Japan is slowly creeping closer and closer to a debt crisis. Some in the currency markets have noticed as the dollar has strengthened somewhat sharply against the YEN in the last few weeks. The Fukushima nuclear disaster has obviously not helped the struggling Japanese economy. The country has massive cleanup and rebuilding costs to take care of due to the tsunami and related flooding of the reactors. This is driving the Japanese debt load even higher than it was before. It is estimated that in the next year, the debt to GDP ratio will be an astonishing 230% up from a little under 220% this year. Compare this to the United States whose debt to GDP ratio is now a little over 100% and you can see why you should be concerned about Japan. Even Greece’s debt to GDP ratio is lower at around 160%. Granted Greece is a lot smaller economy than Japan and they have tax collection problems among others.
How To Invest With This Concern
This really isn’t an easy answer. Japan does have several strikes against it including a very old and aging population and a shrinking tax-paying workforce, however the global economy seems to be improving so this could delay the inevitable for who know how long.
You can see a possible train wreck coming, it’s just a matter of when. I knew we were in an internet bubble back in the late 90’s but I didn’t know when it would burst. I just avoided internet and most technology stocks. I knew we were in a housing bubble in the mid 2000’s but I didn’t know when or how it would end. I just didn’t own housing or related stocks.
I figured they both would burst at some point but wasn’t smart enough to know when to short them. As they say the market can stay insane longer than you can stay solvent.
What I am doing with regards to Japan is adding it to my checklist when I look at stocks for my long term portfolio. The big thing is to avoid companies that have a decent amount of sales to Japan or reliant on Japan. While a crisis could be years off and these stocks could still go up for now, it’s a risk I’d rather take off the table.
I know there will be a problem at some point, I just don’t know when or what will trigger it. It’s best not to try to time it and short Japan, rather to just be cognizant of companies that have sales or risks associated with Japan.
by Ben Hoben
Oil futures are down slightly with chatter continuing that select nations might release some of their petroleum reserve stock. Prices are trading just south of the $105 mark. USD/JPY is also losing ground in correlation with these moves in equity and oil markets, down 0.7% to 82.25.
But, perhaps the most important piece of news is that CNBC is talking about DOW 17,000. Time to press the panic button?
EUR/USD closed the day unchanged, while we saw some weakness in USD/JPY. Disappointing U.K. growth figures also put pressure on GBP/USD.
All eyes now turn to the Chinese markets overnight, which were down the most in four months last night. Further weakness could cast a cloud over tomorrow’s U.S. open.
Break-even: I break-even on this trade if MOS closes at $53.75 or $58.75 by March 30, 2012.
Unprofitable: This trade is unprofitable if MOS closes under $53.75 or above $58.75 by March 30, 2012. The most I can the amount either spread can be worth $2.50 minus the amount I sold it for $1.25 for a total of $1.25.
Reason I Like This Trade: I wanted to take advantage of the lack of movement in MOS and I think the stock is stuck in a range. This is a great way to trade this stock that I thought would not make a breakout to 52 week highs and dips will be bought, but I always like to define my risk vs reward so I bought Calls since I think the stock will move higher.
UPDATE 4.9.2012 This spread expired worthless and a great way to turn $1.25 to zero. I have been playing earnings very well, so I will continue to trade them.
Read more about trading by www.keeneonthemarket.com
Helping prices move lower, a report in the FT
suggesting the U.S., Japan, U.K., and France are in talks to release supply to the market. We are also seeing selling pressure in overseas commodity-based stocks, including VALE, PBR, and X.
In equities, the DJIA is pushing triple-digit losses at the moment, down 0.7%, while the S&P 500 and NASDAQ indices have shed 0.8%. Apple (AAPL) is around the flat-line for the day after dipping into negative territory early in the session.
Data early in the session set a negative tone for the day. February headline durable goods orders gained 2.2%, below the 3% consensus figures. Overseas, UK economic growth contracted by 0.3% in Q4.
This might be the time to either sell your Gold position or fade the GS trade. GS recommends buying the Dec-12 Comex Gold OTM Futures. WTI is under heavy selling pressure following last night’s build in oil reserves shown by the API data. French press reported that France had made contact with the UK/US regarding the release of emergency oil stocks like ZAZA (previous symbol TRGL).
US economic data includes durable goods orders and the weekly DOE oil inventory due later today.
Today, might have been a fake-out shake-out and shaking out some weak bulls. I remain bullish and think the market will trade higher, but with so many bullish traders into quarter end, could we sell-off?
In other news, oh yeah, AAPL hitting another all time high with strong stocks such as PM and YUM getting stronger by the day. I continue look for any and all pullbacks to get long there stocks. Have a great night and remember you gotta be in it to win in.
Andrew Keene KeeneOnTheMarket.com
Crude Oil was one of the only commodities that showed weakness yesterday in trading. Perhaps Geo-Risk Premium is coming out Crude Oil as Syria’s and Iran’s hostile environment is calming down a little and Crude Speculators are taking profits now and not before the next big Crude Sell off. Gold is approaching $1,700/oz after yesterday’s Bernanke hints at the new “QE” and today’s urging by the OECD to increase the Euro-zones ‘firewall’ by another $1.3 trillion. Gold is above 200 day moving average (simple) at $1,687/oz after yesterday’s biggest daily gain since January 2012. The gains came after Ben Bernanke warned investors of the risks to the fragile US economic recovery and signalled the Fed would keep interest rates low – aka buy gold for an inflation hedge.
US Consumer Confidence (Mar).
S&P Case Shiller Home Price Index (Jan).
Turkey CB Meeting and Hungary CB Meeting.
Ben Bernanke Lecture
Italian Bond Auction (2/10yr)