Into the Mind of a Macro Manager – with Archbridge Capital

Policy Implications of Macro Analysis

Now it is time to do a little further digging which should take an hour or two of ploughing through the data in a little more detail, now excitedly focusing on Japan. The day has been set: It is Japan research day! Hours feel like seconds, a blink of an eye but we are now confident from a macro-economic standpoint that the Yen will have to weaken, since there are no other choices. The macro economic theme is however only a starting point. Much more needs to be done before we can initiate a trade. But our radar is firmly on Japan.

Next let us explore more and more about the upcoming elections in Japan, they are still a few months away and the markets are not moving yet. In the back of my mind is continuously that these elections could be a catalyst? Perhaps.

After ploughing through the information of the opposing parties and understanding their platforms only one is standing out, one aggressive party proposal which in effect is running on the economy and realises that Japan will not be able to survive unless a ‘full throttle’ approach is implemented. If this party were to be elected, then Japan would be in essence doing what the US has done to wave off a depression in 2008/09 (and quite successfully we might add.).

Calculate the Impact of Policy Change on the Economy

 The numbers are being crunched and the numbers are mind-boggling. If Japan were to do this, if this party was to be elected then money would in essence be pumped into the economy in such unprecedented quantities that this would be the single largest monetary experiment of all time, even overshadowing the US experiment (which in essence was not an experiment, since it was a repeat of what was done after the Great Depression, without waiting for the depression to arrive. Bernanke learned well.) But in Japan this strategy would have to be employed to finally get out of a decade long deflation which is slowly but surely killing the economy. If his party came to power then Japan would have a fighting chance, in essence it would be like giving a dying patient electro shocks to bring him back to life. How amazing would that be. Then the Yen would weaken beyond our wildest dreams…could this happen? How likely was it that Abe could get elected? How likely that he would push these reforms and succeed? Glancing out the window into a dark rainy night, was it evening already? All I could think about was Japan.

Yen Debasement

Now that we had structural reasons for the yen to weaken over time, we now had a potential catalyst that could make this happen very quickly and cause the trade to go into the stratosphere. Game on: further analysis now on the likelihood of Abe coming to power.

I remember Abe, he was an unpopular president of Japan for a short while in years past. Well, I guess that means he understands politics and could make things happen. But wasn’t he a traditionalist, a conservative? Ah well, perhaps not the best catalyst. But let us wait for the further research on the parties, the inside political track which I will receive this evening via email. Now it is time to let the team in on this exciting new development and see if anyone can find a chip in the armour.

Monetary base/debt ratio differential (US vs Japan) & USD/JPY

The rest of the day passes – I can think of few other things but this research, scenarios swirling through my mind. What if he is the real thing, and if he is, then he can change the Bank of Japan governor, he can in effect implement change immediately. Is his plan to be believed? Finally I get the report – I devour the 50 pages or so in minutes. Or what felt like minutes. It looks as if not only has Abe used his time out of office well in developing his views, but it does look as if he is serious, as if he really does want to implement the largest monetary injection in history and push japan out of deflation. He could be Japan’s economic saviour of sorts. And yes I was right about the appointment time of the BOJ governor which is in the first half of 2013. Well it is only October 2012, so plenty of time for him to get settled, initiate his programme and get the BOJ on board. If the BOJ is unwilling he can change the members of the BOJ to more likeminded people. This could really work.

Now to the last pages with early poll results and demographic responses. It does look as if Abe has hit a chord with the younger population of Japan. Great. But with an ageing population let us see how he tracks there. Hmmm, better than expected but could be stronger. Well he has another few months and being a seasoned politician he could pull this off and win overwhelmingly.

Pages: 1 2 3