Tuesday, January 31, 2012

Japanese Yen: The Next Currency Crisis ?

We now have a debt crisis in Europe, that could well turn into a currency crisis. In the meantime, the Japanese Yen (JPY) is stronger than ever, although Japan's public debt to GDP has reached an amazing 220% of GDP.

The reasons for the strength of the Japanese Yen have been  its low external debt (most debt is owned by Japanese), large reserves and current account surplus.

However, Japan had a trade deficit in 2011, the first time since 1980 (See chart below courtesy of Trading Economics). The current account was still positive, but greatly reduced compared to previous years. If the trade deficit was to continue it could weaken the Yen, making it less of a safe heaven, and increase interest rates, which could snowball into a debt crisis and quickly deteriorate in a currency crisis.

Many people see Asian currencies, as being strong currencies. However, in 2011, with India debt to GDP over 90%, the Indian Rupee declined by up to 15% against the US dollar, although it recently rallied somewhat.
What really destroys a currency is debt. Any currency with large amount of debt is at risk nowadays. There are not many fiat currencies that could qualify as safe haven now. For that reason, I don't consider the Japanese Yen and (especially) the US dollar as safe investment at least in the long term.

If you want to learn more about the Japanese Yen risk, check Mish Shedlock and Kyle Bass.

Wednesday, January 18, 2012

There's Not Enough Silver For Everyone

Here's an eye opening video about the silver market by David Morgan. You may have heard "Everyone should own a little" when talking about Silver. As there are 700 millions ounces mined every year, it's impossible to have everyone (people with at least 60 USD to invest per year) to buy a little silver (2 ounces).

Tuesday, January 17, 2012

US Debt Ceiling Breached Again

If the debt clock numbers are correct, the US debt now stands at 15.244 trillion dollars. Last summer, there was a long debate in the congress / senate to raise the debt ceiling to 15.194 trillion dollars (approved by the senate on the 8th September 2011). So now, early in 2012 (4 months later), it seems another debt ceiling debacle is in the making during a presidential year. That should be fun to watch.

Tuesday, January 3, 2012

Peter Schiff: There is no safe haven in currencies!

Peter interview on CNBC Fast Money on 30th of December 2011. He explains the Euro short trade is crowded and Gold is still under-owned. 

Every central bank is printing and people are looking for currency alternatives such as Gold.

Jim Rogers: Buy the Euro and the Swiss Franc in 2012

Apparently, despite all the talks about a currency crisis in Europe, I'm not the only one to think the Euro may be a buy in 2012, as Jim Rogers was interviewed on CNBC on the 3rd of January 2012 saying he would consider investing in the European currency along with the Swiss Franc. The main reasons he wants to invest in the Euro are the large short position in the Euro and the fact that it is an election year in France, so they will probably do something (spend money or monetize the debt) to make the market feel better for a while. However, he believes this would be a terrible mistake and we'll have to pay the price in 2013-2014.
I'm also worried about the Japanese Yen, as in the last few month they had a trade deficit. If this persists, it would be negative for the Yen. I suppose Jim Rogers plans to convert some of his Japanese Yen holdings into Euro and CHF.