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"Most Important Chart For Investors" Updated: Edwards Sees USDJPY 145 Next And "A Tidal Wave Of Deflation Westward"
Less than two months ago, Albert Edwards presented "The Most Important Chart For Investors" in which he predicted, correctly, that the real action will come not in the Euro but the Japanese Yen, and at a time when the USDJPY was trading around 108, Edwards forecast a sharp move to 120. A month later, Abe's just as shocking "all in" bet on boosting QE to a level where it matches the Fed's peak monthly POMO despite an economy that is a third the size of the US, proved Edwards correct and has since sent the USDJPY some 800 pips higher and just 400 pips shy of Edwards' 120 forecast. At this rate, the 120 target may be taken out within weeks not months.
So what happens next? Here, straight from the horse's mouth that got the first part of the rapid Yen devaluation so right, is the answer. As Edwards updates with a note from this morning, "the yen is set to follow the US dollar DXY trade-weighted index by crashing through multi-decade resistance - around ¥120. It seems entirely plausible to me that once we break ¥120, we could see a very quick ¥25 move to ¥145, forcing commensurate devaluations across the whole Asian region and sending a tidal wave of deflation westwards."
Edwards, never one to beat around the bush, slams strategists who are at best willing to get the direction of a given move, if not the magnitude. So he will be the outlier:
... in the foreign exchange (FX) world, extreme volatility is often readily apparent but seldom ever predicted. We explained recently that investors were overly focusing on the euro/US$ when a further round of Japanese QE would make the yen the dominant currency story. I expect the key ¥120/$ support level to be broken soon and the lows of June 2007 (¥124) and Feb 2002 (¥135) to be rapidly taken out. If you want a target to reflect historic volatility, think about the Y145 low of August 1998 (see chart). That is my Q1 forecast.
In other words, just over 4 months until the USDJPY is devalued by 25%. And pundits lament the move in the Russian ruble...
Continuing Edwards' technical analysis, in addition to USDJPY 145, his other forecast is for the EURJPY to soar to 170!
With the yen about to fall below the recent low of January this year of ¥145.70/?, the next stop in my view will be the July 08 low of ¥170 - another 20% rise in the euro on top of the 50% rise seen since Japan began devaluing at end-2012. South Korea is in a similar situation- i.e. close to deflation with an anaemic economy and practically no technical support between here and Y750/won- the 2007 low. These will be bone-crushing, deflation-inducing moves.
While such a move would be truly historic, Japan is now beyond the point of no return, and once it has engaged the afterburners it has to ride it out until the bitter end. It is here that the BOJ differs so much from the ECB:
The move to crank up the Japanese printing shouldn?'t have been a surprise. These guys at the BoJ, unlike the ECB, WILL do whatever it takes. Peter Tasker wrote in the Nikkei Asian Review that Kuroda?s tactics resemble the famous Ali/Foreman ?rumble in the jungle? exactly 40 years ago. His article, Kuroda Unchained, also explains why there is little domestic Japanese pushback on QE. Peter writes, “First, the claim that quantitative easing benefits only “bankers” and the rich is unlikely to gain much traction. In terms of the distribution of assets, Japan is a highly egalitarian society. According to a recent study by Credit Suisse Research Institute, the proportion of total wealth held by the top 10% was the second lowest in the 46 countries analysed. The 2014 Billionaire Census compiled by Wealth X and UBS indicates that there are more billionaires in Istanbul than there are in the whole of Japan.”
Which leads to the final question: how will everyone else responds? And respond they will: in a world in which global trade is neck deep in quicksand and sinking, the only recourse is beggaring they neighbor faster than they can beggar you. For now Japan is winning, but that will hardly remain the case.
For those who say the US simply won?t allow the yen to fall so rapidly, I would reply that Japan too won?t want to annoy the US too much, especially as they rely on the US military umbrella at a time of increasing friction with China in the South China Sea. Nevertheless I simply think Japan will lose control of the situation given the quantity of QE being spewed into the markets and unless the US, the eurozone, or indeed Korea, is prepared to come remotely close to Japan?s rate of QE, jawboning currency stability will do very little. But I do believe the yen devaluation will drag down other competing currencies in the Asian region, which brings us onto China. After a record 32 successive months of deflation at the producer price level, China has suffered as much PPI deflation over the past three years as it did in the immediate aftermath of the 1997 Asian crisis. Do investors really think China can cope with a devaluation of the yen from here? They simply can?t tolerate this and they won?t. They will devalue.
End result: Japan will unleash "a tidal wave of deflation westwards" at least until the Fed and its western peers respond in kind and return to doing what they all do best: printing money in hope of stimulating their own inflation and offseting the importing of Japan's deflation, which will also bring everyone back to square one, and will certainly be the end-game in the global currency wars.
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Deflation you say? Good thing I'm short silver.
Deflation is so depressing
Just had to say it..
That's not punny.
Here's how I see it going down.
Yen 125 Edge of normalcy. Japanese corporations become concerned. Some CFOs selling financial assets to raise hard currency or deferring repatriation.
Yen 140 BoJ openly intervenes buying Yen on open market.
Yen 150 Hot topic of public debate. Corporations moving more quickly to raise hard currency. Gold prices firm and begin to rise over stability concerns.
Yen 175 BoJ intervening regularly. Public debate heats up in Japan. World financial community concerned. Companies selling Japanese assets to raise hard currencies and holding currencies in over seas subsidiaries. Confidence in gov't waning.
Yen 190 Public widely concerned, Japanese equities now moving in line with currency, 10% off of peak. BoJ intervening heavily. BoJ discusses interest rate hikes to defend. FinMin blames US Fed for hiking US rates and publicly states Fed should refrain from further increases.
Yen 220 PM loses no confidence vote, opposition discusses austerity measures, inflationary recession begins, BoJ publicly jawbones hiking rates to defend. BoJ opens massive swap lines with Fed, ECB and BoC to handle currency flight. Gold rises sharply. Number of cars on road visibly reduced due to skyrocketing price of imported gasoline.
Yen 260 takes out all time low. Confidence in Yen as currency failing. Amid deepening concern over stability of banks and insurance cos, BoJ hikes rates over 5% to defend to Yen. JGBs begin trading at sharp discount. IMF discussing intervention.
Yen 295 New all time low. Equities down sharply 25% off highs. Recession deepens rapidly, gov't implements emergency measures to care for pensioners on fixed incomes, BoJ hikes rates to 10% to defend, Gov't bond auctions fail daily for a week. JGB's pricing in 15% implied haircut. IMF begins coordinating massive intervention in currency markets by CBs around the world.
Yen 240 Sanity takes hold in bond markets as BoJ hikes rates for third time to 14%. Japan into full blown depression as imported fuel runs into prices throughout the economy. Equities plunge now off 55% from highs. Corporations agree to continue to employ millions they would otherwise layoff due to slack demand. IMF coordinates combined CB efforts to stabilize Japanese banking and insurance companies to stem global contagion. US and ECB announce plans to backstop US and EZ insurance cos and banks holding large amounts of JGB's. US and EZ cut rates sharply to ward off recessionary pressures to no avail as world is plunged into deep recession.
mil8mil8, thank you, i look forward to watching your take to unfold.
You are a ZH member for 1 week 6 days. What are you going to do with your ZH avatar name when silver eventually reverses its decline?
Because eventually it will.
Make a new account?
"Eventually it will" - so you can see the future with 100% accuracy? Then you're probably short silver too and will buy it at the low.
So much certainty in that statement about the future.
Don't be a smug idiot. Nothing is a one way street, fool.
No need for name calling. Why so emotional over silver?
Silver is in a bear market following the bubble popping in 2011. Those are the facts.
Wrong.
Silver is tracking the real world GNP, much as copper did in the 1930's.
Not the BS figure being quted by all govt's, the real GDP.
The industrial demand, or lack thereof, is silvers weakness.
I used to hold some silver, until the unfortunate accident, but only for diversity, not from any
belief it would return as a monetary metal.
And you do realize that silver and copper collapsed in the 1930s.
"On a long enough timeline the survival rate for everyone drops to zero."
So much certainty in that statement as well.
I used the word 'eventually' because it does not denote a specific time. Since I expect most of my PM holdings to remain 'holdings' and not to trade the market with I don't need a specific time frame. Pull up a 50 year chart of silver and watch the bouncing ball.
Yes but we are talking about silver prices here, not the survival rate of people.
Ahh yes not putting a time constraint on predictions so that you can never be wrong... good luck with that.
Just hope that you are alive because 50 years is a long time and, as you say, on a long enough timeline the survival rate for everyone drops to zero.
What an asshole you are SSS. You know shit-all about silver or the silver market
How about some more certainty in your statement:
Being short (assuming now) means only that you believe silver will drop, but you didn't mention anything if you expect 10 cent or 10 dollars drop before you start to cover.
Without that you're just trolling.
By that time, all hell will break loose and it won't matter.
Anyone that payed attention will be making sure their supplies are hopefully enough.
That toilet bowl fiat swirl is rapidly becoming a hurricane.
Perhaps in plastic items. But not in food or energy.
Deflation in the things you want, inflation in the things you need.
Maybe someone can explain this whole "deflation from east to west" thing? Ok, so we get lower priced junk from China, but what about home prices? college costs? fuel? food? health care? electricity? movie tickets? etc... all those things I actually kind of need... where is it this deflation impacts me?
It depends how much of your income goes towards spending on imported goods vs. your domestic country's goods and services. The more you spend on imported goods, the less prices will rise for you.
Eventually we will see deflation in some of the markets you mentioned such as:
movie tickets, home prices, college costs. But that won't happen for a year or two after the shit hits the fan and the whole world market is disrupted. By then, people will either be focused on how to get their daily bread (if they are poor), or WWIII if you are well off.
And of course it will be the poor drafted (tricked) into fighting WWIII for the elites. History repeats itself again.
The US/west US dollar is and will continue to become more expensive compared to the Yen. This will make the cost of US goods more expensive in Japan which will force the Japanese to look inward for goods and services produced in Japan. This will hurt sales of US based multi-national businesses and create a domino effect all the way back to the states. Theoretically, and without government intervention, everything should be impacted. But, of course, the government will interfere and will decide who the winners and losers are, again. Maybe universities, government employees and large health insurers continue to be big winners? Only time will tell...
Buy a Walmart gift card and a tank of gas get a free kia
LOL.....best comment of the day.
Deflation. Hell ya.
Funny how that flows, no???
Two words.
Carry Trade
So if the Yen is pegged to gold as in a previous ZH article then we will see $900 gold.
Hope so. Give me a break. I was late to the party.
And massive deflation.
Good luck finding phyz at $900/oz.
that's what they said at gold 1500..."good luck finding phyz at 1150" ...yaawwwn
If Gold goes down to $900 how many Gold Miners will be left standing? Matter of fact it would be great in the long run if Gold went down that low, because that little Gold will be available that the price would shoot to the Moon. Those who have been stacking will be laughing all the way and not to the Bank.
That same crap was said after the 1929 crash. Have you even looked at a chart of PMs in that time period.
Let me help you.
http://www.ritholtz.com/blog/wp-content/uploads/2013/04/fda.jpg
Fucking retard...Gold rate was set/manipulated by Gold Standard system up until Bretton Woods...you can't use it for a deflation/inflation benchmark in 1929
Come on Janet, are you going to be bested by the Japs? Yellen shock and awe will counterpunch in the next currency battle to see who will get to 3rd world status first.
Deflation.... here is hoping everything goes down to the price of a nickle.
Don't count on it. You're paycheck though........
...and in other news.. Foreclosure filings up 15% in October. Looks like bottom has been hit...welcome to 2006.
http://www.marketwatch.com/story/drop-in-foreclosure-filings-slows-down-...
Japan needs to import some guest workers and baby makers - maybe the Norks would like to fill those roles.
Japanese hookers are looking even better now.
I have been saying September 2016 we could see the beginning of the correction.
Seems to happen the previous 2 POTUS shifts
Clinton -->Bush
Bush -->Obama
Obama -->TBD
Vote for TBD everyone. Only he (or she) can save us.
When you think about it logically, Hillary might indeed be the best choice for next captain of the Titanic.
Who else could possibly miss an iceberg they were deliberately aiming straight at?
Said it last week; USDJPY = 300 before it's all over. Besides, who cares? Just ride the algorithm on the "Dragon Trade".
www.traderzoo.mobi
Cut Taxes to combat deflation. Only thing that works.
The only thing that will work to solve the problem of developed nations is deflation. Deflation is not something that should be "fixed". Deflation will usher in lower prices and in the process shatter the illusion of baby boomer and greatest generation wealth. That wealth has been built on the backs of younger generations, including the unborn.
America today: college educated children with masters degrees working as servers and bartenders living in the basement of their parents (only one of the parents had to work) who barely got through high school and retired at 55 with a guaranteed pension for life plus benefits from an assembly line job they learned through one hour of in-house training. What is hilarious is that people cannot see this, or do not want to believe it. That somehow they are so fantastic when anyone with their same education and motivation level in any other generation in the history of mankind would have died working and completely busted. Your prosperity is an illusion. It is unearned. Your children and all future generations are paying for it.
What I don't understand is how every country's currency is expected to fall against the others. I picture some sort of downward staircase leading to a dark basement, but I don't understand how it will actually work. How can EVERY major currency drop against the other major currencies? Doesn't at least one country's currency have to go up?
That is where gold comes in.
I recommend Currency Wars by James Rickards. You are right, it won't actually work.
Fiat currencies don't float, they sink at different rates. The major currency which rises when the fiats fall is gold, mate.
The only safe bet is that regardless of whether inflation or deflation occurs, ZH will declare themselves right, and the media and experts as idiots for not having predicted it.
Renminbi ??? and the Alternative IMF Reforms
November 11, 2014 JC Collins
By JC Collins
With the recent announcement of the renminbi BSA’s with Qatar and
Canada, and the upcoming G20 Summit in Australia at the end of this
week, it is prudent to review some of the available information about
alternative measures for IMF reform and a review of the renminbi
internationalization process.
The growing number of RMB Bilateral Swap Agreements between the
People’s Bank of China and central banks around the world is increasing
the internationalization of the yuan. The fact that central banks like
the Bank of England and the Bank of Canada are participating in this
internationalization is providing us with some extremely valuable
information when held in contrast to the reluctance of the US Congress
to pass the 2010 IMF Reforms.
Whatever is intended with the political game of brinkmanship by the
Republicans in Congress is open to interpretation, but if no agreement
or negotiations are concluded on the 2010 Reforms by the end of this
year, a course of action by the G20, including the BRICS countries, and
the US Administration and Treasury, are being planned and will be
implemented whether Congress agrees or not.
In an article from Russia Beyond the Headlines,
Russian G20 Sherpa Svetlana Lukash is interviewed by reporters and
makes the following statements in regards to the upcoming G20 meeting
and the intent of the BRICS countries to propose alternative solutions
to the IMF Reforms if the US Congress doesn’t pass the supporting
legislation by the end of the year.
“We are expecting Russia, as well as our BRICS partners, to
propose serious concrete solutions on how to reach alternative
solutions, if the U.S. does not ratify this decision before the end of
this year.”
“One of the simplest options is “to untie the decision (over the
IMF reform of 2010) into various parts. Since the 2010 resolution is a
complex packet of agreements, which includes, among other things,
amendments to the IMF charter and a decision to double its capital, and
each such decision, according to the IMF rule, requires a certain number
of votes for them to become effective.”
“These two decisions can be untied, i.e. this packet can be split
into several ones, without an approval of the U.S. Congress but at the
administration’s decision. We will break up the packet and start
implementing its parts accordingly, so that all agreements come into
force.”
From these quotes we can gather that the American Executive Branch,
being the Obama administration and the Treasury, are willing to work
with the IMF and BRICS countries on fragmenting the 2010 Quota and
Governance Reforms into smaller segments which can then be individually
implemented by the Obama administration without the approval of
Congress.
It also confirms for us that any proclamations from specific
researchers and analysts that the BRICS countries seek to overthrow the
western or international bankers is nothing but the hogwash we have been
saying it is all year. Based on the evidence which continues to build,
from world events and the statements of the BRICS countries themselves,
the character and analytical abilities of these researchers and analysts
should draw serious doubt as they continue to press the story of a
BRICS rescue.
In fact, so obvious is the misleading nature of the storyline that
the true motives of the individuals promoting it should be seriously
questioned.
The urgency in having the IMF reforms implemented is also found in
the urgent internationalization of the RMB. The connection between both
can be found in the emerging liquidity crisis. The intent of
internationalizing the RMB is not to bypass the International Monetary
Fund but to embrace it and have the renminbi added to the composition of
the SDR basket by next July.
The storyline is already being constructed that no one country or
reserve currency, such as the USD, EUR, JPY or GBP, will be able to
provide the required liquidity to offset the next financial crisis. This
also goes for the RMB as it will be unable to meet this liquidity
challenge on its own, which is another reason why the BRICS are not
about to overthrow the system.
Only a composition of the currencies, which is found in the SDR
basket, can meet the liquidity shortage which is coming. With the RMB
added to the SDR basket the IMF can increase global liquidity by issuing
SDR denominated bonds. This is the main reason for the
internationalization of the renminbi and why central banks around the
world are participating in the BSA’s with the PBoC.
So let’s take a closer look at the RMB and understand its internationalization process further.
China’s currency is called both the renminbi and the yuan by media in
the western world. The reason for this is easy to understand. Renminbi
is the name of the currency and yuan is the unit of measure. Just like
the British sterling is the name of the currency and the pound is the
unit of measure.
The confusion over this in the western world is found in the way
China describes currency numbers. Yuan equates to dollar and dollar is
used in the west as both the name of the currency and the unit of
measure. So when Chinese amounts are translated into English it is often
stated as say one million renminbi yuan, which leads to the confusion
over the name of the currency.
Additionally, the RMB is broken into offshore usage and onshore
usage. RMB that is traded offshore is known as CNH, and RMB that is
traded onshore is known as CNY. Both have different spot rates and yield
curves.
The internationalization of the RMB is a part of a broader plan to
reform the IMS, or International Monetary System. This reform is
intended to reduce the imbalances in the IMS. This imbalance is
represented as the accumulation of USD’s by countries around the world,
and this accumulation leads to the imbalances with the accumulating
countries running serious account surpluses.
The internationalization of the RMB as defined in the increasing
number of BSA’s with the central banks around the world can help
stimulate and contribute to the reforms of the IMS. As such, the main
reasons for the internationalization of the RMB can be stated as:
1. reduce currency risks for both importers and exporters.
2. reduce China’s exposure to USD exchange rate volatility.
3. add RMB to reserve currency list and include in SDR basket.
Based on the above information and the correction of imbalances in
the IMS, we can expect that in the coming years China’s rate of USD
accumulation will slow and eventually reverse. This will be likely
realized when the RMB becomes fully convertible, which may happen sooner
than most expect.
Other inevitable outcomes from this internationalization will see a
full or partial re-denomination of China’s commodity trade into RMB. The
recent bilateral swap agreement with Qatar is very reflective of this
re-denomination, as will the eventual BSA with other oil producing
nations, such as Saudi Arabia.
It’s important to note that any agreements between China and Saudi
Arabia does not mean an end or total collapse to the US dollar. It only
means that the RMB is being internationalized and the International
Monetary System is being balanced. Any commodity and energy trade
between the US and Saudi Arabia will still be denominated in USD.
We are also likely to see commodity derivatives denominated in RMB as
well. This will help hedge against commodity price moves and
fluctuations in the FX markets.
The BSA’s are all signed for 3 years with some of them already being
extended before the date of expiration. These BSA’s will help stabilize
RMB liquidity so it can be added into the SDR basket and help stabilize
the macro liquidity of SDR bonds. And that is the main reason why these
BSA’s are being signed and central banks around the world are
re-denominating portions of their foreign reserves into RMB.
The BRICS Development Bank and Contingency Reserve Arrangement which
were implemented earlier in the year are not signs of a BRICS overthrow,
but are only signs of the development of broader infrastructure meant
to support the internationalization of the RMB. This infrastructure is
meant to facilitate the clearing of RMB.
CIPS, or China International Payment System is another example of
this infrastructure and will be fully operational by 2015. This will
ensure global RMB liquidity and help reach the goal of having 6% of
global commodities re-denominated in RMB by 2020, or sooner. The 6%
could increase dramatically in the event the IMF 2010 Reforms have to be
fragmented and implemented individually.
And there we have the strong case for the internationalization of the
RMB and the G20 support for the required reforms to the International
Monetary Fund. It is the engineered solution to the expanding liquidity
problem, with the CSI, or Cultural and Socioeconomic Interception of our
mainstream news and some alternative news sources acting as the
reaction component of the Hegelian Dialectic.
This week is a focal point of this transition to the Multilateral
Financial System as the G20 Summit approaches and the world awaits the
US congressional action on the IMF 2010 Reforms. Whatever the outcome
is, change is certain, as is the required liquidity crisis. – JC
just waiting for the next shoe to drop
(an asian tiger(s) stepping up in response to BOJ)
tick tock tick tock tick tock ...
Cheaper Sony TVs... sounds good!
The falling value of both the yen and euro will reek havoc through contagion. For months the major world currencies had traded in a narrow range as if held in limbo by some great force. This has allowed people to think we were on sound footing as central banks across the world continued to print and pump out money chasing the "ever elusive growth" that always appears to be just around the corner. Recently several major currencies made multi-year highs or lows depending on the match-up .
The Fed recently whacked the dollar down but for how long? Because of weak demand for goods and most of this freshly printed money flowing into intangible investments inflation has not been a major problem, but the seeds for its future growth have been planted everywhere. John Maynard Keynes said By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known. Weakness in the value of the Yen, Pound, and Euro must not go unnoticed. More on why this may be a signal that currency trading is about to get very wild in the article below. Please note, this may also be sending a signal that the whole system is unstable and the stock market could drop like a stone due to contagion.
http://brucewilds.blogspot.com/2014/09/caution-alert-currencies-may-get-wild.html
Geez, dude, enough with the shameless flogging of ancient blog posts. This one is the worst since you show over and over again that your spelling really wreaks. People will overlook the occasional printer's devil but, come on, you post and repost this, and it always has the same error in it. At least proofread before you Cut and Paste your brilliant analysis next time.
Thanks
His spelling "wreaks?"
Well, "wreak" is a word, and you spelled it correctly. It means "cause a large amount of damage or harm."
I think you meant "reeks."
LOL
Well, maybe you are playing with the usage here, so I'll upvote you for subtlety.
No sane person looks at a chart of usd jpy that way. Geez. Increasing Yen on the Y axis please. And it always gets stuck around 128 ish.
It's really fun trading forex right now.
Memories of 2009 so short...? C'mon now - how long (how many days/weeks) do you think it would take of a deflationary (plunging stock market) shit-storm for the Fed to throw some $boards underneath the shack...? In fact, there should be an ETF for it...
I suspect that the Short Silver guy is right for the time being in that paper is so de-coupled from physical. I will be back and forth between DUST and NUGT as well because for the time being the story of paper aligning with physical just hasn't taken place, and no one seems to know when that will happen.
That's my first post here, I have lurked for years. I can tell you this: I am up 66% this year jumping in between NUGT and DUST. The money in that is real (as reality is currently defined) but there will come a time to go all in on the physical end, and paper side will along, so you will see me in triple leveraged gold longs at that point, maybe still NUGT. We will see.
More like another Pearl Harbor , But this time the Japanese might win .
See
http://andreswhy.blogspot.com/2014/11/laundry-economics.html
Money in equities will tend to vanish .
Same for long term bonds
Cash will be king .
Gold protection against deflation.......
Oh no thats not right.
It's Eddie Albert and he will drive that tractor where Abe tells him to.
Eddie Albert says 'keep Manhattan, just give me that country side'.