Credit Flow Investor

From below….

Another concern for the cautionary wing of the BOJ centers on the unusual structure of Japan’s economy. Japan’s jobless rate – at 4 percent – is half that of the United States. But wages remain on the decline, down 1.1 percent in November from a year earlier to mark the third straight month of falls.

Unable to fire workers in mass layoffs because of rigid labour rules, Japanese firms are unwilling to raise salaries. Without a rise in wages, the only practical way overall prices could go up would be through higher commodity and fuel costs which would curb consumption, not boost it, the BOJ has argued.

Under siege Japan Central Bank

http://ca.reuters.com/article/businessNews/idCABRE8BR04C20121228?sp=true

Michio Kaku has an interesting take on economic cycles in his book: Physics of the Future c2011

I agree with him that excess capital can be used to inflate bubbles like housing.  What’s missing in the QE debates is that this excess capital built up in 1980s and 1990s can be used by government deficits today to sustain the economy and suppress problems.

He also mentions punctuated equilibrium where progress will accelerate and then stagnate for decades.  Globalization was the progress of the 2000s.  Unfortunately, there is no easy progress left as biotech,nano-tech, ai, etc bear little fruits at this stage maybe in 10 years.

In the meantime, accumulated excess capital will be used to cushion the blow.

From jugglingdynamite.com:

20 Dec Cory Venable ‏@CoryLVenable

While your Broker tells YOU to buy STOCKS, their Dealer BOND holdings climb to record levels…(hypocrisy?) h/t ZR

http://t.co/IiVaZ5Ro

 

 

 

I would sell any SPY at this point and remain in cash with spec capital.

A confusing time as TLT:SPY says risk but VIX says no and best stock market indicator also says no….

When CPI is 1.x or 2.x the Fed will add stimulus. When CPI is 3.x, the Fed will signal no intervention. This has occurred in 2010, 2011 and 2012…also 2008!

I predict that a weak January economy will lead to more stimulus by the Fed in February. The Fed will continue until the CPI reaches 3.x and the economy weakens due to inflation.

However, the VIX at 15 (low)  indicates SPY return will be less than 2011/2012 as the VIX cannot fall much further.

Low growth can be used by the ‘recovery’ and nearby recession camps to support their claims.  As the economy is on the cusp of growth, the recovery camp argues that the growth will increase.  The recession around the corner camp says the data supports a tip over into recession.

Both camps have an argument but the ‘fox’ in me argues that an oscillation with fed intervention at times is more likely. Japan has been able to manage low growth for 20 years!

TLT:SPY says risk ON.  Oil is falling due to commodity glut.

I would favor moving to SPY with risk capital.  Core position in 0 coupon bonds.

I enjoy this analogy of calculated risk to an austerity slope.  How will the economy grow with austerity?

It is a very uncertain time right now. Cash is best except for core position in 0 coupon bonds.

See calculated risk:

http://www.calculatedriskblog.com/2012/12/monday-ism-manufacturing-auto-sales.html

As I consider that US and all others are entering ‘Japanization’ also known as balance sheet recession with cash flow, UST bonds are the safest long term investment.

Over the years this yields a coupon and capital gains with the least risk.

While early indications are risk ‘on’, I still remain in long bonds (core position) and cash. Seems Q4 GDP will be weak so until a clear trend presents itself risk capital for me is in cash.

See this link:

http://advisorperspectives.com/dshort/guest/John-Carlucci-Best-Indicator-Ever-Update.php

AND

VIX TREND see side link….