Global currencies devaluing – protectionism end games

Ok, my post here was essentially a caffeine (yes caffeine) induced conversation with a friend who trades in the market. Basically we were amazed (as was everybody) as US taxpayers paid AIG executives bonuses, although not entirely surprised. We tried to imagine the possibility of the US government reversing it’s ‘bailout everybody’ policies; to protect it’s own wealth (taxpayers monies). So it is a fantasy. Nothing more. The reality is that the US (with other countries already beginning the process) is now on a mission to destroy it’s currency. This quantitative easing (printing money) and buying up mortgage back securities and any other securities tied to the credit markets, is essentially a massive attempt at flooding the USA and world with cash. Courtesy of the Federal Reserve under a self confessed money printer Ben Bernanke.

This is of course will lead to inflation even in deflationary environments, but the other factor is the protectionist aspect as all global currencies are been devalued at the same time. So it could be wise to assume that a huge debasement in global currencies and their value is the first shot in a protectionist agenda.

As the US attempts to self capitalize, outflows of investment from USD and USD related assets will occur. Today I listened to an economist at a certain big bank explaining the benefits of the massive money printing exercises by the Federal Reserve, but again he missed the point that inflation will trump any internal inflows of cash into the US economy (hey like Zimbabwe!). But as discussed with all the global Central Banks attempting to do the same as the Federal Reserve like the Bank of Japan and Bank of England; by collapsing their currencies they will of course force import prices up. So it’s a terrible situation for the global economy. But expected.

So, from a trading perspective it’s time to look at inflation protective buys. Obliviously gold, oil and the few currencies that still show a degree of value, at this point the Japanese Yen although I would say short term. Stocks, such as bigger oil refinery and produces, some bigger mining companies. Pharmaceuticals, although debased currencies will kill the import market on drugs (hence effecting company profits) although depending if there is crisis such as a severe flu out break. Or watch for tariffs removed for flu drugs. Some ETF’s, say long term purchases on Japaneses stocks. Still if you trading short term, ETF’s on silver, index put warrants on all major indices. Short US banks.

The USD/YEN – notice the USD about to punch through 93 Yen support, then it will reside in the trading range of 83-92:

Oil:

Gold against the USD (self explanatory):

World Crisis scenarios for the 21st century – Worldwide economic depression – (update 17)

World Crisis scenarios for the 21st century – Worldwide economic depression – (update 17)

Japan is now in a depression. The Japanese economy has been followed extensively on morbius glass since the onset on the global recession. Japan was interesting situation as the country tried to secure exports with China after the US slumped. As we know China could be facing a very nasty downturn, hence it has effected export counties in the Asian region severally, namely Japan.

Japan also is a very good example that a stimulus package does not work, instead leading to distortions in the FX markets. In Japan’s case a high YEN, as opposed to collapsing currencies elsewhere. This is because money is being taken of of countries where their interests rates are falling and general capital flights (weak goverment t-bonds). So safe havens are sought out, the Japanese Yen is relatively safe comparable to very risky currencies like the EURO, GBP and USD. Of course this put pressure on Japanese exporting – so a continued downward spiral has occurred for the Japanese economy.

Japan is a bellwether for Asia, in which would indicate the US is but a whisper away from a depression (if it isn’t already in one). So with Japan as a good example of capital flights out of Western developed countries like the US and the UK (a discussed this can be seen with the rise of the Japanese Yen). This would also show that the markets are wary of countries that are trying to re-capitalize without outside investors. So as they print more currency and attempt to self capitalize, the market is now factoring two things: inflation and protectionism. Which are both inevitable, as governments with their incompetent policy makers will ignite inflation and a trade war.

(For Japanese related blog posts, please type “Japan” in the morbius glass search option.