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Japanese markets just “flash crashed”… and it’s a sign of things to come worldwide.
Yesterday the Bank of Japan (BOJ) announced it would not increase its monetary manipulations (yet).
That means:
- No additional quantitative easing (the BOJ already prints $660 billion per year)…
- No additional bond purchases (it’s already the No. 1 owner of Japanese government bonds)…
- No additional stock purchases via exchange-traded funds (it’s now a top-10 holder of 90% of Japanese stocks)…
- No rumored “helicopter drops” of money into the economy…
On hearing the news, the Japanese version of the S&P 500 (the Nikkei 225) dropped 1,000 points (about 5%). At the same time, the Japanese yen (JPY) appreciated about 2% versus the U.S. dollar (USD).
You can see the markets’ “flash crash” in the chart below.
This action is alarming… though not unexpected.
The Bank of Japan already provides the most extreme monetary accommodation in history. It’s trying to rouse the economy out of two decades of stagnation. But the moment further accommodation was ruled out (for now), markets plunged.
In Wednesday’s Daily we asked what happens when Japan shuts its full accommodation program down.
This latest market fit gives a taste of the answer: collapse.
Bottom line: Tom’s advice to practice “maximum defense” stands. Stay long gold and the U.S. dollar. And don’t even think of investing in equity and bond markets before applying PBRG’s risk-management protocol.
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