Phoenix Capital Research's blog

If this plan fails to bring about economic growth in Japan, or worse still fails to bring about growth and unleashes inflation, then it’s GAME OVER for Central Bankers. Their one great claim “we’re not doing enough QE” will have been proven to be total bunk.

If Japan’s bond market implodes, then global Central Bank efforts to hold the system together will have proven a failure.

So much for the “recovery” theory. If you look at the real economy, things are getting worse and worse. When even Wal-Mart reports that people are spending less (remember that corporate email that February sales were a “disaster”?) you KNOW things are bad.

Bill Gross, who manages the world’s largest bond fund, has indicated that the 30+ year old super cycle bull market in bonds has ended. This is very bad news for the markets.

Investors, take note… stocks are always the last to “get it.” This bubble will end as all bubbles do: in disaster.

The market is beyond overstretched. We have not had a 5% correction in six months. Stocks have gone almost straight up for 89 days (we haven’t had a 3+day correction in that long).  This is an all time record. The last time stocks rallied without a 3+ day correction was in the buildup to the Crash of 1987.

The Fed knows this and is now trying to prepare the market for withdrawal. But the market is on total life support from the Fed. Take away the Fed punchbowl and the party stops.

There is a term for when asset prices become detached from fundamentals, it’s called “A BUBBLE.”

Japan should serve as a lesson to central planners around the world. Japan’s stock market/ real estate bubble burst in the early ‘90s. Since that time Japan has launched NINE QE efforts equal to roughly 25% of its GDP. And GDP growth has worsened despite these efforts from 2% to 1%. Ditto for employment.

When this bubble bursts, interest rates will already be at zero and the Fed’s balance sheet swollen with garbage debts. The Fed and other Central Banks WON’T have the usual tools available to save the day.

The market is beyond overstretched at this point on a short-term, intermediate term, and long-term basis. The sheer number of warning signals is staggering.

This is how companies deal with economic contractions. They don’t start laying people off en masse… they start cutting work hours bit by bit. The mass layoffs don’t come until the official numbers announce that we’re in a full-blown recession.

The biggest problem with the financial system is that of bad measurement. Without accurate data, no analyst can make sound investment judgments. Unfortunately for all of us, the data is gimmicked to the point that nothing is valid any longer.

There is not one single example in history in which QE has successfully created jobs. The UK has engaged in QE equal to over 20% of its GDP and hasn’t seen a real recovery in employment. Similarly, Japan has employed QE equal to nearly 25% of its GDP and GDP growth continues to slow while unemployment stays elevated.