Tag Archives: investing

Perfect Storm for silver

14 Sep

Usually this blog is a platform for my vexation at the Japanese government and the flaws within the system. However I thought I would turn to a subject that is near and dear to my heart which is that of precious metals and specifically silver

There are most certainly a lot of moving numbers in the calculations and quite a few relatively tweaked assumptions to work off including but certainly not limited to the GSR in the neighborhood of 16. I am unconvinced that we see anything close to that kind of ratio going forward or at least within our lifetimes but I will be happy to be wrong about that. Also one must remember that in addition to the somewhat murky total overall AG recycle numbers there is also the highly significant aspect of alternative methods of production or various alloys that can increase or decrease the industrial demand on silver. Its a bear of a calculation but I believe it worth at least a few minutes of careful consideration per day.

I too have preferred silver to gold mostly because I adore the color of it. Gold has a wonderful allure but silver is just so much more appealing to this stacker. Further I have heard the argument made that “since banks are collecting gold it is therefore the preferred method of maintaining buying power”. I think there are a number of positions one can take to this conclusion but lets stick to the topic at hand shall we ?

I try to keep everything within the perspective of history since it is a subject I enjoy doing in my spare time. It is also convenient for the GSR and precious metals discussions on boards such as this and so I present to you the historic Perfect Storm for silver. I would be prepared to argue that if such an instance occurred in the past there is a distinct possibility of it happening again in the future.

Silver production spiked after the “discovery” and mining of Potosi by the Spanish. There was also an interestingly comparative need for it in China at about the same time due a set of issues that were mostly political in nature. The Chinese were suffering from a series of paper fiat issuances which forced those who used the currency into a “spend it or lose it” situation every time the government changed hands. Chinese copper coins were being used as a measure of value but it was worth more as a medium of exchange than its base metal weight or value so there wasn’t much incentive in continuing the practice. Further the influx of silver into the European continent in such large amounts was causing a drop in its relative value. It was essentially a perfect convergence for silver further magnified by a lack of demand in the Chinese domestic market for European exports while there was a high demand for Chinese exports in European domestic markets which the Spanish had ample access to.

So at the risk of repeating myself, the Chinese wanted silver as a store of value in addition to needing an underlying metal with a relatively fixed rate of exchange to help alleviate their currency concerns. The Spanish in turn had an abundance of Potosi mined AG with a diminishing value going forward and a correspondingly high European markets demand for silk, porcelain and other Chinese goods. A market was established in Manila and the rest is history.

July 12

9 Jun

Mark your calendar boys, girls and bots because that is the day when the upper house of the Japanese parliament will have an election. Besides the obvious conclusion that an election has the possibility to change policy, this particular election holds more weight than normal because it is in the upper house that Abe’s policies have faced opposition.

So the question is will the Suzuki, Sato and Watanabe’s go out and continue to support the LDP and their Abenomic policies ? If they do in fact go out and vote up the LDP party line thus paving the way for less resistance to Abe’s choices then look for things to really grind into gear round these parts.

120 yen to the dollar is not outside the realm of possibility.

Nor will a corresponding response from the Koreans be of any surprise. These two nations are essentially fighting over a similar market share and I highly doubt Seoul is going to sit by while Japan continues to devalue its way to an export boom.

My advice is that if you are going to be in the market for anything out of East Asia such as a car, power tools, bearings, robotics etc you wait to see how things shake out. For in waiting you are bound to see a drop in prices, especially if you are holding dollars.

On a side note we here at casa DCY have scheduled a meeting with our local bank to renegotiate our fixed rate mortgage. It should be an interesting event as those who are paying attention can see a distinct rise in rates coming down the line and are rushing to lock in low low rates now.

When and if we are successful I will do my best to update you on the process. Wish us luck cause we are going to need it.

Prices are up

14 Apr

Its been awhile since I last posted but as anticipated the prices of many things here in Japan are up. Tonight the news mentioned that high end rings and jewelry are going up 10%. Meanwhile prices for food are up too as this country imports about 60% of its total caloric intake from overseas. Gas prices are up as well.

Meanwhile the Yen continues to weaken, hopefully to spur sagging exports but somehow I doubt that the Koreans who quite likely are in the same export market segments as the Japanese will sit idly by while Shinzo Abe follows his policy of further QE.

I still cannot understand why people vote to support a man who openly talks about inflation. This is in a country where it costs you $6.50 just to sit in a taxicab. However a closer look at the situation reveals why the LDP has taken power. In a word “redistricting”. The political lines in Japan have remained the same for quite some time. In fact I don’t know how long it has been since the country adjusted them but as it currently stands the educated city dweller has very little representation while the rapidly depopulating rural areas continue to send large numbers of representatives to Tokyo where they vote in large numbers to support LDP infrastructure projects. Knowing how things work helps to better understand why Shinzo Abe can openly say that a 2% inflation rate is his party’s goal.

The way I see it things are not going to get better for the average consumer and the elderly are going to be in for a shock at the supermarkets. On the other hand large corporate bonuses were paid this year so ideally the lucky recipients will spend the money boosting demand. I am not holding my breath however.

Best of luck to the PM and the LDP. They are going to need it.

Prices are up ?

24 Feb

Since the LDP swept back into power the Abe government has proudly and often stated that their goal is to increase inflation. As to why the public at large would actually vote for such a proposal is somewhat disheartening and is probably more closely related in a desire to change government from the NDP rather than support for the LDP. Among the people I have talked with, many of them have expressed a desire to do something which is in itself holds some merit. For those of you who don’t quite understand the Japanese mindset, the choice between doing nothing versus something here often results in doing nothing. A lot of time, attention and money is spent in meetings discussing things that are never done, so the fact that people are telling me that they WANT change and WANT something to happen is a leading indicator of more “news” to come.

Perhaps had the general voting public better understood what the Abe government wanted they might have opted for the do nothing approach. In an effort to boost exports the yen has dropped quite significantly. Yet trade has not improved published numbers show an across the board dip in exports. Perhaps that is somewhat attributable to China being approximately 20% of Japan’s market while the Abe government talks tough on the disputed islands. Once again a clear foreign policy failure by the Japanese government who has shored up its domestic support with “China is the problem” comments at the expense of its corporate overseas earnings. I suppose we should wait another quarter or two to see how things transpire but I am not hopeful that things will change.

The drop in the yen’s strength dovetails nicely with an increase in the Japanese governments buying of US debt. So perhaps with tacit agreement by the US, Japan has devalued the yen in an effort to boost sales. We will see soon enough if this is a winning formula. I believe it is perhaps short term “winning” tactic but a long term losing strategy. Japan has not addressed its core issues going forward and is simply creating more debt in the public sector. Further with March 15 tax day approaching, many of the government programs will expire. For example if one wants to buy a “light” car and you want to take advantage of some government support, you need to purchase your car prior to March 15. Last time I checked I heard that qualified candidates might get up to about 800 bucks back on a new car. Cash for clunkers anyone ?

Actually my wife and I will be buying a new light car in the next few weeks so I will try and post something about the experience.

With the yen dropping in value, import prices are rising. Bananas, Gasoline, Meat are all already up in price or scheduled to rise. Yay, your average blue collar family now has less money to spend on education, paying off loans etc. Meanwhile the alleged export boost has failed to materialize. I can’t say how long it will take for the voting public to recognize that they have voted against their own best interests but if the pattern holds true I would say by August or Christmas at latest Mr Abe will start feeling the pressure to announce elections.

Now is the time for him to act. I believe he is going to get the BOJ and finance department changes he wants, further weakening the yen. He has been open in his declarations about the LDP plan so far and he knows better than anyone that his support will fall off going forward. He has to move forward with the LDP blueprint and hope that it shows results.

What has me scratching my head is how inflation among the things the general public consumes is going to benefit the Japanese people. Prices are still too high here and that is after 20 years of deflation. I am certainly not wishing the LDP ill will as my adopted country needs to change course but I honestly don’t believe that Abe’s decisions are best for the Japanese people. Maybe I will be proved wrong, but I doubt it.

Forecast is for stormy skies ahead

5 Feb

Sad to say that it appears things are looking worse round these parts.

TEPCO has received an additional 700,000,000,000 in yen for their Fukushima compensation fund putting the total available at 3,240,000,000,000 yen. Yes that’s 3 trillion yen folks. The monies are to be spent on projects and other expenses related to the nuclear meltdown and are already being poached by the criminal elements in society.

Decontamination crews have had their wages cut or withheld by employers out to milk the system. I would rather not get into the ugly details about what “decontamination” means here but simply put persons using a dirty rag to wipe off a roof tile are part of the solution. Further there isn’t a place to keep the dirty soil so it is put in garbage bags and piled up wherever they can find space. I guess its the heftybag solution to nuclear fallout.

I just read that a toxic smog from China is now floating over Japan. Its not surprising that this would occur due to the following facts;

1. China puts a new coal fired power plant online every 3 weeks and will do so for the next 20 years
2. The quality of China’s coal is marginal and has a very dirty burn resulting in a high particulate rate
3. During Winter the winds blow from the West to the East, thus Japan is downwind from China

People are being cautioned about going outside, especially the young and old. its interesting as many schools have just completed their mandatory student marathon class. Perhaps the air was unhealthy then as well ? I don’t know for sure but it wouldn’t surprise me in the least if it was.

Its hardly scientific but a number of people in my neighborhood have all experienced nausea, vomiting and severe headaches over the past week or so. Perhaps there isn’t a correlation but then again…

Our local newspapers here are now reporting that Mount Fuji has increased pressure. The mountain is starting to vent gas along the NE side. Lakes near the base of the mountain also have heightened water levels of about 1 meter. The entire area is a subduction zone with Suruga Bay pushing under Fuji like an escalator. My neighbor mentioned Fuji acts like a clock erupting every 300 years. The last eruption was 1707.

So its good news all around !

The Abe government continues to devalue the yen so as a result prices are starting to climb at the retail level. Perhaps I have mentioned some of this news before but I thought it prudent to post it in case I hadn’t.

Anyway today we are off the wholesale food shop and to kick the tires at a local car dealer. With some luck we will get a credit approval for a rock bottom low rate on a car loan. Lock in a fixed rate and smile all the way to the bank if and when the Yen hits 150.

End of January Update

31 Jan

Its been too long since I paid attention to this blog so I thought I would post some humble musings for my dear readers.

The Yen has continued its weakening and is now sitting around the 90-91 level. While from outside the country this might be worth a read in the business section or a few thoughts about how one might make some money I have to tell you that it is starting to affect things here. Gasoline prices are about to go up about 2 yen per liter, granted its not a significant change but it is what I believe to be the first in a serious of gradual price rises as the Abe government continues to devalue the Yen.

A very good indicator are food prices. In a country that imports approximately 60% of its caloric intake a weakened yen translates directly to higher prices at the supermarket. Since it is also fairly well known the supermarket margins are razor thin the company has little choice but to pass on the increased costs to its customers. Portion sizes will decrease and prices will continue upwards as long as the Yen continues to devalue. Bananas in particular which are primarily imported from the Philippines are an excellent way to check the relative strength of the Yen. The prices have already started moving higher and the number of them on the bunch are also fewer that before.

Here in town a number of supermarkets that had been in business for decades have closed. Most have reopened under new management but I suspect the number of players in the marketplace have been reduced although I have no proof at the time of this writing that this is in fact the case. Fewer players in the supermarket space will result in less choice for the consumer and additionally put more pressure upon those choosing to service the community under greater pressure not to raise prices without just cause. In my opinion its a very ugly situation that is bound to get worse.

There are other disturbing trends as well. Recently a rich money fund operator was murdered outside Tokyo. He and his wife had led a very handsome lifestyle based out of Switzerland but had returned to Tokyo for some reason or another only to find themselves killed and dumped in a shallow grave outside town. I suspect and have no proof whatsoever that this was in fact a Ponzi scheme operator who had pissed off the wrong investors. The fund had purportedly showed very high returns which in itself is a highly significant story as Japan has had 20 years of deflation. How could this couple show such great returns for so long ? After the economic crisis or what is referred to here as the Lehman shock I suspect they could not access further derivative credit and were forced to return to find new investors. When confronted for a return they could not provide it and were then killed. In classic Japanese manner the alleged murderer tried to drink some kind of toilet cleaner to off himself but failed and is now in custody. The police found him because he was the owner of the land where they found the buried bodies. Seriously you cannot make this stuff up.

The Abe government continues to say their target is an inflationary environment despite the fact that it will adversely affect many of the people who voted for them. Support levels are in the 64-66% range for now. I am fairly certain that by March 15 which is tax day here in Japan we will see the implementation of the national consumption tax rate hike to 10% up from the previous 5%. This will in fact spur a frenzy of buying as folks look to try and maximize their spending capital which the Abe government will turn around and point to as a sign of improvement. Of course it is relatively safe to assume that come the Summertime and demand has fallen off to its previous low points and with the Yen further weakened, higher prices at the gas pump and at the supermarket we will see Mr Abe’s support levels dropping well below 50%.

Its at the point we will find out exactly what kind of politician he is. I for one am looking forward to it.

Yen weakening

15 Jan

I posted some time ago that Abe’s position was mostly about hope. I thought that he was going to pay mostly lip service and it would be business as usual, but it appears I was wrong. I wonder how long the hope will last ?

Well as of right now the Yen has “weakened” to 89 to the dollar. With the Yen moving back towards making exports profitable again it appears the government can buy themselves more time before ultimately falling to the quadrillion yen debt they have built up over the decades. I have read that Zaibatsu want to reach a 106-08 range to pad their profits enough to go back to business as usual. If Abe continues to have his way perhaps we will see the magical 100 yen rate hit perhaps by March ? Its going to be interesting to see how things pan out now that Obama is back in the saddle after a long campaign season. My bet is on dollar rally until washington gets its act together and further devalues…

The market in Tokyo is up too. The Nikkei hit its highest level since April 2010. I think the question everyone is asking is “Are we seeing a new normal or is this just noise in an otherwise very dim market going forward ?” My guess is the later but I suppose the title of this blog would indicate that I am bearish on things.

Continuing on the subject of precious metals and the financial situation part 2

15 Jan

So when we look at the size of the world derivatives market and then compare it with say the oil market or any other physical asset class the digits clearly outnumber the commodities. After all 639 trillion dollars is quite a lot wouldn’t you say ? Thus I think its a fair conclusion to state that IF one wanted to adjust prices then its only a question of how many digital currency units it takes to move the price to the preferred target.

One of the best examples I can find about this occurring is the case of Yasuo Hamanaka. Yes another Japanese connection 🙂 He is better known as Mr Copper as he worked for Sumitomo Corporation a huge Japanese multinational where he speculated in all kinds of commodities.

Copper as indeed all commodities are traded globally and thus subject to market conditions and fluctuations in prices. Spoilage and thus inventory is not a major issue other than storage costs when it comes to the Copper market.

Hamanaka was able to utilitize the vastly deep pockets of the Sumitomo corporation to move or keep the price of Copper within a fixed range for years. Obviously he had help but this example clearly indicates that prices can be engineered and indeed ARE done so. Even George Soros another deep pocketed investor apparently attempted to profit from challenging the Hamanaka fix without success.

A critic would be quick to point out that Hamanaka did eventually lose his corner on the market and thus caused large losses to his company. I think this may have more to do with the traders acceptance as a business as usual approach instead of accepting that at some point every ride must come to and end. Rather than move out of some losing positions Hamanaka tried to stay in and ride yet another Sumitomo backed wave of price “control”. This has more to do with a flaw in the traders working model than a failure to move prices in the way a deep pocketed investor wishes it to move.

So with the above mentioned example we can clearly see that under the right circumstances prices are subject to outside forces that are able to and indeed wish to attempt control of a commodity. Who is to say if a price is or isn’t subject to price-fixing ? I want to be careful about throwing out the word conspiracy because I think that while they do exist they are far less common than most who use the label think they are.

I simply want to point out that not only is it possible,but in fact probable under the right conditions. With ZIRP (zero interest rate policy) in effect those with the financing are able to access an unlimited amount of digital dollars. If approached with a proper working model or perhaps if you prefer having learned the lessons from Mr Copper why not seek to keep prices in a certain range ? If you or I can conceive of the idea, then I humbly submit that just about anyone can.

Manipulation is a term that is throw around a lot especially it seems when a price is knocked down, but I suspect it works both ways. Its a disturbing thought but I suppose we are along for the ride, hopefully it doesn’t get too bumpy.

Inflation, Deflation and precious metals part 1

13 Jan

Usually this blog discusses Japan and issues dealing with the Japanese. This is primarily because I have put in enough time here that I am comfortable making conclusions about the Japanese mindset. I feel fairly confident about the forecasting and issues discussed here about East Asia.

However I wanted to diverge from the familiar topic of how Japan is heading towards the rocks onto a different subject of Precious Metals and investing. As those of us who believe that the world’s political decision makers continue to choose the path of inflation I see a clear path towards saving my hard earned money. This is in two words, precious metals.

A major decision barrier for today’s educated contrarian investor is the inflation v deflation debate. I have toyed with this problem for awhile now and have come to the conclusion that it is in fact possible to have both existing simultaneously. I believe we will see the price of things needed for daily life increase and prices for things unnecessary to drop. So energy and food prices will rise while many manufactured goods such as sneakers, power tools and television sets will drop. Obviously this is a generalized conclusion based upon somewhat limited data but I believe that eventually we will see this dichotomy prevail in world markets.

What does it mean ? I think it means a drop in lifestyle for your average western consumer. I also think it means a rise in the living standards of the emerging world middle class who will want to consume the lower priced shoes, tools, and tv sets.

Assuming that most reading what I am writing are western consumers I am afraid to say that the facts speak for themselves. The USA is approximately 5% of the worlds population, but consumes about 25% of the worlds energy. Does anyone realistically believe this is a situation that can be maintained for any period of length without adjustment ?

As energy and food prices rise your average North American will continually be put into a position of scrimping on consumption in order to maintain the lifestyle choices. Simply put, heat your pool or buy the next semesters textbooks, go out to eat once a week or keep every family members wireless contacts paid. In an earlier time such as the 20th century Americans could choose both. I don’t think this is going to be rule going forward.

What can your average Joe do in order to keep his savings from inflating away ? I am certain that the answer is precious metals. Now within the metals community there are a number of different viewpoints on optimal decisions. For many gold is the one and only solution but frankly I find that mindset to be flawed. Gold has never been the only monetized metal and to ignore other possibilities seems somewhat foolhardy to me. I think that to a certain degree gold only folks are most likely in the elder generation and so have far more resources to fall back on. As of today an ounce of gold will cost you about $1650 dollars which is not something the average 20, 30 or even 40 year old can easily set aside to purchase.

However what I feel is a critical issue is how the precious metals have been “paperized” or “digitized”. Many investors buy an ETF or other digital representation of precious metals. Perhaps 90+% of all traded metals are in fact paper or digital. People invest in precious metals over the computer and receive a monthly statement telling them whether they have made or lost dollars or euros or whatever national currency they use.

This is a dangerous method of saving. If in fact that over 90% of the precious metals market is digital then in fact it is subject to the business of price controls. People normally would use the word “manipulation” but I want to avoid using this term as I believe control is a more accurate way of describing things.

Currently there are 67 trillion dollars in Forex derivatives traded annually, and over 639 trillion dollars in total derivative transactions through the first half of 2012. In comparison the US GDP total is 15 trillion. There is a lot of money slushing around the world and with record low interest rates it is easy for those in positions of wealth to borrow record amounts of cash.
With most precious metals transactions being done via digits and derivatives the market itself is subject to possible price control. I would like to get into details about this but again realize that I should probably call it a post here and hope to follow up on this at some point in the near future.

Thanks for reading