Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The Central Bank Time Machine - 23rd Aug 19
Stock Market August Breakdown Prediction and Analysis - 23rd Aug 19
U.S. To “Drown The World” In Oil - 23rd Aug 19
Modern Monetary Theory Could Destroy America - 23rd Aug 19
Seven Key Words That Explain "Stupidly High" Bond Market Prices - 23rd Aug 19
Is the Fed Too Late Prevent A US Housing Bear Market? - 23rd Aug 19
Manchester Airport FREE Drop Off Area Service at JetParks 1 - Video - 23rd Aug 19
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

U.S. Economy Is Not Japan Or Europe

Economics / US Economy May 21, 2014 - 10:12 AM GMT

By: EconMatters

Economics

There has been a trend of late to compare European and Japanese Bond yields to that of the United States and England so I think it necessary to define some large flaws in these comparisons.

Japan Comparison

Let us start with Japan, Japan has an aging demographic, little immigration, very limited natural resources, and have not been a major player in anything other than heavy industry specific nuclear applications and autos since the mid-1980s.


In fact, Japan has been on a steady decline since the 1980s, and mind you the world hasn`t been on a steady decline since the 1980s in terms of many of the industries that Japan once dominated like technology, South Korea has taken over the Pacific-Rim mantle in technological innovation where Japan once reigned supreme. Plain and simple, Japan just got old and became outdated and uncompetitive in most areas of technological advancement and innovation that were so prominent during their glory days of the 1980s era.

Further Reading - Debt Crisis: Forget Europe, Check Out Japan

United States

Let’s juxtapose this with the United States who has a very vibrant demographic because of immigration both skilled and unskilled, an abundance of natural resources, and major players in energy, entertainment, technology, agriculture, financial markets, engineering, and architecture. Furthermore, the US is actually not on the decline in any of these areas but still very innovative and relevant, and may even be on the rise in areas of energy and manufacturing which have been areas of outsourcing for decades.

To compare Japanese bond yields in order to justify an argument for US bond yields staying historically low once the Federal Reserve is completely out of the bond buying business is a failed comparison. Japan wishes they could wake up from their demographic and cultural malaise and have the US future from a competitive and opportunity standpoint. Shoot Japan with all their nuclear troubles would love just to have our natural gas reserves.

Further Reading: The Worst Risk/Reward Trade on Wall Street

America Still the Land of Opportunity

For all those who downplay America`s bright future and how the American Dream is dead, there sure are a lot of people around the world who want to immigrate to the US because it offers some of the best opportunities for those individuals motivated to achieve through hard work and creativity. This goes for skilled labor, unskilled labor and all levels of the social economic scale. America truly does offer a relatively high quality of life, and many types of opportunity.

For example, the guy who installed our big screen TVs doesn`t have a college education, speaks less than stellar English, but probably makes over $250,000 net per year because he identified a market need, had the skillset to be efficient at supplying that need, and yes he wasn`t born here in the United States.

The US still is the land of opportunity for those willing to work for said opportunity, and strive to better themselves. And our bond yields will reflect this fundamental difference between the US and Japan once the Federal Reserve normalizes monetary policy which they are in the process of undertaking. There is no comparison whatsoever between the US and Japan, and this short-sighted and uneducated view is patently false.

European Comparison

This brings us to the European comparison, Europe has seen a slow growth to slightly negative growth, mature region for decades – this is nothing new for these countries as they have never had pro-growth capitalistic business underpinnings, and their economies have reflected mature, steady mere maintenance of the status quo with bastions of historic wealth and property retention passed from generation to generation. Most of these countries are un-competitive on a global scale, and haven’t been relevant for centuries not decades – this is social Europe we are talking about, they don`t have a capitalistic bone in their bodies.

I could continue on with why any comparison between Europe and the United States is flawed, but Europe is a bastion of stored wealth and power, while the US was built and founded in response to a lack of opportunity in Europe for hard working, creative, free-enterprise individuals looking to better their standard of living and quality of life. These immigrants also had a vibrant sense of adventure and these same values are necessary for not being satisfied with the status quo and taking on risk for greater future reward.

This fundamental philosophical mindset, even though critics believe some of this entrepreneurial spirit has died, is still fundamentally underpinning core values in the Unites States, and provides a nice backdrop for pushing the creative envelope in many industries in this country.

If bond yields are forward looking and represent growth prospects for the next ten years, look at how many industries the US is dominant in, and getting stronger versus Europe. Again, there is no comparison to be made between the most capitalistic country on earth, and a region that prides itself in social programs and business stagnation. And for those who think Obamacare is a social program, it may have started out that way, it may have been the original intention, but once the lobbyists of the capitalistic healthcare industrial complex started putting their capitalistic imprints on the policy, in the end it is probably more capitalistic and pro-business principled than most would believe.

The Yield Positive Carry Trade

The main reason bond yields are so low is because there has been so much cheap money available to lever up in enormous sums and chase the positive yield trade, plain and simple. Once the Fed gets out of artificially supporting this trade, which they are in the process of doing, the next step will be the raising of the fed funds rate, expected in 6-9 months if the current trend in economic growth and improvement in the overall economy continues on course. This trade works really well until investors start to be faced with the notion of losing more in principle versus what they can make in heavily levered yield trades in a stable, low volatility bond market environment.

This Time Is Different Mentality

The world of finance just loves these trades, and they usually always end badly with everybody running for the exits at the same time, and this time will be no different. I know investors think this time is different with faulty notions like the US is Japan logic, to justify this as a good risk versus reward trade at this stage in the monetary, business, and economic cycle but they are flat out wrong.

More money will be made by taking the other side of the “this time is different hubris” on the bond chasing yield trade as inflation and economic growth in the United States dictates that the Federal Reserve normalize monetary policy with a Fed Funds Rate target around 4 to 4.5 percent.

That is a whole lot of principle to lose, and have at risk chasing a little yield, and the fact that so much leverage is used to make the trade profitable, the unwind is going to cause the biggest squeeze in exiting than any market repositioning we have seen since the sub-prime housing crisis reallocation of capital. In short, the Chasing Yield Positive Carry Trade unwind is going to be long, nasty and brutal for investors.

By EconMatters

http://www.econmatters.com/

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2014 Copyright EconMatters - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

EconMatters Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules