Wednesday, July 04, 2007

Ask the Experts: Will Liquidity Remain Abundant?

Cassandra has assembled a most esteemed panel of experts in order to answer the simple trillion dollar question: Will global liquidity remain super-abundant?

My first expert: Madame Madeleine, a well-known (in some circles) Tarot Card Seer.

I decided on a single-card draw, and got the "Ace of Pentacles".

Mme Madeleine: Briefly, yes. You will be surprised to learn that one of your greatest financial wishes is about to come true. This card shows a large pentacle in the middle which is symbolic of material wealth and abundance. If you one receives this card in a layout, and it is representative of a future event, then you will be surprised to learn that one of your greatest financial wishes is about to come true. And what could be a greater wish than Abundant Liquidity??!

Our second "Expert" is The Ouija Board (Piloted by yours truly, my spouse & my neigbours, the Evans').
We choose to use it inorder to to channel the spirit of the great speculator, Bernard Baruch, in order to ask him the answer to our question. Once we established contact, and verified it was the esteemed financier himself, we first posed a test question, "whether the YEN would continue to weaken?", to which he ouijcally-answered "YES". This was plausible as he was not a man of many many words. Then posing our primary query, we received a categorically undeniable "YES".

Next, we consulted the Runes. Runes were first used over 1500 years ago by the East Goths, and later appeared throughout England and Scandinavia. As Christianity took hold, the use of runic alphabets in divination became reviled as a pagan practice. The word "rune" itself comes from an early Anglo-Saxon word meaning "secret" or "mystery", and they remain an enigma to the world at large. To answer the pressing query, I choose a single-Rune cast. Ther results were as follows:
Sowilo. Like the blazing sun, your essential self is the source of your vitality. You are in a moment of profound regeneration, and the fire of your soul forges a new unity to your personality. Parts of yourself long denied see the light of day, and will be integrated or discarded as the organizing force of your spirit realigns the energies that express who you are. Avoid dealing with difficult and pressing situations until your newly aligned energies are running smoothly!
After some careful ruminating, I took this to mean a resounding "Yes!", so long as we don't try to confront the important issues of our day. So do as Gavekal & Arthur Laffer suggest: "Don't worry, just be happy!"

In further effort to get a consensus from our experts, I asked "Jerry", a well known astrologer in private practice in New England to conduct an in-depth astrological reading of Bank of Japan Governor, Toshihiko Fukui (b. Sept 7, 1935; See resulting Chart above left))in the hope that a reading would give some needed insight inwhether nearZIRP will remain the "policy du jour".
Here is the meat of it: In his chart, Gemini rises and it is Jupiter hour. Jupiter rules the airy triplicity by day and night, so the chart is radical. Mercury ruler of the 1st and our significator is peregrine and thus weak in the 8th, but cazimi as it is at 4 degrees 22 minutes of Capricorn and the Sun is at 4 degrees 21 minutes. This is an extremely close conjunction. The ruler of the 10th of government is Saturn, dignified by face and term, but fast retrograde in the malefic 12th. The ruler of the 11th of the government's money is Jupiter, in detriment, conjunct the ascendant. Jupiter is retrograde. The ruler of the 2nd of our money is the Moon, who is peregrine, in detriment and going from combustion, in the 8th. She is separating from a conjunction of Mercury, our significator, indicating that our money is indeed separating from historical baselines in, one should believe, continue to allow it grow.

Despite all this consultation of experts, whether technically-based, fundamentally-based or rooted in the occult, I must tell you straight-out, that I am not terribly superstitious, and really am an objectivist at heart. OK, I'll admit that I drink out of the same coffee cup each morning when I am on a serious winning streak. And I do not intentionally walk under ladders, break mirrors, or, for that matter, kill spiders. But there are times when my brain is just taxed-to-the-max from making hundreds of complex decisions each day, and I just want a simple answer to a simple question.
At times like this, I open my desk drawer, reach for the back, carefully removing the shiny black sphere from its box, close my eyes, take a deep breath and concentrate upon asking my question: "Will liquidity continue to be abundant?" I wait a moment. Turn the sphere over. Now, I open my eyes, where the answer is now, undeniably evident, from the expert's expert...

(note to all: Cassandra will be taking a holiday until sometime mid-month, ostensibly for a change of scenery, to take some high-altitude air, and to teach the offspring that stoically dealing with muscle fatigue and blisters is a prerequisite to capturing vistas for oneself, spotting marmots and hawks, and should be seen as a virtue. Ummm really! )


RJH Adams said...

Viewing rat race escapes too, maybe. Nice collection of links...


"Cassandra" said...

Ummm, aren't you already "escaped"? How much more escaped can you get?

"Cassandra" said...

...or rather the question is: how much more escaped can you get and still be connected to the grid, and have a fine boulangerie, epicerie, within a few mins away?

Asturias is lovely and fincas with fruit trees and hectarage are still a give-a-away in comarison to Charlies neck o' the woods.

Anonymous said...

Yup. And if I could, that is precisely where I would be already. Llanes, for example. As it stands, it's a few years away. Elderly in-laws in Almería, the house functionary's retirement pack yet to be accessible, etc., etc.

Enjoy the cider, and Covadonga.


Edward Hugh said...

Hello Casandra,

Glad to see you are enjoying yourself in Tokyo. I find the blog hilarious and have become a great fan.

Just one or two "tiresome" points. In your 20/20 foresight post you say this:

Despite the potential allure of the yen of the Yen in an unfettered market coincidental to a normal interest rate regime, we live (and trade) in the world - not as we wish it to be - but as it exists. In this reality, TeamJapan (MoF, BoJ, etc.) has engineered a [globally anti-social IMHO) preemptive policy mix to nix the Yen's unfettered allure by "uglifying" the it in order to preserve parochial mercantile advantage."

This has been the traditional view on Japan since at least the days of the great convoy operations, and it makes for incredibly funny reading, but I do ask myself sometimes whether there isn't a disconnect between the discourse which comes out of the financial markets people, and that which is starting to come from the macroeconomists.

I mean, you need to consider that the BoJ may now be incapable of lifting interest rates, permanently, or at least till we reach that market traders nirvana optimum point when yields on 10 year US treasuries, German Bunds and JGBs all come into some kind of ethereal alignment. In the meantime this leaves us with market participants in the global economy being in the position of the proverbial like a kid with the hand trapped in the car door while the unbeknowing driver presses the accelerator pedal firmly down to the floor (I guess they already know about this over in New Zealand).

Without going on about it at any great length, I would suggest you need to think about Japan's demography. This is something that someone like - eg Jasper Koll - seems to be completely unaware of, especially when you come to look at his Kuznets-cycle predictions for Japan property. Kuznets cycles were based on inward migration into the US in the late 19th and early 20th century, and substantial inward migration is what we are just not seeing right now.

Ireland and the UK would of course be good cases of the opposite impact (an impact which undoubtedly been helped by the steady rise of yen denominated mortgages in the UK since poor old Mervyn started to attempt to apply the brake a couple of years back). Interesting how UK housing has been pretty resilient recently, now isn't it.

Another way of thinking about all this is suggested by Howard Simons when he asks whether the BoJ now has an "effective" put on the future path of interest rates.

The idea, I think, would be essentially this: if the carry trade (in its broadest definition) were ever to start to unwind this would be a definite negative for Japanese exports, and since Japan is now entirely structurally dependent on exports for growth (and on growth to be able to pay all those additional pension and health costs which are looming) then this would be very bad news for Japan, hence the BoJ would need to respond (and probably massively and dramatically) by easing liquidity back in Japan (we saw the first signs of this "automatic stabiliser" mechanism at work back in June 2006).

Basically, you also need to think about deflation, and the effect of this on the good old quantity equation. Now ask yourself what happens if V declines disproportionately in response to every increase in M. This idea was advanced a few years back by the Japanese economist Makoto Saito, who came to the conclusion that this process was causing a kind of monetary equivalent to a black hole. Bernanke was rather skeptical about all of this initially (since most of his early work on the 1930s was squarely in the Friedman tradition), but if you read between the lines you will see he has substantially modified and corrected.

Finally, and for your greater edification and information, I would like to draw briefly to your attention to the fact that some of us now run a Japan Economy Watch blog, and that I have just stuck your own insightful little scribblings as a URL in the sidebar under the "blogs with Japan Economy Content" header.