Quake in Japan, Tremors in America

8/7/2019 Quake in Japan, Tremors in America

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Ref: 2011-02-PO of March 15, 2011

Quake in Japan, Tremors in America

Nature is Supreme:

Nature is the most powerful force dawned upon the universe by almighty God. If humans were to control everything, no one would have ever believed in God. When

something wrong is perpetrated over the years, it ultimately gets corrected by thealmighty force of nature with glaring violence with a warning and stern reminder “Donot fiddle with me, did you get that?”

In the wake of severe quake followed by Tsunami in Japan, the humanity was servedwith this violent reminder again. The illiterate people learn the message quickly, but the educated class - so called Investors, speculators, hedge fund managers, pensionfund controllers, derivative players - does not learn easily and quickly. The nature hastherefore reserved the massive shock - CRASH - in whatever the educated class practiceday by day, year by year, decades by decades and centuries by centuries.

Have you heard the word “Crash” from the illiterate class - ever? No. But ask theeducated illiterates or Elite Class - they will recall every crash of 1929, 1987, oilshocks of 1980s, crash of commodities, oil prices crash to $ 9 per barrels, crash of 2003and crash of 2008 - all in financial markets with the paper and electronic moneycreated by humans to utter defiance of the disciplinary money of God - Gold.



Anil Selarka Quake in Japan, Tremors in America 2 | P a g e

When Japan was not listening to the nature that low interest rates and weaker yen washarmful to its economy for almost 16 years, the Supreme Power assumed the command.It engineered the massive crash in the form of major earthquake of 8.9 scale followedby huge Tsunami that wiped out almost entire north east coastal cities of Japan in lessthan few minutes. What was built over 66 years since World War II was destroyed in

less than 6 minutes. That's the nature - the Supreme Lord.

Japan - Making money in hard goods, loose in Paper trading

When the Japan was creating fabulous products, everyone admired, including God. HEmust be carrying Giant LCD or HD TV to micro TV, gadgets, mobile phones! Just kidding.But when HE saw that the Japanese were blindfolded by its love for dollar, not God, HEwas perturbed. HE tried to teach the Japanese with subtle warnings by causing itsNIKKEI crash from 37000 to currently 11,000 (before Tsunami), and not allowing itseconomy to prosper for 16 years. However, the Japanese did not understand nor didthey heed the warnings.

Japan was exporting huge physical inventories to United States, UK, Europe and rest of the world in fierce competition, not in terms of price, but in terms of extra ordinaryquality. However, what it earned was kept in Dollar reserve with the United States bydeliberately keeping its currency artificially low. Japanese governments in almost everysuccession went on printing more and more Yen to buy dollar to keep its own currencyweak. United States mused. It never objected to Japanese keeping its currency low but went on lecturing China to allow its currency strengthen when both countries werefollowing almost identical policies.

Violent Correction The nature could not prolong the obvious wrong. It finally struck, caused severest quake on record in Japanese history, and sank almost every asset that was used to buildthe massive reserve in dollars. When the humans do not heed the warnings, the natureacts, and IT DOES ACT with severest punishment. But even then, the humans do not learn.

When the disaster struck, the natural course for Japanese was to withdraw the dollarand convert into yen. After all, its reserve - a kind of savings - has to be used one day foreventual use in calamity. But the Japanese did not use. They pumped into moneymarket 15 trillion yen created out of thin air (not by selling dollars) which is equal toUS$ 183 billion. And what happened - the NIKKEI dropped further by 14% in single day!On following day, it pumped in another 8 trillion yen (almost $93 billions) again out of thin air into the financial markets, that is, the paper market.

Almost 23 trillion Yen went up in smoke in just two days. When the need of the hour for the Japanese government was to rush massive physicalaid to affected people and area under destruction, it went on engaging itself into




unprecedented money market operation or in paper and intangible markets withmassive force without any conviction.

According to CIA latest figures, Japan today has massive public debt of 197% to its GDP.In the aftermath of quake, its GDP is likely to go down by 30% and its public debt (with

25 trillion yen printed by budget deficits) will rise by 25% that will worsen its PublicDebt to GDP ratio to over 353% - in less than 9 months. (Existing Public Debt + 25% of new PD divided by new GDP (Current GDP - 30% deceleration) %.

With massive 25 trillion injected into the system, the specter of inflation will rise veryfast. The inflation in Japan will be almost uncontrollable. With huge short supply indaily essentials such as water, electricity and food accompanied by umpteen supplies of additional Yen created out of thin air, Japanese government has played a gamble of lifetime in casino type of operation. In all probability, this gamble is not going to work.With massive political instability, uncertain economy and now the humongous debt

with destruction, we do not know how many years the Japan will be thrown back. It will recede into 5th or 6th largest economy after the effects of the dire game is playedout in full.

True that Japanese are the most industrious people in the world. But what can theypossibly do when their policy makers are running with the speed of Boeing 787 inwrong directions?

The Supreme Nature will reassert itself . It is possible that -

1. Japan will have to sell massive amount of US Dollar reserve in favor of its owncurrency - Yen. It needs more yen at home than dollar overseas. What is the useof savings if it cannot be used even during the days of extreme necessities?

1. As result, it is possible that Yen will eventually rise with outflux of dollarand influx of yen into the monetary system in Japan

2. Unless the Japanese Monetary Authority and Bank of Japan adopt anotherimprudent step to pump in trillions of yen into the money market without selling its dollar reserve.




3. Whether BOJ pumps in more money or not, it is inevitable that theJapanese Yen will rise from current 82Y/$ to almost 60Y/$ in less than 18months at the most. There is a strong urge for money to revisit home fromoverseas, and this will be done very fast whether to the liking of Japanesepoliticians and businesses or not. Home-coming of Yen will be the

biggest development in FOREX market in more than 60 years.4. The journey from 82Y to 60Y will not be easy one to start with. Initially,

with growth figures of Japan revised down followed by rating downgradeby S&P, Moody and Fitch credit rating agencies, some hedge funds willshort the Yen knowing fully well that Japanese government will love theiractions. The Yen might show some initial weakness right up to 86.8 levelsat the most, after which it may résumé its upward journey stopping at 81,78, 75 and 71. Once it surpasses the 69Y threshold, it may move to 65,63.50 and eventually 61 level. There could be concerted actions from G7nations at the instance of Japan's request, but such actions cannot stop the

rise for long time.5. Those who short the Yen presuming lower GDP growth or excessive

printing of yen by BOJ will be simply butchered later on.6. Those overseas workers working in Japan and getting their salary or other

income in Yen should preserve their savings before remitting the amount to their own country in panic. In this authors' personal opinion, anyweakness in Japanese Yen to 86Y or about will be entry point for takingposition in Yen. Those who sell Yen in panic may feel hurt later for loss of profits.

7. Japanese insurers will have no alternative but to sell its overseas assets likestocks, bonds, and treasuries and bring the money back home to meet theinsurance claims. These insurers do not have luxury to print the Yen ontheir back yard. They are private corporations, not government entitieswho can print the Yen at random out of thin air.

2. Japanese growth will be knocked off in big punch. It will be a sufficient cause forforeign investors to shun the NIKKEI and invest less in Japan for at least 2 years.

3. Interest rates may rise in Japan which has been kept at artificially low level for along time. There will be a dearth of capital, so new capital will come at a cost, not free as before.

4. Japan will be absent at all future treasury auctions in United States. Or itsscale of activity will be substantially cut down. When one major creditorJapan stays away from the participation, there will be rise in effective interest rates in United States. Watch out the LIBOR - it may give first indication of movement in interest rates in United States.

5. If Japan and its businesses/insurers/banks are obliged to sell the dollars, and buyYen for use in resurrecting manufacturing plants in Japan, US dollar index (papertrading) and physical dollar itself will come under severe and continuous selling




pressure. Gold and silver may gain steadily with faster pace than ever before(barring short term downward prices caused in wrong conception).

6. The countries exporting food items such as Australia, Canada, USA, China

and other nations will gain from their exports if they are not facing

foodstuff related inflation and did not ban exports.

7. There is a wrong conception that the Japanese manufacturers will lose theirproduction advantage. They will make it up by producing more in cheaperoverseas plants. Therefore, the countries housing Japanese manufacturers willwitness substantial increase in exports from their countries. China, Malaysia andIndonesia will be the biggest gainers in exports. Their respective currency maygain too as result.

8. With Yen rising, the profitability of Japanese conglomerates will decline in Yenterms but in dollar terms they may not lose advantage due to rise in Yen value. It is possible that some Japanese companies will start preparing their final accountsin US dollar terms rather than their own currency to window dress it better.

9. Those who contracted debt or contracted “Yen Carry trades” by borrowing in Yenor swapping into their ultimate currency to fund their own requirements willsuffer huge losses because their debt in real terms will rise anywhere between10% and 25% depending on the level of Japanese Yen appreciation versuscurrency of destination. For instance, a bank like ICICI in India, who contractedJapanese Yen debt equivalent to $ 1 billion of loans or Commercial Borrowings inrecent past, will find its profitability shrinking to the extent of Yen appreciationversus Indian Rupees.

10. The derivative markets which was mainly involved in "Carry Trades against Yen"and in non deliverable forwards, will find themselves losing humongous amount.There could be total collapse of derivative market when the Yen startsstrengthening and interest rates in Japan ticking higher from near zero level.Those Yen borrowers for swap transactions will suffer from higher Yan andhigher effective interest rates on Yen.

Tremors in America

There will be more consequences. Most worried persons will be Bernanke and Geithner(and Obama himself) because none of their high profile visit is going to work in theirfavor this time. They can’t bring even moral pressure on Japan not to sell the treasury

or buy more of them in future auctions. Their day of inevitable will be nearer thanbefore. When Japan starts selling treasury, Chinese are not going to sit behind andwatch their value shrinking right before their eyes – they have even greater stake afterall. Based on the cardinal investment rule “ If you can’t fight them, better join them”the Chinese will be forced to join the Japanese in selling treasury dollar game. US dollaris going to be vulnerable in future. Give or take 4 to 6 months, and you will have heavilylosing US dollar in the Forex game.




All in all, the currency market is going to witness the massive upheavals. The major

beneficiaries will be Aussie dollar and Canadian dollars. Minor beneficiaries will

be Brazil Real and South African Rand. Controlled currencies of China and India

may not rise much in spite of higher exports for obvious reasons. They havesurplus food stuff to export to Japan; secondly, they are least affected by inflation due

to stronger currency and economy, and finally they are benefitted by higher hard andsoft commodities. Aussie dollar might rise to 1.20 and Loony (Canadian Dollar) mayrise to 0.88 to 0.92

It is amazing that the Japanese leadership is engaged into paper trading exercise whenit should focus on real tangible asset exchange and development.

They have still not understood that it has been adopting deliberate "weak yen' policyright from 142Y to current 82Y in last 16 years with disastrous result. If it has amassedUS dollar reserve of about $900 billion, it has in real sense lost nearly $300 billion in

Forex losses, if you take average rate of 120Y. That is, they shorted or sold Yen at average price of 120 and now can get back only 82 or 2/3rd of what they sold. That is,they lost 1/3rd of $900 billion or cool $ 300 billion in Forex losses.

Japanese Government will learn it hard way that "Selling Yen and Buying US Dollar is

injurious to Japanese Wealth" and by the time it realizes the truth, it will be too late.

Anil Selarka (also known as Kalidas)

Hong Kong Camp: USA

March 15, 2011 – Ref: 2011-02-PO

©2011 by Anil Selarka (Kalidas) All Rights reserved by the Author

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Quake in Japan, Tremors in America