Even worse – for anyone who was feeling optimistic about that market, the sharp decline in the prior quarter’s GDP was revised upwards, as well.

Japan’s embattled prime minister, Taro Aso, who came to office in September just as the downturn was beginning, has introduced several stimulus programs of extra public spending, but nothing seems to work. The stock market is trading lethargically at a level that’s about 80% below its 1990 high. And there’s an election that has to be held before September.

It’s not a pretty picture.

The Japanese are well aware of this; they were not particularly cheerful about their economy even before the present downturn.

There’s actually a great Japanese movie that I watched last weekend, called “Bubble Fiction,” that illustrates this very well. In the 2007 film, a young girl is down-on-her luck, deeply in debt, and being harassed by yakuza (organized crime) debt collectors. She goes back in time to 1990, in an attempt to stop the policy mistakes that burst the Japanese bubble. Back in 1990, she finds Tokyo a much more fun place, with money everywhere and everyone happy – she even meets her yakuza debt-collector, who is graduating from Tokyo University, and who has lined up a great job with the Long-Term Credit Bank of Japan Ltd. (which went bust in 1998).

Eventually, with the help of a buddy in the Ministry of Finance, she gets to the top guy in the Ministry whose policies caused the crash, and discovers that it is all a plot between him and some rich foreigners, who plan to become billionaires by exploiting the destruction of Japan’s economy. She foils the plot, returns to 2007 – and finds it magically changed, in a long burst of prosperity, with no government debt and her Ministry of Finance buddy just appointed prime minister.

So that’s the Japanese fantasy – to find some way to undo the malaise of the past 20 years and make the country’s economy work properly again. To some extent, Junichiro Koizumi, prime minister from 2001-06, played into that fantasy. He sorted out the banks, started to privatize the Japanese postal system and cut back on wasteful government spending. It seemed to be working, too, as Japan began to enjoy decent – albeit modest – growth again.

Since Koizumi left, however, the governing Liberal Democrat Party (LDP) has abandoned his policies, and current Prime Minister Aso is very much a part of the problem – and not the solution.

Whatever you think of “stimulus” strategies, there can be no question that it is the least likely to be effective in a country that already has a large budget deficit, and that already has public debt that’s more than 160% of GDP. If the Japanese economy is currently in a pit, Aso’s policies are creating a much deeper bottom.

Just last weekend, the opposition Democratic Party of Japan provided a genuine alternative. Its previous leader, Ichiro Ozawa, was an authoritarian personality who had formerly been a senior member of the LDP, and who had shared many of that party’s more unpleasant traditions. He was forced out by an election-funding scandal and the new leader, Yukio Hatoyama, is a milder personality, and a person who appears to offer a genuine alternative.

In his acceptance speech Monday, Hatoyama emphasized “sweeping away wasteful uses of tax money” and “moving from [a] bureaucrat-led to [a] citizen-led government.” He also denounced “amakudari” – the “descent-from-heaven” process by which top bureaucrats become powerful private-sector oligarchs.

The DPJ is an amalgam of LDP rebels and moderate members of the old Japan Socialist Party, and its basic philosophy has a plank of opposing “bureaucrat-led protectionism.” It is currently leading in the opinion polls, and with Hatoyama as its leader may well appeal to the Japanese longings embodied by “Bubble Fiction.”

All of this gives the DPJ a good chance of succeeding in the Diet elections, which must be held by Sept. 6, meaning Hatoyama & Co. would form the next Japanese government.

If Hatoyama does, indeed, clean out the bureaucratic deadwood and cut public spending – while at the same time restraining those on his left who will want more-extensive social programs – he will have an excellent chance of bringing the Japanese economy out of its 20-year downturn and restoring it to its former glorious technology-led growth.

That would cause a huge rebound in the Tokyo stock market, from which we should be poised to profit.

A lot can go wrong. But at current levels, the Nikkei 225 surely cannot go much lower, and Hatoyama now appears to offer a chance of restoring 1990, or at least the early 1980s, when the Japanese market was the best investment in the world. It must be worth a modest investment in the largest Japan ETF, the iShares MSCI Japan index (NYSE: EWJ).

At current levels, EWJ is sporting a Price/Earnings (P/E) ratio of 17, but that’s based on earnings in the recession – before the Time Machine takes off!

In Spite of a Grim Economic Outlook, Japan is a Promising Investment Play

The dollar was sharply lower against other major currencies Thursday in the wake of the U.S. Federal Reserve’s decision to aggressively pump liquidity into the financial system, but it was above session lows in late trading according to a MarketWatch report.

“The aggressive U.S. dollar sell-off came to an end following a last hurrah in early North American trading. Euro/dollar had rallied almost 5% in less than 24 hours following the Fed’s decision to embark on aggressive quantitative easing,” said Matthew Strauss, senior currency strategist at RBC Capital Markets.

The dollar had plunged Wednesday, after the Fed’s announcement that it would buy $300 billion worth of U.S. government debt in coming months.

“For the dollar, the sentiment shift came hard and fast, and it came at a time when the buck already looked due for a rest, technically speaking,” said John Ross Crooks of Black Swan Capital, an independent currency advisory and trading firm.

Stephen Gallo, head of market analysis at Schneider Foreign Exchange, said the move doesn’t necessarily spell the end of the dollar’s ability to rise on economic and financial turmoil. But he added that it does mark the start of a more level “playing field,” now that the Fed has joined the Bank of England, the Bank of Japan and other central banks in monetizing debt.

“We feel that the period of aggressive dollar strength is quickly coming to an end, but it doesn’t mean that the positive correlation between the dollar and risk aversion is no longer in play — although it will be interesting to see in future sessions just how much the dollar strengthens when equity markets slide,” Gallo said in a research note.

On the economic front, more bad news.

The number of people collecting state unemployment benefits jumped by 185,000 to a record seasonally adjusted 5.47 million in the week ending March 7, while new claims dipped by 12,000 to 646,000 in the week ending March 14, the Labor Department reported Thursday. The 185,000 weekly increase in continuing claims was the second largest in the past year.

Source: Dollar Continues To Fall

Unless we see a big bounce today, the yen will end the day with the first weekly loss vs. the US$ in two months. With a majority of markets closed, most news stories centered around the Japanese yen. Japanese industrial production fell the most in 55 years as reported on Wednesday. Factory output plunged 8.1% from October, more than 6.8% estimated by economists. Other data released in Japan showed the jobless rate climbed to 3.9% from 3.7%, and household spending slid .5%, a ninth drop.

Markets are now counting on the Bank of Japan to follow the FOMC’s lead and begin ‘quantitative easing’. Bank of Japan policy board member Hidetoshi Kamezaki said policy members would consider ‘extraordinary steps’ to help the economy. Japan’s central bank already countered the drop in US interest rates with a drop of their own, and again have the industrialized world’s lowest interest rates. Now they will turn to other means designed to pump liquidity into the financial markets. Kamezaki told reporters that the bank’s next policy steps should focus on improving funding for companies and influencing long-term borrowing costs. The bank will likely start buying corporate bonds and could actually go into the equity markets purchasing stocks to support Japanese industry.

If Japanese policy makers do adopt aggressive quantitative easing, the yen could see a fall in value. These measures pump large amounts of cash into the markets, and the laws of supply and demand tell me that these tremendous increases in money supply will eventually drive down the value of the currencies. The values of both the yen and the dollar will be challenged by these ‘quantitative easing’ measures over the next few years.

But some in the Japanese administration want a more cautious approach. Prime Minister Taro Aso has yet to implement two announced stimulus packages. He believes the Asian economies are better positioned than those of the west to endure the global recession. Instead of using all of their ammunition at once, the Prime Minister wants to take a more gradual approach to combating the economic slowdown.

One thing helping Japan weather the economic downturn is the falling price of crude oil. Since hitting a high of 147.27 on July 10 of this year, the price of oil has fallen 75%. OPEC has cut production in an attempt to slow the drop, but these announced cuts have yet to have an impact on crude prices.

The lower oil prices have kept a lid on global inflation, and several countries are taking advantage of these lower numbers to bring their interest rates down. India’s inflation slowed to a nine month low, with wholesale prices increasing 6.61% from a year earlier, down from 6.84% the prior week. Inflation in India has fallen below the central bank’s target of 7% largely due to lower fuel costs. I would expect India to continue cutting rates, which could reverse some of the rupees recent gains.

But the fall in oil prices haven’t helped all economies. Russia’s central bank devalued the ruble for the third time in a week, sending the currency to its lowest level against the dollar in two years. The Norwegian krone had also fallen as oil retreated from its highs. But the recent dollar weakness has steadied the krone, and it has been trading in a fairly tight range vs. the US$.

No data will be released in the US today, and the markets will likely be very light. Most will be heading out to the malls to try and take advantage of all of the year end closeout sales. Retailers have been dropping prices dramatically to try and salvage a tough holiday shopping season. US retail sales fell between 6 and 8% this season according to predictions by the credit card companies. This was one of the most challenging holiday seasons on record, and with a falling US economy, I would expect next year’s to be even worse.

The dollar strength we saw during 2008 will not spill over to 2009. I would think the recent dollar weakness will be the rule for next year, as the tremendous increase in money supply here in the US will help drive the value of the dollar lower. On that note I will move on to the currency scorecard:

Currencies today 12/26/08: A$ .6851, kiwi .5765, C$ .8209, euro 1.4097, sterling 1.4747, Swiss .9321, ISK 145, rand 9.74, krone 7.1259, SEK 8.022, forint 189.79, zloty 2.9163, koruna 18.728, yen 90.43, baht 34.99, sing 1.4469, HKD 7.75, INR 48.4437, China 6.8413, pesos 13.3125, BRL 2.3764, dollar index 81.214, Oil $36.37, Silver $10.38, and Gold… $848.55

Source: It’s All About the Yen

GDP is expected to have fallen .5% in the 3rd quarter, and Personal Consumption is also predicted to have dropped last quarter. Later in the morning we will get reports on the sagging housing market. New home sales and existing home sales are both expected to have dropped slightly during the month of November. And with sales dropping, prices of both existing homes and new homes are also expected to have dropped. Finally, this afternoon we will get the ABC Consumer Confidence number which will likely show another drop in consumer sentiment.

I went over to a shopping center last night while I waited for my son’s hockey practice to end. I was surprised at the number of shoppers in the Electronics store, but after speaking with a sales person, he told me the traffic has been down, with many shoppers waiting for items to go on sale after the holiday. Most retailers make their year during these last two weeks of December, and it will be interesting to see just how many sales we will see post Christmas.

The Japanese yen has been in the news again, as Toyota Motor Corp. forecast its first operating loss in 71 years yesterday. The worlds second largest automaker said the sagging global economy and a rising yen were to blame. Japanese officials have not yet decided to intervene, but a quick move below 90 by the yen could trigger action by the central bank. Bank of Japan Governor Masaaki Shirakawa was trying to jawbone the yen yesterday as he spoke about the negative effect the strong yen has on the economy. The thin holiday markets give officials a perfect opportunity to drive the yen back down.

New Zealand’s dollar fell for another day as a report showed their economy shrank. New Zealand’s gross domestic product declined .4% in the three months ended Sept. 30 from the 2nd quarter. A further move down in NZD interest rates will likely combine with the slower economic growth to put further selling pressure on the kiwi. New Zealand central bank Governor Alan Bollard has been aggressively cutting rates to try and avoid the deepening recession. He has cut 3.25% since July, and has indicated that there is still room left to cut further.

In a split with their kissin cousin across the Tasman, Australia’s currency advanced against the US$. The Aussie dollar rallied as some of the base commodity prices rallied. Copper rose yesterday in New York trading as traders predicted the drop in Chinese interest rates will keep the largest Asian market growing. Gold futures also rose overnight, helping to support the Australian dollar. Raw material exports make up 60% of Australians economy, and China is their biggest trading partner. I believe the Chinese government will be successful in keeping economic growth right around their target of 8%, and this growth will support the Australian dollar.

The Indian rupee fell further against the US$ yesterday, and will likely end up the year as the worst performing Asian currency. But Moody’s Economy.com is predicting the currency will be the region’s biggest gainer during 2009. “India’s rupee is one of my top picks as the country has a strong domestic market with very strong growth potential,” Moody’s Sherman Chan said in an interview yesterday. “It is one of the most attractive destinations for foreign direct investments with its large domestic market and a very well educated workforce.” He expects the currency to rise 7.7 percent against the dollar next year. But much of this rise will occur during the last half of the year, and Chan said the rupee could get weaker before starting its move up.

Moody’s Chan also said he thinks the Chinese Renminbi will be ‘largely stable’ as authorities seek to protect exporters while avoiding upsetting trade partners. I agree with his assessment, and believe the Chinese Renminbi will continue its long slow appreciation through 2009.

As I wrap this up, I want to remind everyone to take advantage of this pause in market volatility to take a look at your portfolios. It is a perfect time to reallocate your positions to align them with your investment goals. The big moves in the markets have probably caused most portfolios to become over allocated in some currencies such as the Renminbi and Yen, and under allocated in commodity currencies of Australia or Norway. You can contact the trade desk and have one of our specialists review your holdings. While we can’t manage accounts, they will be more than happy to share their opinions with you.

Currencies today 12/23/08: A$ .6840, kiwi .5723, C$ .8219, euro 1.4007, sterling 1.4832, Swiss .9223, ISK 145, rand 9.7375, krone 6.9865, SEK 7.8310, forint 189.08, zloty 2.9429, koruna 18.8077, yen 90.06, baht 34.60, sing 1.443, HKD 7.75, INR 48.7625, China 6.8488, pesos 13.18, BRL 2.3755, dollar index 80.966, Oil $40.16, Silver $10.76, and Gold… $845.25

Source: Holiday Pause

Good day…and welcome to another week, hopefully the currency markets can continue their assault on the dollar which began a few weeks ago. The dollar index peaked back on November 21, and with the exception of a few days around the beginning of December, the greenback has consistently fallen vs. most of the major currencies. Friday was no exception, and the dollar continued to give back gains over the weekend with the Euro climbing back over $1.35 for the first time in two months.

This morning the markets are focusing on the Fed’s Open Market Committee meeting and rate announcement which will come tomorrow. It is widely expected that Bernanke and his compatriots will push US interest rates close to just 0.5%, the lowest on records dating back to July 1954. From everything I’ve read over the weekend, this 50 basis point cut is pretty much a done deal, and currency traders are actually more interested in what the Fed’s statement will say about ‘alternative easing measures’. The rate announcement will come tomorrow at around 2:15 pm EST after a two day meeting. The FOMC meeting had originally been scheduled for just one day, but was extended so policy makers could study options for unusual steps to spur the economy. I guess they finally figured out that they are running out of room with the interest rate cuts!

The Feds newest weapon against the falling economy is ‘quantitative easing’, which the Bank of Japan used in the 1990’s. This non-traditional method of easing centers around pumping money back into the financial markets as quickly as possible. The Fed has already started down this path by allowing its balance sheet to more than double in size after pumping over $1 trillion into financial markets. The markets are now expecting the Fed to announce it will start purchasing private sector mortgages to drive down home loan costs. By purchasing these bonds, the Fed would narrow the spread between their yields and yields on US Treasuries, and theoretically allowing banks to offer home loans at lower rates.

But the Fed has already pumped trillions into the banks in an effort to get them to start lending, so I’m not sure having the Fed narrow mortgage spreads will get these same banks to open up their lending windows. And even if the banks lower mortgage rates, they won’t be lowering credit standards. Unemployment continues to rocket upward as more and more firms lay off workers. Do you think these banks are going to be willing to refinance someone who has just lost their job?

And what will be the long term impact of all of this ‘quantitative easing’? The Fed is mashing on the money supply accelerator, totally ignoring the inflationary results which all of this will bring down the road. Ben Bernanke is smart enough to know the risks of the path he is speeding down, but right now he is choosing to ignore the consequences in an attempt to keep the economy from falling off the abyss. Some at the Fed believe they will be able to pull all of this added liquidity back out of the markets as soon as the economy starts to recover. But this is a very difficult thing to do, as the Fed would have to start pulling liquidity and increasing rates just as the economy is starting to turn. I think it is pretty obvious the ‘experts’ have a tough time calling the turning points, as it took them almost a year to call the recession!! And the consequence of missing the timing on pulling the liquidity back out of the market is much more drastic than mistiming the entry into the recession. Hyperinflation is waiting on the other side of this short term deflationary pause, and the Fed is currently looking the other way.

This weekend, President Bush announced that he is thinking about spending some of the TARP money which was set aside to stabilize the financial system to bail out the auto industry. This announcement caused a further sell off of the dollar as it is quickly losing its status as a safe-haven currency. Chuck was busy this weekend, but still found time to send me his thoughts:

“Well… We went to cut down our tree today, then watched Alex’s basketball team get smoked! Put the tree up in a spiffy, with one of the greatest inventions of man kind, the swivel stand… And now I’m off to tell you what I’ve read about this weekend…

First though… A quote from Ronald Reagan… “The most terrifying words in the English language are: I’m from the government and I’m here to help”

OK, with that in mind, I wanted to discuss the bailout for the automakers, GM and Chrysler.

First of all, I know it will be tough for the autoworkers should they be laid off, especially at this time of the year. But, the problem here is the fact that the automakers have run their respective companies very badly, and now they expect the taxpayer to bail them out.

It was reported on Friday that the Gov’t is “looking into” using TARP money for the automakers bailout since the Senate voted “no” to the $14 Billion plan.

First of all… Congress said nothing about helping carmakers, or any other non-financial business, in October when it authorized the $700 billion Troubled Asset Relief Program, or TARP. But yet, it is being discussed as the “funding source of funds”…

That fund was never designed to rescue manufacturing companies with long-term operational issues. It was designed to shore up confidence in the banking system in order to thaw the world’s credit markets.

Our own David Nicklaus of the St. Louis Post Dispatch has this to say, which makes a whole lot of sense to me! “The Detroit Three have been losing market share for decades, and their bloated cost structure makes it difficult for them to turn a profit even in good times. They have too much debt, too many models, too many dealers and, sad to say, too many workers.

Congress seemed to view an auto bailout as a jobs program, and TARP is nothing of the sort. In fact, the Treasury has invested in Bank of America, which is eliminating 35,000 jobs, and Citigroup, which is slashing 52,000.

The Treasury program, as it’s been used so far, at least lacks one of the worst features of the failed auto bill. Nothing in the TARP legislation allows the government to name a car czar.”

Yes, a Car Czar… Those Czars worked out well for the Russians, eh?

But the thing that really gets my blood boiling folks, is the fact that if bailout had gone through with the Car Czar, it would have been one more nail in the free markets / business coffin, just another opportunity for those that want to run the country toward the socialist side of the ledger…”

That is one of the things I love about Chuck, you don’t ever have to wonder where he stands on something!

As I started to say before I went off on my FOMC tangent, the dollar continued to give back ground vs. just about all of the major currencies over the weekend. The Euro was up over 1.2% vs. the dollar, and broke through the $1.35 handle. The only two currencies which sold off over the weekend were the South African rand and Brazilian real, which were down just slightly. In addition to the FOMC meeting and announcement, we will get the TIC flows, Empire manufacturing number, Industrial Production, and Capacity Utilization numbers today. Tomorrow will bring the CPI numbers along with housing starts, building permits, and ABC Consumer confidence. Wednesday will be a light data day with just the Current Account Balance reported, and Thursday will close out the data with the weekly jobs numbers along with Leading indicators.

The Australian and New Zealand dollars rose on speculation the FOMC will be cutting US interest rates. These two currencies will benefit from their higher rates with the US cutting rates to near zero. The currency markets have started to move back toward trading on fundamentals over the past few weeks, and interest rate differentials are one fundamental which favors the NZD and AUD. If the Fed’s statement makes it known that interest rates will remain low for a long time, the dollar would likely fall further vs. the Aussie dollar, as the RBA has signaled that it is close to the end of its rate cutting cycle. Benchmark rates are nearly 400 basis points higher in Australia and New Zealand when compared with the same rates here in the US.

In a break with the recent trading pattern, the Japanese yen rallied along with the New Zealand and Australian dollars. A former Deputy Governor of the BOJ said Japan is probably not going to lower rates further; “with the interest rate already so low, a further reduction would have only limited impact.” The central bank’s Tankan survey today showed confidence among large manufacturers fell the most in 34 years as a deepening global financial crisis crimped export demand, forcing companies to pare production and fire workers. The yen’s recent surge to a 13 year high has compounded woes for manufacturers.

Gold continued to rise over the weekend, pushing back up to an eight week high in London. The dollar’s fall has spurred investors to move back into gold as an alternative investment. News that President Bush was looking to tap the bank bailout fund to keep GM and Chrysler out of bankruptcy spurred further purchases of gold. With the tremendous growth in the US money supply, and the FOMC turning their back on inflation concerns, precious metals should continue to gain ground. Gold is traditionally one of the best hedges against rising inflation.

Currencies today 12/15/08: A$ .6635, kiwi .5523, C$ .8138, euro 1.3473, sterling 1.4969, Swiss .8534, ISK 218, rand 10.1985 krone 6.9051, SEK 7.9963, forint 197.97, zloty 2.9644, koruna 19.428, yen 90.79, baht 34.88, sing 1.4773, HKD 7.75, INR 48.0512, China 6.85, pesos 13.5138, BRL 2.387, dollar index 83.15, Oil $48.52, Silver $10.36, and Gold… $827.60

Source: Waiting on the FOMC Meeting

The dollar slipped to a two-week low against the euro while the yen fell broadly on Wednesday as a tentative agreement by U.S. lawmakers to rescue American automakers helped calm investor sentiment.

The White House and congressional Democrats reached a deal in principle on a $15 billion plan to bail out and restructure auto firms, with officials saying the House of Representatives could vote on it as early as Wednesday.

“The market is still feeding off hopes for mass fiscal stimulus in the U.S. once (President-elect Barack) Obama takes office,” said Stephen Malyon, chief currency strategist at Scotia Capital in Toronto.

Specific to the auto bailout, “in so far as how it is boosting equities, that is important for the foreign exchange market.”

U.S. stock futures rose on Wednesday, a sign of rising risk tolerance, due to bailout hopes. That led to an easing of the move to unwind carry trades, which use the yen — whose interest rate is near zero — to fund purchases of higher-yielding assets.

In early New York trade, the euro edged up 0.3 percent to $1.2948, having earlier hit a two-week high of $1.3004, according to Reuters data.

The dollar rose 0.7 percent to 92.78 yen , while the euro gained 1.1 percent to 120.28 yen. The yen was down 1.2 percent against the Canadian dollar , 0.7 percent against the Swiss franc and 1.1 percent against the pound , according to Reuters data.

Analysts said fears of Bank of Japan intervention to prevent too much yen strength also weighed on the currency after BoJ Governor Masaaki Shirakawa said on Wednesday he was watching forex moves carefully.

But few expected action any time soon.

“A comment from BoJ Governor Shirakawa that the Ministry of Finance has the option of intervening was a statement of fact to lawmakers rather than a hint that intervention is imminent,” said Brown Brothers Harriman in a note to clients.

Analysts said trading in recent days is less active than usual with little economic data to drive market moves and investors beginning to wind down for the year-end holidays.

“We’re seeing subdued days in foreign exchange markets,” said Scotia’s Malyon. “We are also in a week where there is not a lot of direction.”

US BAILOUT IN FOCUS

Analysts believe the falls in the yen are likely to be short-lived as global recession fears keep risk aversion high.

The prospect of interest rates in other developed countries falling towards the low rates in Japan will also keep the Japanese currency supported, they said.

Traders waited to see whether the House of Representatives would approve the automaker bailout, which includes conditions to provide low-interest loans to avert a threatened industry collapse if one of the three U.S. auto firms were to fail.

Some market participants are sceptical on whether such a plan, if passed, would actually save the struggling auto sector, while others argue that it would ultimately do little to cure the global recession.

“The market may yet reach a stage where interest in risk assets cannot be justified by the underlying conditions in the global economy,” analysts at UBS said in a research note.

Nick Olivari
NEW YORK, Dec 10 (Reuters)

Platinum sank to $760, below the price of gold, in the far East, but rallied from there to a mid-morning high above $820, before finally subsiding to end at $790/oz., down $35. Overnight, platinum is sharply higher.

Silver was the day’s big winner, taking off at the same time as gold and pushing as high as $10.15 before falling back below $10 around noon and trading sideways from there into a close at $9.89/oz., up 70 cents. Overnight, silver has pushed higher. (Click here for charts)

Gold had a solid day yesterday, with silver soaring while platinum continued to bring up the rear. Something of a tailwind was provided by a dollar that slid against the euro and rising oil prices.

The Fed’s rate cut seemed to have little general effect, perhaps because it is widely expected that the European Central Bank, the Bank of England, and possibly even the Bank of Japan will follow suit with rate cuts of their own in the near future.

The Hightower Report wrote of silver’s breakout day: “The silver market mounted a fairly impressive recovery bounce which some players might have attributed to technical short covering. However, with the stock market at times Wednesday adding to the gains from the prior trading session, it would seem like some of the severe deflationary environment was lifting and that in turn helped a number of physical commodity markets like silver rally. It is also likely that strength in gold and copper gave the silver bulls additional confidence during the trade today. Even a slight correction in the stock market after the FOMC rate cut decision failed to severely dent the strength in silver prices.”

As gold rallies, analysts are wondering whether the tipping point is in sight.

“Some are beginning to extrapolate the medium- to long-term consequences of central-bank monetary creation,” said Jeffrey Nichols, of American Precious Metals Advisors. “The flashing lights that they are seeing ahead are the lights of inflation and currency depreciation,” developments which will inevitably push gold higher.

And James Moore, of TheBullionDesk.com, notes that “with the fact gold is considerably lower than at the start of the year and investors may look to further diversify their asset holdings, may allow gold to begin recouping some of its losses.”

Source: Gold rises, platinum falls to near parity -  Silver has a blast-off day

So… The euro reached a new record high overnight of 1.6038! WOW! This was reached based on the fears that credit problems in the U.S. are going to put the kyboshes on what little economic growth we now have. But the shine on the euro was rubbed out by a very weak ZEW… German Investor Confidence as measured by the think tank, ZEW, fell to a record low this month on the surging inflation problems, and rising interest rates. So for now, the euro is back below 1.60, but hear me now and listen to me later… This ZEW will soon be in the rear view mirror, and the euro won’t have that albatross around its neck as it revisits its overnight high…

And don’t look now, but the Aussie dollar is up to 98-cents! WOW! I’ve said for about 8 months that I wouldn’t be surprised to see the A$ at parity to the green/peachback… It certainly has that parity look about it does it not? The last time the A$ was 98-cents was 1983… 25-years ago… 1/4 of a century, and all that!

The U.K. pound sterling is back to $2, which seems totally unlikely an event as possible, but it has happened, so, go on and crow if you thought I was wrong to say the pound was going to have problems once the Bank of England (BOE) started its rate cut cycle…

And the Canadian dollar / loonie has crept back to parity! It’s been a long, time coming… It’s going to be a long, time gone… (a little CSNY)…

And, the poor, downtrodden, Japanese yen, is at the bottom of the 105 handle, and looking like it wants to trade with a 104 next to it! I had to laugh at a story I saw flash across the screen… The title was… “Yen may gain as Bank of Japan (BOJ) is more likely to raise rates than the Fed”. Now that’s funny! Ok, stay with me on this… A month ago, the dollar was getting bought like Pet Rocks because Fed Chairman, Big Ben Bernanke hinted that he was going to be an inflation fighter, thus interest rates would go higher… But here we are a month later, there’s been no sign of Big Ben the inflation fighter, and now it’s deemed that the BOJ could raise rates before the Fed!

And the dollar bulls wonder why their currency is getting sold like funnel cakes at a state fair? Why don’t the dollar bulls give Big Ben a call on the telly, and see if he can’t help them out? Oh… That’s right, Big Ben doesn’t take calls from just anyone… According to our friend, Jim Rogers, on his Bloomberg TV interview yesterday morning… “Ben Bernanke and Paulson only take calls from their Wall Street Buddies”… HA!

Speaking of Jim Rogers… He was full of you know what and vinegar yesterday morning… He didn’t pull any punches and said what was on his mind… You should have seen me here at the trading desk, Jim Rogers would say something, and I would clap and hoot and holler! At one point, Rogers said that the Gov’t’s plan to rescue Freddie and Fannie was “an unmitigated disaster”…

So… Remember early in the year when I kept telling you that there would be another “risk event” this year, and then we had the Bear Stearns meltdown, but that wasn’t it for the “risk events” , and I kept harping that there would be more? Well… It’s not like I was wishing, and hoping and thinkin’ and praying for these things to happen… I was simply pointing out that the world today has too many “risk events” all over, and with the credit woes in the U.S. and the housing and mortgage meltdowns, I just figure it would touch here a few times.

Anyway… What I’m trying to get at here is simply that these are the things I kept telling people to protect themselves from by diversifying into currencies and precious metals… I also, recall, the wink, wink, I gave you when Gold was trading below $900 about a month ago… Today, Gold is $983!

OK, enough with all the “I told you so” talk! Let’s talk about today… Well, today has “risk” written all over it! Big Ben goes to the “hill” to talk to lawmakers about the economy and Fed direction… You have to think that before the Meltdown last week of Freddie and Fannie (see more talk about them, I just can’t leave them on the side of the road!), that Big Ben would go to the “hill” and talk the inflation fighter talk… But now… Not now… Not with the financial sector in meltdown mode… So this is a double-edged sword… If he doesn’t go and sound hawkish, then the markets will take that as no rate hike is coming and take the dollar to the woodshed again… (you would think by now that the dollar would have gotten used to these beatings!)

Besides Big Ben, we get a ton-o-data today… PPI for June… Retail Sales for June… And Business Inventories for May… Retail Sales is the Big Kahuna of data today… And I would think that given the tax rebate checks that were still being mailed in June, Retail Sales would remain somewhat robust… Wait till July’s number, I saw all the shopping bags from my beautiful bride’s trip to Chicago this morning! But that’s for next month! For now, PPI poses a treat to future Consumer inflation, so this one plays big too…

If any of this stuff comes in worse than expected, we could see the dollar not only get taken to the woodshed, but told to go pick the switch that it will get beaten with.

Source: Credit Woes Sink The Dollar!

My wife’s family has been coming here for centuries, making it a familiar and comfortable place that we enjoy very much.

It’s also a spot that tends to put things into perspective – like the Bank of Japan’s recent decision to keep its key interest rate at 0.5%.

So why is this move by Japan’s central bank important? That’s easy.

We’ve been hearing for years how the Japanese economy is poised for a recovery. And each New Year is supposed to be “the” year – yet it just somehow never seems to happen – at least according to folks who don’t spend as much time here as I do.

Sure Japan went to hell and back during the “Lost Decade” that stretched from 1990 – 2000, but this country’s economy is recovering – even if the securities markets don’t yet reflect this: They’re up only marginally so far this year.

But that speaks volumes about what investors should expect when thinking about Japan. For instance, the beautiful young elevator ladies who used to grace Japan’s top department stores have vanished. Yet, individual customer service remains better than ever.

Many of the so-called boutique shops have also faded into the sunset. But those shops have been replaced by multi-sale retailers and Internet shops, all of which are going great guns.

This suggests companies are becoming more cash sensitive even as they’re becoming more aggressive. So are Japanese consumers. It’s a trend that’s moving Japan along quietly, if steadily.

But what’s really interesting to me after having spent 20 years in and out of Japan is the number of students who now are studying Chinese, as well as English.

Like the Japanese companies and consumers that are driving the “stealth recovery” here, students who want to get ahead are doing all they can to learn more about their neighbor, including the language.

They understand that they have to look beyond the labels that say “Made in China,” and consider the growing Chinese consumer class – especially China’s emerging middle class, which is already 325 million strong.

While some experts claim that the two nations, Japan and China, will never be friends because of World War II era animosity, those with a far longer perspective acknowledge that the two actually were very close – centuries ago. Much of Japan’s writing system, religious roots and even early architecture came directly from China’s royal courts more than 1000 years ago.

The two nations will be close again.

The best way investors can capitalize on this eventuality is not to buy the broader Japanese indices. Those will merely pick up the has-beens, wannabes and never-wases. It’s far better to concentrate on those companies that are already working closely with China.

The companies in this category firmly understand the regional dynamics at play today. But, more importantly, they understand just what the future is going to look like, and are already preparing for business dealings with China – and the Chinese consumer.

Some great choices if you want to cash in include solar-ceramics maker Kyocera Corp. (ADR: KYO), trading giant and independent power plant developer Mitsui & Co. Ltd. (ADR: MITSY), and even Toyota Motor Co. (ADR: TM), which is now the world’s No. 1 automaker, and (as Money Morning just reported) also has branched out into commercial jetliners.

Since I’m scheduled to head back down the mountain shortly, I’m going to close this out (yes, for those of you who are wondering, I really am writing on my laptop thousands of feet above Kyoto) so that I can check in on the summit between Chinese President Hu Jintao and Japanese Prime Minister Yauo Fukuda.

It’s the first visit by a Chinese head of state in a decade.

I’ll have more to say about that visit in the days to come. And I’ll be returning to the United States fairly soon, too. I’ll keep you posted.

Source: Japan’s ‘Lost Decade’ Has Given Way to the New Asian Reality

As you likely know, my major theme for 2008 is bailouts . So far, so bad. I think the boys at the non-Federal non-Reserve have been hitting the peyote. Everything can be patched up by simply issuing more tonnages of green paper. Especially if you claim a bit of blue blood.

It wasn’t too long ago that Japan’s bubble burst from their 1980’s excesses. Remember when fear was rampant that the rich Japanese were going to buy up the world? Remember when their real estate was chokingly overpriced?

Quite predictably, the Bank of Japan responded to the bust by lowering interest rates in the early 1990’s. As you can see in the following chart they even held them at 0% throughout much of this decade.

Deflation tends to scare the fully loaded crap out of central planners. Even negative interest rates are possible. The motto is “please borrow and spend!” Otherwise, the whole system gets flushed.

This didn’t sit too well with traditional Japanese. They are thrifty savers. They tend to function just fine without Suburbans, spa treatments and vacation homes. You can make cheap or free money available but someone has to accept the loan. The Japanese didn’t take the bait.

A two-decade long deflation was the result. The Bank of Japan was completely impotent in their attempts to re-inflate and get the Japanese economy back on track.

Now it’s the US’s turn to stave off deflation. Sequential bubbles of tech stocks and real estate have seriously damaged the economy. By the way, the Fed caused these bubbles in the first place. They are now attempting to create a new credit expansion. They are a one trick pony. There is no Paul Volker and no dollar rescuing rate increases in sight.

US interest rates are now trending towards zippo. Is a 0% Fed Funds rate in the cards? I wouldn’t rule it out. Speculators are frothing at the mouth in anticipation of free funding.

Low interest rates are not what wring out excesses. Low interest rates are designed to keep the NY financial orgy going. Party on, Garth!

They still haven’t worked in the Japanese culture. Japan has yet to recover in a significant way. Will Americans take the low interest rate bait?

“Oh, hell yes, Baby, bring em on! You talkin’ free money? That’s a good thang, no?”

The US culture is saturated with the motive of instant gratification. Don’t expect many to turn up their noses at the Fed’s desperate offers. We will borrow and we will spend. There will be no lost decades around here.

In fact, I predict that a major trend will take place in the US real estate market in the coming decades. The reverse mortgage phenomenon will become a craze. My fellow Boomers will try to time their last breaths with their last home dividends. Is Doc Kervorkian still in business?

Invest Resourcefully,

Rusty

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