To those who follow Dylan Grice’s writings closely (and everyone should), his proposal that the only possible outcome for Japan, where stunningly tax revenues no longer ever cover non-discretionary expenditures – a sad fate that awaits none other than the US eventually, is to hyperinflate its way out, is not new. Nonetheless, during the just completed annual CFA Institute annual institute held in Edinburgh, he gave an updated presentation which indicates that he has not yet changed his opinion that if forced to pick between the lesser of two defaults, the only option is that of unbridled printing, now that the US has firm leg up in the global fiat race to the currency bottom, which we predicted back in 2009, will be the key feature of the macro theme until the end of the Keynesian experiment. So, as before, Grice’s recommendation, away from the natural trade of shorting bonds (a negative carry trade which has cost the likes of Kyle Bass a pretty penny over the years) as one awaits this only possible outcome, is to actually discount the future, something the market has completely forgotten how to do, and buy stocks, in advance of the Weimar Rally for the Rising Sun. Below we present “Hoping for the best, preparing for the worst…in Japan” – Grice’s presentation of an upcoming Japanese hyperinflation, which explains not only why Japan can’t afford higher JGB yields, but why its to-date favorable demographic are now looking uglier by the day, and the only outcome for Shirakawa is to finally bite the bullet and beat the Chairsatan at his own game, in the process forcing the Bernank’s own hand if he wishes to retain the USD’s place at the head of the FX devaluation race.
For the really ADHD afflicted, here is the “CDS trader” abridged version:
- Japan’s unprecedented predicament: A large creditor nation, a bankrupt government, and a shrinking population
- Competing forces in the hyperinflation template: An unsustainable public debt profile with persistent current account surpluses
- Protecting portfolios: How investors can cheaply hedge against the risk of an extreme scenario
For much more, read inside:
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