Its easy to forget that we are not operating in free markets. We are operating in markets which most of us have free access to, however they are not free. They are rigged.
That sounds damming but free markets aren’t the norm. We were sold free markets as a good thing and they were unleashed in the 80s and 90s. While many like to think we still have them, but we do not.
The whole basis of central bank intervention is anti-free market. Most of us want it to be that way. When the free market crashes we want a government intervention. The whole point of lender of last resort is anti-free market and not many of us want there to be no ‘lender of last resort,” to rescue us from the inevitable bank panics that come and go.
At this point we could get into a political or philosophical discussion, but why bother, here we are, central banks sent the trend. They are in control what they say goes.
There should be money to be made following the trend they set and there is.
Many of us can be excused for smugly looking at our net wealth and attributing it to our hard effort. Sadly it is not totally true. Without the gigantic interventions of 2008-2014 who knows what smoking crater of an economy we would be in. Our equity in real estate, equities, even deposits in the bank could have all been flattened. It wasn’t just bankers who got a bailout, everyone got a piece of the trillions of QE that hose into the world economy, though most don’t choose to acknowledge it.
We don’t see the disaster that didn’t happen we only see the mistakes that did, but without huge and risky interventions from the central banks to rescue the global financial system we might all be wearing a barrel. We think its been bad, it could have been a lot worse.
However it doesn’t make it easy to be financially autonomous. The markets are being pushed the way the economic mandarins of the world’s governments want them to go. You go will that flow or you get steamrollered. Central banks have gone from lender of last resort to lender of default from rescuers to governors.
Central banks have come to completely dominate the market.
No more so than in Japan.
At 118 yen to the dollar Japan is a different play to the one where the big corporations were being briefed to plan for 60 yen to the dollar.
The yen is no longer a deflationary safe haven. While the yen is still way above its 3 year moving average of 101 yen to the dollar, the Yen is at a well established historical level it oscillated around for 10 years up till the credit crunch knocked everything into a loop.
120 to the yen would seem a solid place to set the yen versus dollar for the medium term, especially as the dollar is currently strong globally. To go significantly lower against the dollar would suggest a revolutionary path for Japan and that seems unlikely to take even for the newly re-empowered Abe.
The Yen is right at 120, I expect it to pivot around this level.
You don’t have to be a charting genius to see the link between the Yen and the Nikkei.
But where too now?
The inflationists have managed to breakthrough and with Abe and his new inflationary mandate the market is surely heading through 20,000.
The yen doesn’t have to keep falling to drive the Japanese economy, it just needs a breather from the constant strengthening of its currency. It has got this and cheap oil too.
The good times are going to roll.