore-mentioned population growth, the Japanese population are tremendous savers, 2 to 3 x the US mean population. While saving it great, it is also a muzzle on economic growth as money is siphoned out of the system, retarding growth.

So the next time you see or hear comments like…”The US is just like Japan” remember the elephant in the room for Japan, its declining population.

Have a Great Day!

JK

PS I have just begun using a new economic data system that has a huge amount of options for analysis….apologies in advance….nerds and their graphs!!

PSS The four-hour dragon remains safe as the last race of the year rendered her untouchable, at least by this rhino……Oh….and here in my favorite sign from the race.marathonworstparade

214-706-4300
http://www.jkfinancialinc.com
8222 Douglas Ave # 590
Dallas, TX 75225

5 Biggest Zigg Positives of the Year 2011

As a special positive Zigg while others are Zagging, Friday, the last business day of the year, we wanted to Zigg our top 5 for the year.

We hope you enjoy our Ziggs and have a safe and Happy New Years:

On May 1, 2011 American troops storm Osama Bin Laden’s hiding post, which leads to our first and often forgotten consequential positive. After a decade of hiding, Bin Laden is finally caught. Later in the year, on Sept 11, 2011, exactly 10 years to the day, the 911 Memorial Ground Breaking takes place in New York, solidifying our first Zigg positive for the year 2011.

March 11, 2011 marked the first official notification of Japan’s Earthquake. Remembering the early am terribly inaccurate reports of approximately 10 deaths, and a bit of minor destruction, which we now all know was much greater destruction by mother nature, and the eventual fighting of nuclear fallout. Our second positive goes to our Asian trading partners for the ability to rebound, rebuild, and repair.

A Collage of Societal Positives: Facebook pushes towards 1 Billion users and communication across nations and the world expands with the internet’s indifference to geography, religion, language, government, or time; Drunk Driving Falls to lowest level in 17 years; Violent Crimes fall to lowest level in 40 years, and teen pregnancy falls to lowest rate in 70 years, all making for excellent positives in our own Zigging way.

On July 21, 2011, mission STS-135, Atlantis, docks marking the final space shuttle orbit. In a, “how time flies“, Zigg positive, after 30 years, the Space Shuttle completes its last mission. Looking forward to more Zigg positives, NASA plans to eventually launch bigger, and more sophisticated crafts.

Our last Zigg, goes out to the general positives of the Globe. Yes, there are conflicts, but for the most part we are all getting along. Of course we could all be growing faster and more prosperous, but for the most part, as a world, we are better off today, than we were one year ago.  Again, with some exceptions, we all have access to better health solutions than a year earlier, capping a year of terrific Ziggs.

That’s it, as we say goodbye to 2011 and hello 2012!

We thank you all for Zigging with us, commenting, sharing with your friends and family, and appreciate your time.

Have a Great Day and a spectacular New Year’s, be safe, we will see you on the other side!

JK

214-706-4300

www.jkfinancialinc.com

Japan and the Capital Markets

Late last night here in the US, 11 am Japanese time, the Prime Minister of Japan, Naoto Kan surprised Japan and much of the world with an announcement of further problems with nuclear reactors, and warned residents near certain reactors to exit the area while others slightly farther away to stay inside for protection purposes.

Prime minister Kan’s announcement was timed at the beginning of a 90 minute lunch break that is standard policy for many foreign capital markets. When the markets re-opened the Nikkei 225, Japan’s version of the S&P 500, sank to an inner day loss of just over 14% closing for the day down about 10%.

As to be expected, given our global interdependency and Japan’s ranking as the 4th largest county in the world ranked by GDP according to the CIA World Factbook, the global capital markets succumbed to Prime Minister Kan’s surprise news including the United States this morning.

This terrible tragic event, that I first became aware of at 4 am on Friday March 11, 2011, with  at the time a possible casualty count of 30 people, has grown dramatically in scope from initial reports, is different from a recession, war, or other type of shock to the financial system.

At this time there are many unknowns and capital markets will most likely be story dependent and thus very volatile in either direction, given the story.  Our best estimate, of course no guarantees, would be continued selling pressure for several days to weeks, with sharp upward spikes in the capital markets on any given day.  Recall, as we posted earlier the US Capital Markets were in the early stages of a much-needed breather, initiated by the Libya conflict as the Japan earthquake hit. As time passes, in our opinion, market participants may take a more positive view of the outlook, a view unthinkable at this time by many.

Diversification has never been more important!

Our sometimes overboard obsession on diversification has paid off again as we always practice “Not too many ducks in one pond” and feel better at times like these.

Now is not a time to let our guard’s down or dramatically increase/decrease risk, and we certainly will not, but we wanted to give you our thoughts given the latest events.

Have A Good Day!

JK

PS On a personal note, a friend named Yasu who is in the money management business in Tokyo has reported to me he, his family, and many friends are in good shape, but the toll is great to his country.  I am sure next time we visit, he will have many stories to share.