The Opportune Time Newsletter

7/30/2019 The Opportune Time Newsletter

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VOLUME II ISSUE XIV December 17, 2012

Executive

Summary Dont Fight the Fed 2

Game May be Over for

Super Mario 4

Hawks Flying OverJapan 6

To keep connected between issues:www.theopportunetime.com

Copyright 2012 by The Opportune Time, LLC. All Rights Reserved.

After announcing a new quantitative easing program,

the Fed is poised to steepen the Treasury yield curve.

In Europe, Italy returns to the spotlight after Mario

Monti's resignation announcement inserts a new dose

of political uncertainty into the European sovereign

debt crisis. Finally, we expect a relatively aggressive

monetary policy in Japan following a rhetorically

hawkish campaign from Shinzo Abe, leader of the

victor of the latest general elections, the Liberal

Democratic Party.

Photo courtesy of Journey to Alpha
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VOLUME II ISSUE XIV THE OPPORTUNE TIME December 17, 2012

WWW.THEOPPORTUNETIME.COM PAGE 2

Dont Fight the FedRisk assets across the world generally

outperformed those in the United States (U.S.)

last week. The benchmark Standard & Poors

500 Index (S&P 500) ended the week down

0.32% after midweek gains that followed the

Federal Reserve (Fed)s announcement of a new

quantitative easing (QE) program. The S&P

500s fellow indices, the Nasdaq and Dow Jones

Industrial Average (DJIA) followed a similar

trend, finishing down 0.23% and 0.15% as Fiscal

Cliff talks continued in Washington and Apple(AAPL) continued to struggle.

The Feds monetary policy stance remains

unsurprisingly dovish after President Obamas

re-election in early November. The latest

Federal Open Market Committee (FOMC)

meeting on December 11and 12 unveiled two

fresh measures. As expected, the Fed will follow

up on the expiration ofOperation Twistwith the

purchase of longer-end Treasury securities at

the pace of $45 billion per month, a program we

now refer to as QE3s. In addition to the $40

billion per month purchase ofmortgage-backed

securities (MBS) announced in September,

QE3s is set to expand the Fedsbalance sheet to

$85 billion per month. For the first time sincethe financial crisis, forward guidance on the

benchmarkfederal funds rate will be based on

economic thresholds. Instead of committing to

virtually zero interest rates until 2015,

Chairman Ben Bernanke and company decided

that this target range will be appropriate as

long as the unemployment rate is above 6.5%,

inflationbetween 1 to 2 years ahead is no morethan 0.5% above the long-run target of 2.0%,

and longer-term inflationary expectations

remain well-anchored.

In our view, QE3s is undertaken in light of the

most pressing economic headwind, the fiscal

cliff. Although risk asset markets remain

generally optimistic of a bipartisan resolution ofsome sort by the January 1 deadline the

Standard & Poors 500 pared losses since the

Despite the recent S&P 500 (red) rally, U.S. consumption indicators such as retail sales (orange) and CPI (blue) are

moderating, showing that the fiscal cliff has started to weigh on consumer sentiment. |Image courtesy of Ycharts
http://www.theopportunetime.com/http://www.theopportunetime.com/http://www.theopportunetime.com/term.php?term=risk-assethttp://www.theopportunetime.com/term.php?term=Standard-Poors-indexhttp://www.theopportunetime.com/term.php?term=Standard-Poors-indexhttp://www.theopportunetime.com/term.php?term=Federal-Reserve-Systemhttp://www.theopportunetime.com/term.php?term=quantitative-easinghttp://www.theopportunetime.com/term.php?term=Nasdaqhttp://www.theopportunetime.com/term.php?term=Dow-Jones-Industrial-Averagehttp://www.theopportunetime.com/term.php?term=Dow-Jones-Industrial-Averagehttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&ved=0CHYQFjAF&url=http%3A%2F%2Fwww.investopedia.com%2Fterms%2Ff%2Ffiscalcliff.asp&ei=2urOUOnwLeWciALGuYG4Dw&usg=AFQjCNH9L83y0CcNoSgbm7xtqeu7bNbAsg&sig2=Ir9FTHO-rRUsGiVAF_F0qA&bvm=bv.1355325884,d.https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&ved=0CHYQFjAF&url=http%3A%2F%2Fwww.investopedia.com%2Fterms%2Ff%2Ffiscalcliff.asp&ei=2urOUOnwLeWciALGuYG4Dw&usg=AFQjCNH9L83y0CcNoSgbm7xtqeu7bNbAsg&sig2=Ir9FTHO-rRUsGiVAF_F0qA&bvm=bv.1355325884,d.http://www.theopportunetime.com/term.php?term=monetary-policyhttp://www.theopportunetime.com/term.php?term=dovishhttp://www.theopportunetime.com/term.php?term=Federal-Open-Market-Committeehttp://www.investopedia.com/terms/o/operation-twist.asphttp://www.theopportunetime.com/term.php?term=U.S.-Treasury-Securityhttp://www.theopportunetime.com/term.php?term=mortgage-backed-securityhttp://www.theopportunetime.com/term.php?term=mortgage-backed-securityhttp://www.theopportunetime.com/term.php?term=mortgage-backed-securityhttp://www.theopportunetime.com/term.php?term=mortgage-backed-securityhttp://www.theopportunetime.com/term.php?term=balance-sheethttp://www.investopedia.com/terms/g/guidance.asp#axzz2FE0dH58fhttp://www.investopedia.com/terms/f/federalfundsrate.asphttp://www.investopedia.com/terms/i/interestrate.asphttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDcQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FBen_Bernanke&ei=E3_OUInvHIGpiQL4mYGYDw&usg=AFQjCNEuTT5v-FHFWmLHlG6fOKGcGJrvKg&sig2=5_BjXhwprqRUBPKlFCCy5A&bvm=bv.1355325884,d.cGEhttp://www.theopportunetime.com/term.php?term=unemployment-ratehttp://www.theopportunetime.com/term.php?term=inflationhttp://lexicon.ft.com/Term?term=inflation-expectationshttp://www.investopedia.com/terms/f/fiscalcliff.asphttp://www.investopedia.com/terms/f/fiscalcliff.asphttp://www.theopportunetime.com/term.php?term=risk-assethttp://www.theopportunetime.com/term.php?term=Standard-Poors-indexhttp://www.theopportunetime.com/term.php?term=Standard-Poors-indexhttp://www.theopportunetime.com/term.php?term=risk-assethttp://www.investopedia.com/terms/f/fiscalcliff.asphttp://www.investopedia.com/terms/f/fiscalcliff.asphttp://lexicon.ft.com/Term?term=inflation-expectationshttp://www.theopportunetime.com/term.php?term=inflationhttp://www.theopportunetime.com/term.php?term=unemployment-ratehttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDcQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FBen_Bernanke&ei=E3_OUInvHIGpiQL4mYGYDw&usg=AFQjCNEuTT5v-FHFWmLHlG6fOKGcGJrvKg&sig2=5_BjXhwprqRUBPKlFCCy5A&bvm=bv.1355325884,d.cGEhttp://www.investopedia.com/terms/i/interestrate.asphttp://www.investopedia.com/terms/f/federalfundsrate.asphttp://www.investopedia.com/terms/g/guidance.asp#axzz2FE0dH58fhttp://www.theopportunetime.com/term.php?term=balance-sheethttp://www.theopportunetime.com/term.php?term=mortgage-backed-securityhttp://www.theopportunetime.com/term.php?term=mortgage-backed-securityhttp://www.theopportunetime.com/term.php?term=U.S.-Treasury-Securityhttp://www.investopedia.com/terms/o/operation-twist.asphttp://www.theopportunetime.com/term.php?term=Federal-Open-Market-Committeehttp://www.theopportunetime.com/term.php?term=dovishhttp://www.theopportunetime.com/term.php?term=monetary-policyhttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&ved=0CHYQFjAF&url=http%3A%2F%2Fwww.investopedia.com%2Fterms%2Ff%2Ffiscalcliff.asp&ei=2urOUOnwLeWciALGuYG4Dw&usg=AFQjCNH9L83y0CcNoSgbm7xtqeu7bNbAsg&sig2=Ir9FTHO-rRUsGiVAF_F0qA&bvm=bv.1355325884,d.https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&ved=0CHYQFjAF&url=http%3A%2F%2Fwww.investopedia.com%2Fterms%2Ff%2Ffiscalcliff.asp&ei=2urOUOnwLeWciALGuYG4Dw&usg=AFQjCNH9L83y0CcNoSgbm7xtqeu7bNbAsg&sig2=Ir9FTHO-rRUsGiVAF_F0qA&bvm=bv.1355325884,d.http://www.theopportunetime.com/term.php?term=Dow-Jones-Industrial-Averagehttp://www.theopportunetime.com/term.php?term=Dow-Jones-Industrial-Averagehttp://www.theopportunetime.com/term.php?term=Nasdaqhttp://www.theopportunetime.com/term.php?term=quantitative-easinghttp://www.theopportunetime.com/term.php?term=Federal-Reserve-Systemhttp://www.theopportunetime.com/term.php?term=Standard-Poors-indexhttp://www.theopportunetime.com/term.php?term=Standard-Poors-indexhttp://www.theopportunetime.com/term.php?term=risk-assethttp://www.theopportunetime.com/


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post-election selloff the Fed is not taking any

chances via inaction. In fact, the recent equities

rally may well be driven by expectations of

further monetary easing. Without the Feds

action, the mild risk-off behavior could have

easily gone into overdrive. With the budget

negotiations currently gridlocked, the onus was

arguable on the Fed to support market

sentiment. Mixed economic data of late may

also signal short-term weakness ahead. Despite

the lower unemployment rate of 7.7% in

November discussed in Volume II, Issue XIII,

consumption-related indicators such as

consumer sentiment,retail sales, and consumer

price index (CPI) all disappointed on the

downside in December. The absence of further

monetary stimulus from the Fed thus had the

possibility of undoing the effects of the labor

and housing market recovery so far.

From a fixed income perspective, we think thatQE3s is likely to steepen the U.S. Treasuryyield

curve over the next few months. First, the

unsterilized purchasing of Treasuries could

elevate inflationary expectations, prompting

nominal yields to rise on the long-end of the

curve. Over the past 15 months, the Fed had

financed the purchase of long-end Treasuries

with proceeds from the sale of short-end ones.

With the demise of Operation Twist, the central

bank will have to create reserves effectively

printing money to continue buying long-

term Treasuries. Similar to previous QE

editions, the additional liquidityin the financial

system could weaken the U.S. dollar (USD) and

trigger price inflation. Already, the spread

between 10-year Treasury Inflation Protected

Securities (TIPS) and 10-year Treasury notes, a

market gauge of inflationary expectations,increased to 2.51% ahead of the latest QE

announcement.

Second, long-end Treasury yields could also

remain elevated via the so-called portfolio

balancing channel. Theoretically at least,

unconventional monetary policy in the form of

asset purchases should lower the yields of these

assets and push yield-

seeking investors to otherassets with similar characteristics like credit risk

or duration. For example, investors who sold

MBS to the Fed may replace them with

investment-grade corporate bonds, thus

lowering corporate borrowing costs. Depending

on the size of the Fed intervention, the

displacement of privately-held Treasury bonds,

for example, may raise long-end yields and

steepen the yield curve.

Third, there should be less upward pressure on

short-term yields when the Fed stops selling

Treasury notes, thereby creating a steeper yield

The 10-year TIPS-Treasury spread has spiked after every

previous QE episode. |Image courtesy of Ycharts
http://www.theopportunetime.com/http://www.theopportunetime.com/http://www.investopedia.com/terms/s/selloff.asphttp://www.investopedia.com/terms/r/rally.asphttp://www.investopedia.com/terms/r/risk-on-risk-off.asphttp://www.investopedia.com/terms/r/risk-on-risk-off.asphttp://www.investopedia.com/terms/r/risk-on-risk-off.asphttp://www.theopportunetime.com/archive/The-Opportune-Time-Volume-II,-Issue-XIII.pdfhttp://www.theopportunetime.com/term.php?term=consumptionhttp://www.theopportunetime.com/term.php?term=consumptionhttp://www.investopedia.com/terms/c/consumer-sentiment.asphttp://www.investopedia.com/terms/r/retail-sales.asphttp://www.theopportunetime.com/term.php?term=Consumer-Price-Indexhttp://www.theopportunetime.com/term.php?term=Consumer-Price-Indexhttp://www.investopedia.com/terms/d/downside.asphttp://www.theopportunetime.com/term.php?term=monetary-stimulushttp://www.theopportunetime.com/term.php?term=fixed-incomehttp://www.theopportunetime.com/term.php?term=yield-curvehttp://www.theopportunetime.com/term.php?term=yield-curvehttp://www.investopedia.com/terms/s/sterilization.asphttp://www.theopportunetime.com/term.php?term=nominalhttp://www.theopportunetime.com/term.php?term=yield-curvehttp://www.theopportunetime.com/term.php?term=bank-reserveshttp://www.theopportunetime.com/term.php?term=liquidityhttp://www.investopedia.com/terms/s/spread.asphttp://www.investopedia.com/terms/t/tips.asphttp://www.investopedia.com/terms/t/tips.asphttp://www.investopedia.com/terms/c/creditrisk.asphttp://www.investopedia.com/terms/d/duration.asphttp://www.theopportunetime.com/term.php?term=investment-gradehttp://www.theopportunetime.com/term.php?term=investment-gradehttp://www.theopportunetime.com/term.php?term=investment-gradehttp://www.theopportunetime.com/term.php?term=investment-gradehttp://www.investopedia.com/terms/d/duration.asphttp://www.investopedia.com/terms/c/creditrisk.asphttp://www.investopedia.com/terms/t/tips.asphttp://www.investopedia.com/terms/t/tips.asphttp://www.investopedia.com/terms/s/spread.asphttp://www.theopportunetime.com/term.php?term=liquidityhttp://www.theopportunetime.com/term.php?term=bank-reserveshttp://www.theopportunetime.com/term.php?term=yield-curvehttp://www.theopportunetime.com/term.php?term=nominalhttp://www.investopedia.com/terms/s/sterilization.asphttp://www.theopportunetime.com/term.php?term=yield-curvehttp://www.theopportunetime.com/term.php?term=yield-curvehttp://www.theopportunetime.com/term.php?term=fixed-incomehttp://www.theopportunetime.com/term.php?term=monetary-stimulushttp://www.investopedia.com/terms/d/downside.asphttp://www.theopportunetime.com/term.php?term=Consumer-Price-Indexhttp://www.theopportunetime.com/term.php?term=Consumer-Price-Indexhttp://www.investopedia.com/terms/r/retail-sales.asphttp://www.investopedia.com/terms/c/consumer-sentiment.asphttp://www.theopportunetime.com/term.php?term=consumptionhttp://www.theopportunetime.com/archive/The-Opportune-Time-Volume-II,-Issue-XIII.pdfhttp://www.investopedia.com/terms/r/risk-on-risk-off.asphttp://www.investopedia.com/terms/r/rally.asphttp://www.investopedia.com/terms/s/selloff.asphttp://www.theopportunetime.com/


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curve. If anything, short-term yields could face a

downward bias as risk-averse investors seek to

readjust their portfolios in favor of safe haven

assets ahead of the fiscal cliff. The market may

also view the use of economic thresholds inforward rate guidance positively as it lowers the

uncertainty on when the Fed could normalize

rates again. Given that both the unemployment

and inflation rates are projected to be at least 3

years away from the target thresholds, the

federal funds rate should remain zero-bound for

a while, putting more downward pressure on

short-term yields.

In light of a steepening Treasury yield curve, we

recommend a market neutral fixed income

trade: buying short-end bills (i.e. 2

-year bills)

and short-selling long-end bonds (i.e. 20-year

bonds). This strategy only captures the relative

rates along the curve and provides upside in all

three possible scenarios that constitute a

steepening yield curve: the price of the short-

end rising, the price of the long-end falling, or

both. Since the prices of long-end Treasuries are

more sensitive to interest rate changes than

short-end Treasuries, investors should also

weigh their long-short positions based on the

relative level of price sensitivity of the two

Treasuries. This weighing of positions is also

known as a hedge ratio. For example, if a 20-

year bond is 10 times more sensitive to a 1basis

point (bps) change in interest rate than a 2-year

bill, then the long position on the 2-year bill

should be 10 times larger than the short position

on the 20-year bond. To take advantage of a

steepening Treasury yield curve, investors can

also look into specific exchange-traded notes

(ETN) such as the iPath U.S. Treasury Steepener

ETN (STPP). In line with our investment thesis,

the price of STPP has risen while that of the

iPath U.S. Treasury Flattener ETN (FLAT) has

fallen since the announcement of QE3s.

Game May be Over for Super Mario

On the other hand, European indices like

Germanys Deutscher Aktien Index (DAX) and

Englands FTSE 100 Index outperformed their

American counterparts, ending the week up

0.19% and 0.27% respectively. European

markets did suffer a brief setback early in the

week, however, after Italian Prime Minister

Mario Monti announced that he would be

resigning after the authorization of Italys 2013

budget. The budget should be approved before

The iPath UST Steepener ETN (orange) and the iPath

UST Flattener ETN (green) have risen and fallen

respectively this month. |Image courtesy of Bloomberg
http://www.theopportunetime.com/http://www.theopportunetime.com/http://www.investopedia.com/terms/r/riskaverse.asphttp://www.investopedia.com/terms/r/riskaverse.asphttp://www.investopedia.com/terms/r/riskaverse.asphttp://www.theopportunetime.com/term.php?term=safe-havenhttp://www.investopedia.com/terms/m/marketneutral.asphttp://www.theopportunetime.com/term.php?term=sell-shorthttp://www.theopportunetime.com/term.php?term=sell-shorthttp://www.theopportunetime.com/term.php?term=sell-shorthttp://www.investopedia.com/terms/u/upside.asphttp://www.investopedia.com/terms/l/long-shortequity.asphttp://www.investopedia.com/terms/l/long-shortequity.asphttp://www.investopedia.com/terms/l/long-shortequity.asphttp://www.investopedia.com/terms/h/hedgeratio.asphttp://www.theopportunetime.com/term.php?term=basis-points-(bps)http://www.theopportunetime.com/term.php?term=basis-points-(bps)http://www.investopedia.com/terms/e/etn.asphttp://www.investopedia.com/terms/e/etn.asphttp://www.investopedia.com/terms/e/etn.asphttp://www.theopportunetime.com/term.php?term=Deutscher-Aktien-Indexhttp://www.theopportunetime.com/term.php?term=FTSE-100-Indexhttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&ved=0CEYQFjAD&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FMario_Monti&ei=snXPUP6pLub_igLz9YDgCQ&usg=AFQjCNH3PousTAStd7RvaNj-71wSrhpr5Q&sig2=aW_WowRp8SSpmdikNLFJEA&bvm=bv.1355325884,d.cGEhttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&ved=0CEYQFjAD&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FMario_Monti&ei=snXPUP6pLub_igLz9YDgCQ&usg=AFQjCNH3PousTAStd7RvaNj-71wSrhpr5Q&sig2=aW_WowRp8SSpmdikNLFJEA&bvm=bv.1355325884,d.cGEhttp://www.theopportunetime.com/term.php?term=FTSE-100-Indexhttp://www.theopportunetime.com/term.php?term=Deutscher-Aktien-Indexhttp://www.investopedia.com/terms/e/etn.asphttp://www.theopportunetime.com/term.php?term=basis-points-(bps)http://www.theopportunetime.com/term.php?term=basis-points-(bps)http://www.investopedia.com/terms/h/hedgeratio.asphttp://www.investopedia.com/terms/l/long-shortequity.asphttp://www.investopedia.com/terms/u/upside.asphttp://www.theopportunetime.com/term.php?term=sell-shorthttp://www.investopedia.com/terms/m/marketneutral.asphttp://www.theopportunetime.com/term.php?term=safe-havenhttp://www.investopedia.com/terms/r/riskaverse.asphttp://www.theopportunetime.com/


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Parliaments Christmas break, and a snap

election is now expected in February to find

Monti's replacement. The FTSE Milano Italia

Borsa (FTSE MIB), Italys benchmark index, fell

3.3% following the announcement.

Monti's resignation came as a surprise to the

two individuals intending to run in the general

election originally planned for April. Pier Luigi

Bersani of the Democratic Party and former

Prime Minister Silvio Berlusconi of the People

of Freedom Partywill both be seeking office,

hoping to shed their respective past problems inthe minds of moderate voters. Monti will

announce his future intentions via a national

speech at an unspecified date in the future.

Monti was often criticized by Italians for raising

taxes and generally failing to overcome

Parliament in order to enact structural reforms

aimed at reducing spending. Nonetheless, Monti

did help resist unpopular German austerity

policies, often siding with French and Spanish

policymakers in helping avoid what they felt

were excessive measures. However, many like

Berlusconi feel that he was not strong enough

against German Chancellor Angela Merkel.

According to a poll by the Financial Times and

Harris, 83% of Italians believe that Germanys

influence in the European Union (EU) is too

strong. Berlusconi has already begun taking

advantage of the sentiment, accusing Monti of

implementing German-centric policies.

With Merkel also facing an election in 2013,

Monti's successor, and his relationship with

other euro area policymakers, will be important

in the success or failure of EU austerity

measures championed by Merkel in the coming

months. The euro area remains sluggish, with

industrial output falling 1.4% in October and a

flash Purchasing Managers Index (PMI)

indicating an ongoing contraction with an under

-50 reading of 47.3 so far for the month of

December. We expect to see an increase in talks

following the fiscal negotiations in the U.S., as

European policymakers assess the post-fiscal

cliff markets and prepare to push policies ahead

of elections. Given the renewed political

uncertainty in the region, we also expect the

equity and debt markets to be fairly volatile in

the coming months.

Pier Luigi Bersani (left), Mario Monti (middle), and

Silvio Berlusconi (right) will bring Italy back into the

euro area spotlight in the coming months. | Photo

courtesy of Lettera43
http://www.theopportunetime.com/http://www.theopportunetime.com/http://en.wikipedia.org/wiki/Snap_electionhttp://en.wikipedia.org/wiki/Snap_electionhttp://en.wikipedia.org/wiki/FTSE_MIBhttp://en.wikipedia.org/wiki/FTSE_MIBhttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDcQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FPier_Luigi_Bersani&ei=1nbPUO-8Joe6iwKkl4HACw&usg=AFQjCNFjJp-j-SfXmXj1eTKDnyNf0dpeXw&sig2=k7caSX3Zo7HTmP5gdxgxsg&bvm=bv.1355325884,https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDcQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FPier_Luigi_Bersani&ei=1nbPUO-8Joe6iwKkl4HACw&usg=AFQjCNFjJp-j-SfXmXj1eTKDnyNf0dpeXw&sig2=k7caSX3Zo7HTmP5gdxgxsg&bvm=bv.1355325884,https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDcQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FDemocratic_Party_(Italy)&ei=AnfPUOmPAejoiwKwhYEQ&usg=AFQjCNGEKovfaRuLeijAH49-GeMMKwsCuw&sig2=K2lwRfxzPH80NBag7lACzA&bvm=bv.1355325https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&sqi=2&ved=0CEMQFjAD&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FSilvio_Berlusconi&ei=4HbPUKqhOqqWjAKH8YCgAQ&usg=AFQjCNEcdrR-CSLoUGxM0iH_8F1Wr8PJiQ&sig2=20cDXvNcX5MsFmYU2ZiY0A&bvm=bv.135532http://en.wikipedia.org/wiki/The_People_of_Freedomhttp://en.wikipedia.org/wiki/The_People_of_Freedomhttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDgQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FAngela_Merkel&ei=4XjPUJiPFanrigKBq4CYBQ&usg=AFQjCNGasqtbfgmdW6rOWe7aH27JeQfGYA&sig2=BH44cWZTzpWcMmtjqMezJA&bvm=bv.1355325884,d.cGEhttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDgQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FEuropean_Union&ei=-3nPUP_XLsHqiwLE-IFg&usg=AFQjCNFy3n9-1oeHSss9EorMgrjEMcn7ew&sig2=bTeSq1xqg__ahS2m-wWckA&bvm=bv.1355325884,d.cGEhttp://www.theopportunetime.com/term.php?term=euro-areahttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDgQFjAA&url=http%3A%2F%2Fwww.investopedia.com%2Fterms%2Fp%2Fpmi.asp&ei=oaTPUInyDsnniALu7YHQAw&usg=AFQjCNF5KaLZXKP4B_LswyF-0qzCjfQpKQ&sig2=-I_dYU7Xemw-XbN9V0fFfg&bvm=bv.1355534169https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDgQFjAA&url=http%3A%2F%2Fwww.investopedia.com%2Fterms%2Fp%2Fpmi.asp&ei=oaTPUInyDsnniALu7YHQAw&usg=AFQjCNF5KaLZXKP4B_LswyF-0qzCjfQpKQ&sig2=-I_dYU7Xemw-XbN9V0fFfg&bvm=bv.1355534169http://www.theopportunetime.com/term.php?term=euro-areahttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDgQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FEuropean_Union&ei=-3nPUP_XLsHqiwLE-IFg&usg=AFQjCNFy3n9-1oeHSss9EorMgrjEMcn7ew&sig2=bTeSq1xqg__ahS2m-wWckA&bvm=bv.1355325884,d.cGEhttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDgQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FAngela_Merkel&ei=4XjPUJiPFanrigKBq4CYBQ&usg=AFQjCNGasqtbfgmdW6rOWe7aH27JeQfGYA&sig2=BH44cWZTzpWcMmtjqMezJA&bvm=bv.1355325884,d.cGEhttp://en.wikipedia.org/wiki/The_People_of_Freedomhttp://en.wikipedia.org/wiki/The_People_of_Freedomhttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&sqi=2&ved=0CEMQFjAD&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FSilvio_Berlusconi&ei=4HbPUKqhOqqWjAKH8YCgAQ&usg=AFQjCNEcdrR-CSLoUGxM0iH_8F1Wr8PJiQ&sig2=20cDXvNcX5MsFmYU2ZiY0A&bvm=bv.135532https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDcQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FDemocratic_Party_(Italy)&ei=AnfPUOmPAejoiwKwhYEQ&usg=AFQjCNGEKovfaRuLeijAH49-GeMMKwsCuw&sig2=K2lwRfxzPH80NBag7lACzA&bvm=bv.1355325https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDcQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FPier_Luigi_Bersani&ei=1nbPUO-8Joe6iwKkl4HACw&usg=AFQjCNFjJp-j-SfXmXj1eTKDnyNf0dpeXw&sig2=k7caSX3Zo7HTmP5gdxgxsg&bvm=bv.1355325884,https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDcQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FPier_Luigi_Bersani&ei=1nbPUO-8Joe6iwKkl4HACw&usg=AFQjCNFjJp-j-SfXmXj1eTKDnyNf0dpeXw&sig2=k7caSX3Zo7HTmP5gdxgxsg&bvm=bv.1355325884,http://en.wikipedia.org/wiki/FTSE_MIBhttp://en.wikipedia.org/wiki/FTSE_MIBhttp://en.wikipedia.org/wiki/Snap_electionhttp://en.wikipedia.org/wiki/Snap_electionhttp://www.theopportunetime.com/


6/8



Hawks Flying Over Japan

Japans Nikkei 225 rallied to a gain of 0.94%

today after the Liberal Democratic Party(LDP)

won the countrys general election on Sunday.

The victory for LDP means that incumbent

Prime Minister Shinzo Abe will retain his

position for a second term.

The LDPs reelection comes at a stressful time

for Japan. Economically, the country remains in

a recession InVolume II, Issue Xwe discussed

Japans rising debt to gross domestic product

(GDP) ratio, which continues to threaten its

growth. Additionally, a rising level of foreign

investment in Japan amid global uncertainty

from fiscal concerns in the U.S. and the

European sovereign debt crisis is weighing on

bond yields. Politically, the country is in a

diplomatic stalemate with China, in large part

over the Senkaku Islands.

Abes hawkish campaign rhetoric, in which he

stated his intention to expand monetary policy

in an effort to maintain strict inflation targets,

seems to have gone over well with voters who

are hoping for an improvement to their slowing

country. Abe is likely to pursue more controlover the Bank of Japan (BoJ) in an effort to

secure his ideas in the central banks policies, as

he suggested in his campaign. One way to do so

would be through the appointment of new BoJ

officials, albeit a move that the LDP would not

be able to make without the support of the

House of Councillors in the National Diet,

Japans bicameral legislature.

The Japanese Yen (JPY) has already reacted to

the election results by falling to 0.0119 against

the USD, its lowest level since March. The JPY

will likely see further weakening if Abe succeeds

in influencing an increase to monetary policy in

order to hit an inflation target of 2% - 3%.

Although such policies may already be priced

into the currency markets, investors may be able

to benefit in the equity markets.

Despite the poor performance of Japanese

companies like Sony (SNE) and Sharp (SCHAY)

Shinzo Abe will be expected to help Japan return to

growth while remaining tough against China without

escalating the conflict. | Photo courtesy of

Guardian.co.uk

As the JPY weakens, 1 USD is worth an increasing

number of JPY. |Image courtesy of Financial Times
http://www.theopportunetime.com/http://www.theopportunetime.com/http://www.theopportunetime.com/term.php?term=Nikkei-225https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDcQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FLiberal_Democratic_Party_(Japan)&ei=hZXPULvIG4feigLS0YEo&usg=AFQjCNFGAj9SxPVh6Rjtiiy_5jHQ-PArAA&sig2=E87J-cFGw31CV2UuTyhxIg&bvm=bvhttp://en.wikipedia.org/wiki/Shinz%C5%8D_Abehttp://www.theopportunetime.com/term.php?term=recessionhttp://www.theopportunetime.com/archive/The-Opportune-Time-Volume-II,-Issue-X.pdfhttp://www.theopportunetime.com/term.php?term=gross-domestic-producthttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDgQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FEuropean_sovereign-debt_crisis&ei=e5bPUKucOqasigKqiYD4Aw&usg=AFQjCNE9W7S0qJ7es-GJNa1D3mvX7r1TCg&sig2=mBoWgC1xw5fYQv6Qj1e_Vg&bvm=bvhttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&ved=0CEMQFjAB&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FSenkaku_Islands_dispute&ei=EIvPUPGVDeLIigKV5IGgDw&usg=AFQjCNEYi7TNSLBdxPg1iQ96q17EOQCiqg&sig2=QQvHIM3lhQ9a9n4KBI71sA&bvm=bv.135532http://www.theopportunetime.com/term.php?term=hawkishhttp://www.theopportunetime.com/term.php?term=monetary-policyhttp://www.theopportunetime.com/term.php?term=inflationhttp://www.theopportunetime.com/term.php?term=Bank-of-Japanhttp://www.theopportunetime.com/term.php?term=central-bankhttp://en.wikipedia.org/wiki/National_Diethttp://en.wikipedia.org/wiki/National_Diethttp://www.theopportunetime.com/term.php?term=central-bankhttp://www.theopportunetime.com/term.php?term=Bank-of-Japanhttp://www.theopportunetime.com/term.php?term=inflationhttp://www.theopportunetime.com/term.php?term=monetary-policyhttp://www.theopportunetime.com/term.php?term=hawkishhttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&ved=0CEMQFjAB&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FSenkaku_Islands_dispute&ei=EIvPUPGVDeLIigKV5IGgDw&usg=AFQjCNEYi7TNSLBdxPg1iQ96q17EOQCiqg&sig2=QQvHIM3lhQ9a9n4KBI71sA&bvm=bv.135532https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDgQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FEuropean_sovereign-debt_crisis&ei=e5bPUKucOqasigKqiYD4Aw&usg=AFQjCNE9W7S0qJ7es-GJNa1D3mvX7r1TCg&sig2=mBoWgC1xw5fYQv6Qj1e_Vg&bvm=bvhttp://www.theopportunetime.com/term.php?term=gross-domestic-producthttp://www.theopportunetime.com/archive/The-Opportune-Time-Volume-II,-Issue-X.pdfhttp://www.theopportunetime.com/term.php?term=recessionhttp://en.wikipedia.org/wiki/Shinz%C5%8D_Abehttps://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDcQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FLiberal_Democratic_Party_(Japan)&ei=hZXPULvIG4feigLS0YEo&usg=AFQjCNFGAj9SxPVh6Rjtiiy_5jHQ-PArAA&sig2=E87J-cFGw31CV2UuTyhxIg&bvm=bvhttp://www.theopportunetime.com/term.php?term=Nikkei-225http://www.theopportunetime.com/


7/8



last month, manufacturers with strong

exporting businesses may benefit from a lower

JPY. In November, the Markit/JMMA Japan

Manufacturing PMI fell to 46.5, the sharpest

contraction rate in 19 months, due to slowgrowth in China and a relatively strong JPY

during most of the month. However, toward the

end of November the JPY began weakening

against the USD ahead of the election, while our

outlook on China improved as per Volume II,

Issue XI. As a result, we believe Japans

manufacturing PMI will see a recovery in the

month of December as exporters benefit aheadof expected easing. Examples of beneficiaries

may include automakers such as Toyota (TM)

and Honda (HMC), two of Japans top

exporters.

Contributors: Jin Tik Ngai, Jose A. Alvarez
http://www.theopportunetime.com/http://www.theopportunetime.com/http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10339http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10339http://www.theopportunetime.com/archive/The-Opportune-Time-Volume-II,-Issue-XI.pdfhttp://www.theopportunetime.com/archive/The-Opportune-Time-Volume-II,-Issue-XI.pdfhttp://www.theopportunetime.com/archive/The-Opportune-Time-Volume-II,-Issue-XI.pdfhttp://www.theopportunetime.com/archive/The-Opportune-Time-Volume-II,-Issue-XI.pdfhttp://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10339http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10339http://www.theopportunetime.com/


8/8



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DISCLAIMER: The informaon, tools and material presented herein are provided for informaonal purposes only and are not to be used or consid-

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Principals of The Opportune Time, LLC may or may not hold or be short of securies discussed herein, or of any other securies, at any me. Author Name & Electronic Mail Address:The Opportune Time, [email protected]
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