The Quiet Bull Market That Everyone Is Skeptical Of

Authored by Kevin Muir via The Macro Tourist,

Although US stock markets are getting all the attention, Japan is quietly knocking up against 20-year highs.

In 1995, Nick Leeson bankrupted United Kingdom’s oldest merchant bank with his Nikkei futures trading, but at least he has kept his sense of humour about it. I doubt Barings Bank shareholders find it quite so funny, yet it did give us a thrilling trader-turned-OJ chase through southeast Asia, and a not-half-bad-Ewan-McGregor movie. And here we are, some two decades later, and Nick is finally almost even on his trade.

Kidding aside, Japan has been a decent little long trade over the past couple of months. Even though we were trading at these levels in 2015, that was when the Yen was 125, as opposed to the much stronger current quote of 112.

This divergence between the Yen and the Nikkei is the story that is going most unnoticed.

Since the start of Abeconomics, the Nikkei has been tied to the hip of the Yen. The BoJ floods the system with Yen, this causes the value of the Yen to go down, and Japanese stocks get a bid.

Well, you could argue the BoJ is still flooding their financial system with liquidity, but the Yen is no longer declining. But most importantly, this Yen strength is not causing any stress in Japanese financial markets. In fact, it almost appears like capital has concluded that Japan is cheap, and is flowing into Japan.

This summer I suggested it might be time to Sell US - Buy Japan?. The fact that over the last few months, the Nikkei was able to rally even in the face of Yen strength, has only emboldened my call.

I know everyone thinks Abeconomics will end in disaster. Nothing gets more laughs than hopping on twitter and making some joke about the inevitability of the Japanese collapse from all their money printing. Yet if there is one thing that today’s markets should teach us, it is that anything can happen. Maybe eventually Japan will implode in a fiery inflationary mess. Won’t deny that one bit. But in the meantime, there is money to be made.

And sometimes the breaking of a long held correlation is more important than its continuation.

Yen weakness has been the driving force behind Japanese economic strength for the past few years. With this recent divergence, maybe it is the signal Japan is ready to stand on its own?

It seems like everyone is all bulled up on America. Well, sold to them. I am more interested in buying the quiet rising market which everyone is skeptical of, rather than the frothy expensive one that everyone loves.

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[ZH: Some context - it has taken 21 years of "buy and hold" to breakeven... and the index still needs to rally 88% further to get back to even from its record highs in 1989.]



LawsofPhysics Thu, 10/12/2017 - 10:59 Permalink

LOL!!  All this commentary from traders and financial "experts" on the equity "markets"...Does any of it really matter?  Sure, to those of us with real "skin in the games".    However, please,take a step back and do a little homework on precisely how many people out of the total population actually own equities and are not benefiting from some sort of government subsidy.Truly, the hubris is mind boggling....Congrats, we are all billionaires!!!"Full Faith and Credit"

7thGenMO Government nee… Thu, 10/12/2017 - 11:56 Permalink

+1 - price inflation is a given when the BOJ now owns some 10% of Nikkei ETF's.  This is what Mussolini called corporatism - modern fascism - a merger between the state and corporations.  The big difference between Japanese corporatism and American corporatism, however, is that the Japanese do not throw their own people under the bus by open door immigration.  There is basically no immigration to Japan.  As the American system has devolved into a system where the state owes no loyalty to the populace (including leaving their own Ambassador to burn in Benghazi), it has borrowed from Communism - the population are slaves to the state and its elites.  The Japanese system is superior - IMHO. 

In reply to by Government nee…

Endgame Napoleon ebworthen Thu, 10/12/2017 - 11:26 Permalink

Other than stories about the “poor working families” that do not mention their free rent, food and $6,269 child tax credits, the MSM does not cover the other 80% of the economy, just the top 20% who are either in the 1% business class or are dual, high-salaried couples, both of which have significant investments in the global stock casino. Even those in the bottom 80% who have some mostly have negligible amounts in stocks. More than half of Americans have zero stocks.

In reply to by ebworthen

The_Juggernaut _SILENCER Thu, 10/12/2017 - 11:25 Permalink

Don't end a sentence with a preposition.  There was a cowboy who went to Harvard.  On his first day on campus he stopped somebody and said "Can y'all tell me where the chow hall's at?"  He was told "at Harvard, one does not end a sentence with a preposition".  THe cowboy considered this and replied "Can y'all tell me where the chow hall's at, asshole?"

In reply to by _SILENCER

windywoo Thu, 10/12/2017 - 11:07 Permalink

I would think that Japan may have the ability to back their currency with gold, jewels, and priceless artifacts at some point if they still have Golden Lily booty hidden away somewhere.  I recommend the book "The Gold Warriors" by the Seagraves. 

myorouter Publicus Thu, 10/12/2017 - 11:12 Permalink

The article on here about the black swan yesterday was a great article on the hedge. I was lookint at it and thinking this bull market has higher to go before we get into danger zone.  I also use the analysis from shepwave to double check my own trading strategy but so far I think I am right. 

In reply to by Publicus

myorouter Thu, 10/12/2017 - 11:11 Permalink

This quiet bull market has been a winner. It has not been that quiet it is just that Zerohedge expects more volatility. The analysts at Shepwave keep calling the trading ranges and that is all that matters.  Yes the connections with corrupt gold man is there but as long as they keep giving winning trades WHO CARES?  Gold trades from them are flawless. 

Jungle Jim Thu, 10/12/2017 - 11:27 Permalink

I don't have any stocks and I don't want any. I'm not getting any kind of government subsidies either. I don't have any BitCoin and I don't want any. I just want to know when gold is going to be worth something at last. The Twelfth of Never?

Fantasy Free E… Thu, 10/12/2017 - 11:28 Permalink

p { margin-bottom: 0.1in; line-height: 120%; }a:link { }A Quiet bull market is the only kind that can be manipulated, manicured and moved higher. ttp:// There is not a chance this market will resolve downward in response to natural market forces. The news is controlled. The public still respects central banks and doesn't know they are being fleeced. A little weakness draws a little intervention. With a lot of weakness, central banks will buy with both hands. James Quillian Fantasy Free Economics

Liberaldisdain Thu, 10/12/2017 - 11:41 Permalink

The only people who complain about a manipulated market are those morons who continually fight against the trend and short it.  And well, that is about 99% of the sheeple on here.  Enjoy your contiued losses. It is a bull market until it's not anymore. Babababababaaaaaaa

RationalExuberance Thu, 10/12/2017 - 11:53 Permalink

Let me explain this nikkei-up/yen-stronger phenomenon. On this chart: NKY is in ¥, while JPY is in $. Not the same basis. There was no growth just more yen being printed, then still no growth yet more yen being printed, except this time the dollar is depreciating even faster than the yen. Mistery solved. 

venturen Thu, 10/12/2017 - 13:20 Permalink

a 100% increase in everything....except that is a good trickdoesn't the BOJ owned like 30% of the market with printed Trillions?