Economic Drugs

We are in interesting times… Japan yesterday reported its worst industrial production fall since the 2011 tsunami and nuclear plant scandal.  That industrial production was across nearly all sectors and coincides with rising inventories (making it even scarier) and last week’s increased trade deficit as exports fall.  It is also seeing economic growth falling with some analysts predicting a negative 3% GDP figure for the last quarter.  Japan has arguably the most aggressive stimulus program in the world as it has printed $75b/month and facilitated zero interest loans to the same industries that are falling, together with devaluing its Yen.  Whilst this program dragged Japan out of its multi decade deflationary trap and saw great gains in sharemarkets it is now looking to be not enough, and incredibly there are calls for more stimulus.  i.e. the heroin is no longer good enough so lets move on to ice – both of which are hiding the real problem and creating a bigger one.

There are parallels with the US that can’t go unnoticed.  The US is in rehab, easing itself off the heroin (which drove up sharemarkets etc)  with tapering and are now down to “only” $25b/month and planning to be ‘clean’ by October albeit continuing with the zero interest rate ‘methadone’ for the foreseeable future.  The 4% GDP estimate this week is seen as a sign of a recovering patient.  But as we reminded readers on Wednesday debt fuelled stimulus can always help GDP, and estimates seemingly always now get downgraded (Q1 US GDP started at 0.1% before revisions to -2.9%).  Furthermore, just as Japan has growing inventories, 1.7% of the 4% US GDP number was growing inventories (you know, stuff produced but with no buyers yet) and easy money fuelled investments takes that up to 2.5%.  As we discussed yesterday, the US is yet to feel the effects of QE/heroin withdrawal.  Some analyst are saying last night’s stocks plunge was the penny dropping with the market after the Fed’s talk on Wednesday night.

And now it is looking increasingly likely that Europe (who last night saw the worst CPI figure since 2009) will be hitting the hard stuff to try and get their party going just as Argentina couldn’t pay their dealer.

There is an increasing feeling that this is all about to go horribly horribly wrong…. For those not holding gold and silver that is….