This page has been archived and commenting is disabled.

Guest Post: Project “End Up Like Japan” Continues To Advance Well In The West

Tyler Durden's picture





 

Via Simon Black of Sovereign Man blog,

[Editor's note: Tim Price, a frequent Sovereign Man contributor and Director of Investment at PFP Wealth Management in London, is filling in for Simon today.]

Roy Ward Baker’s 1958 classic film A Night To Remember, recounts the final night of the RMS Titanic based on survivor interviews from Walter Lord’s 1955 book of the same name.

One scene from the movie depicts a lounge in one of the upper class quarters of the ship as it slowly sinks beneath the waves. Notwithstanding the vessel listing alarmingly, a motley band of toff revelers are determined to go out in the finest style. Some continue to play at cards with a fatalistic resolve while others determinedly quaff spirits direct from the bottle.

Having considered for some time the most appropriate metaphor for the current market environment, we think this may be it: one may be doomed, but one can still party on.

Having already hit the iceberg, one major problem we see is the common perspective for both investors and the asset management industry to view debt and equity as the entire universe of investor choices available.

The reality is (a) that investors can pursue other distinct types of assets (we would single out real assets as an obvious and relevant alternative), and (b) that there can and will be times when both debt and equity markets together underperform, in both relative and absolute terms (the relative benchmark being cash since developed government debt can in no way now be considered a risk-free asset class).

We may be fast approaching a macro environment that threatens conventional portfolios with exactly that outcome– a bear market in both stocks and bonds simultaneously. In other words, the authorities could attempt to throw a bull market party for both bonds and common stocks, but nobody would show up. The ticket to entry is simply too expensive.

Having long exhausted the armory of conventional policies to keep the unsustainably indebted show on the road, increasingly desperate politicians are doing increasingly desperate things, be that gifting money to the IMF in a brazen display of fiscal denial that we can ill afford (US, UK) or simply stealing from other sovereigns (Argentina).

Project ‘End Up Like Japan’ continues to advance well throughout the western economies. The euro zone continues to perform like a group of drowning men lashed together for buoyancy.

 

Here in the UK, the Bank of England has the dubious privilege of being able to print money with abandon, and it is taking every opportunity to duly abuse the purchasing power of Britons with savings. We continue to hear Mr Takashi Ito’s sad refrain, published as a letter to the FT back in August 2010:

“…after a huge housing bubble bursts, there is nothing to do except suffer many years of economic indignity.”

Politicians, of course, are not in the business of sitting idly by while the country collectively suffers that economic indignity (the savers, at least). They must be seen to be doing something.

The ironic triumph of the Keynesians means that, in trying to save the economy, our central bank may end up destroying it completely by means of the printing press; as a consequence, we now get to experience some of the full-on horror of the Japanese malaise.

As the debt burden and currency debauchery game rise together toward some form of climactic end-game, the sense of politicians simply not getting the point is almost comical. Just when it were most needed, evidence of urgency from government is invisible.

So in a portfolio sense, we close all water-tight doors. Debt holdings are restricted to those of only the most objectively creditworthy borrowers. Equity exposure is kept modest and restricted to only the most defensive. (Sustainable and relatively high dividend yields help.)

We diversify further into the highest quality currency available, namely bullion. That this approach has not necessarily delivered whopping returns over the past 12 months is not an immediate cause for concern to us since we’re most focused on straightforward survival.

We also repeat our increasingly urgent suggestion that investors in debt and equities (especially debt) enjoy the party but dance near the door. Developed market debt investors have enjoyed a 30+ year bull trend in interest rates (and credit creation), but the fat lady in the next room has started tuning up.

To put it another way, the ship is listing badly but has not yet sunk. Do you have a lifeboat, or a bottle of brandy?

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 04/23/2012 - 13:14 | Link to Comment midgetrannyporn
midgetrannyporn's picture

Nothing a few more banker bonuses can't fix.

Mon, 04/23/2012 - 13:32 | Link to Comment Gully Foyle
Gully Foyle's picture

So, we will be glowing in the dark and breeding genetically radiation damaged monsters?

Or will we be creating intense horror and action films?

 

Mon, 04/23/2012 - 17:47 | Link to Comment Xkwisetly Paneful
Xkwisetly Paneful's picture

Banker bonuses-fucking hilarious.

While the entire world lived on levered free money.

Really, really great material. The fixation on the lint all the while the cotton fields burned to the ground.

Almost as great but not quite as great as that 30yr bull market in US treasuries,

cause afterall I read how irrelevant the dollar happens to be and how it died 23,453 times and all.

 

Mon, 04/23/2012 - 20:28 | Link to Comment Buck Johnson
Buck Johnson's picture

Yep (Fukushima we are being lied too and eventually we will see).  Also He's correct, they know the damage is done, and dthey are just sitting buy and trying to get as much for themselves as possible.

Mon, 04/23/2012 - 19:39 | Link to Comment GernB
GernB's picture

And a few bucks more in taxes from the 1%. That'll fix it.

Mon, 04/23/2012 - 13:15 | Link to Comment SHEEPFUKKER
SHEEPFUKKER's picture

The land of the rising (debt)sun

Mon, 04/23/2012 - 13:17 | Link to Comment cossack55
cossack55's picture

Is it not curious that the final performance ot the Berlin Philharmonic before the Russian assault was Gotterdammerung.  Who is that in the VIP booth, Al Speer or Al Gore. LOLOLOLOLOL.

Mon, 04/23/2012 - 13:19 | Link to Comment Pairadimes
Pairadimes's picture

I smell burning paper.

Mon, 04/23/2012 - 13:20 | Link to Comment carbonmutant
carbonmutant's picture

I think we need to get these deck chairs organized...

Mon, 04/23/2012 - 13:23 | Link to Comment Sleepless Knight
Sleepless Knight's picture

I think all of the high finance people in the world have the mentality of " Its OK as long as it doesnt effect me." What else could they be thinking?

Mon, 04/23/2012 - 17:06 | Link to Comment smb12321
smb12321's picture

Then what can be said about market enthusiasists who salivate over more printing or worse, what can be said about the people who elect those who got us into this situation.  If you're unlucky enough to be in CA or IL you are stuck with an electorate that seems to reward failure and punish success.  The bankers are/were us.

Mon, 04/23/2012 - 19:41 | Link to Comment GernB
GernB's picture

I think it's more likely they are thinking that if it reaches that point they are screwed no matter what they do.

Mon, 04/23/2012 - 13:28 | Link to Comment q99x2
q99x2's picture

Lets send Al Gore in to stabalize the fuel pools at reactor #4 as a penalty for all the investors he ruined and taxpayers money he wasted by giving government contracts to MoltenMetal when he was VP.

Mon, 04/23/2012 - 13:30 | Link to Comment bugs_
bugs_'s picture

We need a Mount Fuji!

Mon, 04/23/2012 - 13:34 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Aside from the Fukushima disaster, Japan has done pretty well since its 1990 crash, no big economic catastrophe, thanks to the policies advocated by the brilliant Richard Koo.

Life remained pretty nice for most people there, economically speaking. No Greek-type calamity.

If we do as well as Japan has done for 22 years, we will be quite okay.

Mon, 04/23/2012 - 16:46 | Link to Comment mnevins2
mnevins2's picture

You are sort of correct - Japan did fine while all of the surrounding countries (boats) were doing even better - thus holding up their ship via exports.  But, if you've noticed, the world economic picture has changed recently.  They were the original "kick the can" country and stayed afloat assisted with the savings of the Japanese people.  That strategy seems to no longer be an option.

Mon, 04/23/2012 - 13:36 | Link to Comment lolmao500
lolmao500's picture

Obama buying the senior vote with taxpayers money....

http://www.nypost.com/p/news/opinion/opedcolumnists/an_billion_trick_ImT...

Call it President Obama’s Committee for the Re-Election of the President — a political slush fund at the Health and Human Services Department.

Only this isn’t some little fund from shadowy private sources; this is taxpayer money, redirected to help Obama win another term. A massive amount of it, too — $8.3 billion. Yes, that’s billion, with a B.

Mon, 04/23/2012 - 13:45 | Link to Comment ArrestBobRubin
ArrestBobRubin's picture

Here's a phat stack that the piggies are drawing a bead on as we speak. To keep the party going.... It was always simply a matter of time.

Q: How can these "people" possibly keep their hands off 18 trill of OUR money?

A: They cannot, period.

Perhaps the banksters always intended to take it when they wanted, and that's why they commanded their congress critters to create these "convenient" and "safe" "investment vehicles" in the first place.

Better act accordingly as this writing is on the wall with a neon marker. It won't be long now before your latitude over your own retirement account is greatly diminished. If not the balance itself :-)

Feds eye retirement-fund tax to cut $16 trillion-plus deficit

Last Updated: 8:25 AM, April 22, 2012

Posted: 11:16 PM, April 21, 2012

Uncle Sam, in a desperate attempt to fix its $16 trillion-plus deficit, is leering over Americans’ retirement nest egg as its new bailout fund.

Capitol Hill politicians are assessing tax changes that could let the Internal Revenue Service lay claim to a portion of the $18 trillion sitting in 401(k) accounts and other tax breaks used by middle-class workers, including cutting the mortgage tax deduction.

Read more: http://www.nypost.com/p/news/business/plunder_CrD9s6MElVsEIJj2IVgHuK#ixzz1st0XmmGC
Mon, 04/23/2012 - 19:30 | Link to Comment itstippy
itstippy's picture

"Feds eye retirement-fund tax to cut $16 trillion-plus deficit"

Mon, 04/23/2012 - 13:42 | Link to Comment kridkrid
Mon, 04/23/2012 - 13:53 | Link to Comment Robslob
Robslob's picture

 

 

Famous words for sure:

"We need to pass it to understand what's in it"

followed by

"In order to save it we need to kill it"

 

Banks and Governments...the gifts that keep on taking...

Mon, 04/23/2012 - 14:29 | Link to Comment FranSix
FranSix's picture

Mostly central banks will have to diversify into bullion, but also the commercial banking sector will have to scramble for gold. The recent jitney price declines in gold may also be forestalling/telegraphing the inevitable currency devaluation.

Mon, 04/23/2012 - 14:38 | Link to Comment Kobe Beef
Kobe Beef's picture

"One scene from the movie depicts a lounge in one of the upper class quarters of the ship as it slowly sinks beneath the waves. Notwithstanding the vessel listing alarmingly, a motley band of toff revelers are determined to go out in the finest style. Some continue to play at cards with a fatalistic resolve while others determinedly quaff spirits direct from the bottle."

Exactly. The iceberg has been hit, the ship is going down. The lifeboats have left, the captain lied. There is nothing left to do, except face death with panache.

For those who are inclined to meditate on the inevitabilities of fate, I ask you: 

What is a good life?

What is a good death?

Mon, 04/23/2012 - 15:03 | Link to Comment The Heart
The Heart's picture

Not to worry, everything is going to be better after romney is elected:

http://www.youtube.com/watch?v=IWDJEc92d38

Mon, 04/23/2012 - 16:52 | Link to Comment earleflorida
earleflorida's picture

yep,... from a black frying pan, into a stainless frying pan - but the fire below never changes other than the zippity-floppity of the head chef's residual menu?

 

Mon, 04/23/2012 - 15:31 | Link to Comment Vince Clortho
Vince Clortho's picture

"... in trying to save the economy, our central bank may end up destroying it completely by means of the printing press ;"

should read

" in trying to save their asses, the central bankers may end up destroying the economy"


Mon, 04/23/2012 - 15:32 | Link to Comment SILVERGEDDON
SILVERGEDDON's picture

Mittens will save the day ! The rest of us (the 99 percent) will pull an Obama, and eat the dog. Out of necessity. Go long on hot sauce, the next bubble. Makes anything go down no problem.

Mon, 04/23/2012 - 15:50 | Link to Comment icanhasbailout
icanhasbailout's picture

can't wait to see what kind of Fukushima we come up with

Mon, 04/23/2012 - 16:00 | Link to Comment Don Diego
Don Diego's picture

The West's demographics are much worse than Japan's. At least the japanese will have an old, homogenous population. Much better situation than to have an old native population combined with a young disfranchised alien population.

Mon, 04/23/2012 - 19:09 | Link to Comment Vlad Tepid
Vlad Tepid's picture

That's an important point.  When the old Japanese have given up the ghost, there will be a smaller population of Japanese.

When the populations of the West die off, they will be replaced with...whomever.

Japan as a cultural entity will be standing for many centuries to come.  At least we can say the geographic landmass of North America and Europe will still be there...

Mon, 04/23/2012 - 17:26 | Link to Comment max2205
max2205's picture

Go fish.....

Mon, 04/23/2012 - 18:29 | Link to Comment MajorWoody
MajorWoody's picture

The west, especially USA wish they end up like Japan after 20 years of stagnation.  High debt, yes. Great infrastructure, yes.  Affordable health care, yes.  Non-obese population, yes. Non-violence loving population, yes.  Hot skinny chicks, yes.  It goes on and on.

Mon, 04/23/2012 - 18:47 | Link to Comment Poor Grogman
Poor Grogman's picture

 

 

Those folks that drowned happily while drinking spirits from the bottle should have seen what was right under their noses.

 

Empty bottles float just fine, throw a few dozen together with some pillow slips and wicker furniture and hey presto!

 

A Grogbottle raft.....

 

C'mon folks do I have to do all the thinking?

(or sinking as the case may be)

 

 

Do NOT follow this link or you will be banned from the site!