It's a correction, even in Japan

What does the Nikkei's sudden plunge mean, especially after its recent strength?

By Jim J. Jubak May 23, 2013 5:35PM

Global meltdown?


I saw headlines Thursday morning saying just that. But to me this looks like profit-taking on a huge run up in global markets so far, no more and no less -- even in Japan.


Here’s the background: At its high Wednesday, the Standard & Poor’s 500 was up 10% from its low on April 18; the Nikkei 225 was up 21% from its April 18 low; the NASDAQ Composite was up 12% from its April 18 low.  The phrase, “too far, too fast” comes to mind.

Image: Japan (© Stockbyte/SuperStock)


The Tokyo market did indeed see a flash crash in the market for Japanese government bonds. Trading was halted after the 10-year bond fell one point and the yield climbed 10 basis points to more than -- hold your breath -- 1%.

The big fear here is that a significant increase in interest rates on government debt will put an end to the Abe government’s drive to weaken the yen through massive purchases of assets by the Bank of Japan. I didn’t see much timidity from the new team running Japan’s central bank overnight: The bank moved to calm the markets by injecting 2 trillion yen.


The yen moved big Thursday, gaining 1.28% against the dollar. Again, some context: this essentially reverses the yen’s drop against the dollar, to resistance at 103.50 to the dollar over the last few days. The yen now sits at 101.93.


The Nikkei 225 Index ($JP:N225 -7.32%) closed down 7.3% -- with banks and real estate developers taking the worst of the damage.


The U.S. indexes bounced back from their lows of the morning. The Dow Jones Industrial Average ($INDU -0.08%), down as much as 126.94 points, closed the day down 13. The Standard & Poor’s 500 ($INX -0.29%), down by as much as 1.2%, recovered to close down just 5 points to 1,651.


The fundamental news Thursday has been mixed in a way that has been typical lately. The U.S. economy continues to report strength -- initial claims for unemployment came in at 340,000 when economists had projected 348,000, and new home sales were reported at 454,000 when 425,000 had been expected by economists surveyed by Briefing.com.


The Chinese economy continues to show worryingly slower-than-expected growth. The preliminary flash purchasing managers index from HSBC Holdings and Markit Economics fell to 49.6. That was below the 50.4 expected by economists surveyed by Bloomberg. On this index, any reading below 50 indicates that the economy is contracting. Stock markets across Asia fell on the news from China. The Shanghai Composite index closed down 1.13% and Hong Kong’s Hang Seng index dropped 2.54%.


Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund did not own shares of any company mentioned in this post as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio.

 

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59Comments
May 23, 2013 5:58PM
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Jimmy, the biggest news from today is that the Markets had back to back declines the day before a three Day Weekend, digesting more bad news. That's what the first time in a month? The biggest story on Friday will be if investors decide to make a move based on the bad news coming out of Japan, China, and here. Some folks always want to peg overseas markets to what our FED speak is but Japan and China have huge enough issues which can move down their own Markets, regardless of what occurs here.

In all the Wall Street speak of today, folks just continually disregarded actual inflation, the size of Global Debt buying and printing, and the issues of stagnant and or declining wages of the average worker.  I mean just how much blood can you squeeze from the Onion which is the Consumer.  As long as the average Joe/Sue is piling on DEBT/Credit without seeing wage increases, the problems of a Global Economy built on farce Money Printing will only escalate. Yet all the talking heads on Wall Street want everyone to Think that everything is just Fine and Dandy.



May 23, 2013 8:16PM
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dbellis,  Here's the problem with stats stating total personal debt is down. Stats can throw everyone in the same pot. There are various classes of income earners and various classes of debt. Don't you think that if everyone is lumped together, what you are hearing doesn't reflect the reality of the average Joe or Sue. So what do we really know. Real wages haven't increased for a very long time. Your savings have literally a negative rate when you account for fees. Rental Rates, Average New Car Price, and New Median Home prices just recently set RECORDS. Car loans are being extended out to now, 6-8 years. Rates on Credit Card Debt hasn't changed and we are seeing new record levels of Student Loan Debt while Jobs aren't there. It least not good paying jobs in enough numbers. I hate polling but they recently had a poll about how few people had even a $1,000 for emergencies. That more folks were living from paycheck to paycheck. How about the record number of Americans now on Food Stamps. Did you hear about that?


Real Inflation has NOT been low. We have a record 4 year period of Gas prices. Inflation has been hidden/disguised in the form of lower quantity/quality while prices continue to rise. I shop several times weekly and compare prices. Concerning polls, who really trust polls. They can change literally overnight. A rising Stock Market has more to do with current polling. When that drops, so will the polls. I don't see any facts that you have presented to make me see that you understand what's real or not about what you are hearing.

May 23, 2013 8:47PM
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I have a question for someone that is knowledgeable about these things. All I have read and heard is QE3 is a bad thing. Do I understand this correctly? The Fed is actually printing $85 billion dollars a month in cash. They then use that money to buy bonds and other securities. Whose bonds and securities are they buying? Bonds issued by companies like GE, P & G, Apple? U.S. treasury bonds? Bonds issued by banks? When they buy these bonds do they not get interest payments on these bonds? So what is they ease off of QE and go from $85 billion to lets say $50 billion? And do "investors" as they are called in the media really sell every time there is bad news because some company did not meet the earnings "expectations" of some **** financial analyst in some office in New York? And who are these "investors" that rock the stock market at the first sign of "bad news"? I do not know anyone trading stocks because Ben Bernanke said he might consider pulling back on QE. And so what if he does? Are stocks like GE, P&G,Chevron Oil, Coca cola really worth less because Bernanke reduces QE?

May 24, 2013 3:14AM
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The claim that Americans are being more conservative and paying down debt isn't true. We didn't pay down debt. Our debt load average decreased because of the massive write off in home prices due to the great economic collapse. If a bank allows a homeowner with a 400K mortgage to sell it at 250K his debt is diminished not through paying it down though. When a homeowner walks away from a 250K mortgage once the bank takes it back and sells it the debt is diminished. Americans aren't being more frugal as some people claim, we're dishonoring our debt.
May 24, 2013 8:13AM
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So guy's, yesterday was all about  profit taking. That 2nd drop that afternoon wasn't as deep due to 'uncle Ben's' continued support. But this is a sign of things to come for the summer & you can bet your bottom dollar that the Fed will be closely looking at the job numbers & UE figures (no matter how they're derived) as to when to ease off the 85 billion a month stimulus. And EASING OFF is the way to go-if they take it in stages, slowly backing off the money pumping, it won't send markets into a frenzy. We need a nice, controlled, UNEMOTIONAL, end to it.

(That last part is debatable)

May 23, 2013 6:28PM
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Sell in May and go play with your profits!
May 23, 2013 10:36PM
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Jim... got any validation for your claim? Please name as many publicly-traded American corporations as you can that still retain all their manufacturing plants, the machinery, skilled labor, experience and operations expertise and employ primarily Americans in America? Almost every business platform is a collective of paper and button pushers in leased office space retaining law and accounting firms with offshore accounts to avoid tax liabilities. There isn't anything substantial to prevent a 100% collapse. It I'm wrong, validate YOUR words, mine are obvious and inevitable.
May 24, 2013 7:07AM
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Re-TOG... as of the Reagan-Era Tax Reform Act, hyper-appreciation has been a bubble without counter-substantiati​on. Homes started rising faster while wages did not. A study from 2000 to 2007 in Chicagoland revealed that homes appreciated more than 35% but wages fell 9%. The difference is a bubble without substantiation. There have been a lot of these bubbles, especially during Greenspan's stupid reign. Prior to 2000, every penny I generated reciprocated an asset. After '00 and at banks- nothing I generated correlated to assets at all. Banks used forward-based accounting and shifted costs to substantiate. If all banks (and I'm pretty sure 'all' applies) then there are trillions in unsubstantiated transactions demanding a correlating asset to make them whole. We know that our currency was redesigned during the Dubya Era and printing presses were upgraded for Warp Speed. So let's assume that over-printing became an Olympic-level sport in 2001. By 2008, Bush had spent wildly without any repayment, reciprocation or substantiation. That's a bubble made out of all the other bubbles- combined. TARP and Obama's original $787 Billion were more bubbles. In the years since 2007- we lost a full 2/3 of our income currency while pumping huge amounts of false money into the markets. 100% of bonds created to substantiate us have failed to yield anything (and won't). So, look at the math model. We have fewer people working and for less income per household, so less revenues. We have less individual obligations but those we sustain keep growing (military being the worst).  Three currency types- derivatives, debt notes and dysfunctional money, all costing a job-less consumer and suppressing him/her into stagnation. Money costs rising at a rate beyond comprehension (we surpassed $1 quadrillion in transaction currencies quite a while ago). Add them up and... Bernanke's THREE QE runs do nothing more than pay costs with funny money. Each time he does- he dilutes the value. Dilute the value and the markets "appear" to be gaining, but it is just currency thinning. History specifically identifies each prior event when you thin currency until the consumer is fully compromised and economy cannot flow because of it. Not ONE corporation in America has tangible assets, skilled labor, machinery and is hiring in volume. That's not a Red Flag, it's a nuclear hot spot. The Dow will crash to ZERO because there isn't anything at all to substantiate it. Fire executives, recover ALL former jobs and recover the improvement cost of every home and suddenly you get- substantiation. If it doesn't shift TODAY, you've got nothing but worthless paper.  

May 23, 2013 11:33PM
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Just one question V_L...And how long have we been doing Quantitative Easing in this near term..??

Maybe two..?

And why would you use the "total market collapse" figure for 2008 of about 7000 on the DOW??

When we had some highs that year of 14,000's...

Are you trying to scare everyone or "just fudging figures" to make your point look good??

And during Clinton's 8 year terms, we had Markets in the 10-12,000 range.??

May 23, 2013 10:14PM
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Not knowledgable enough Mikey, but they are swapping bonds more then pouring money into any pockets, plus it is bolstering the Markets in some Sectors....Personally I believe a good share of the Markets are supporting themselves..

 

And I agree with Jim Jubak today, that we having a correction on an exuberant Market...

Now Japan is another situation, and he may have eluded to it; Haven't read the whole Article yet.

Japan has had an overblown run-up in recent months, because of Political and Monetary Policies.

A few days or week so ago, I expected a 2-3% maybe even 4% correction for our own Markets..

Just because of similar situation and we are cycling through about a 4-6 week upside..

Time for some to take profits..

 

With Benanke speaking and wavering a little about the coming prospects of easing, with Japan and a little chink in the armor out of China....Markets got spooky, big boys used it for excuse to cause a big ripple and fear factor....Watch them closely because will be diving back into calmer waters..

They have to get their pound of flesh every so often, otherwise they would never make any guaranteed monies or commissions...

It appears to me the uptrend is still in place on some fronts...But everyone has to do their research or have a Good broker or Financial Advisor that does...And guidance is of utmost importance.

May 28, 2013 1:56PM
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Bernanke is a Wall Street, stock market patsy. He'll bend over (and he's been doing for years now) whenever they call on him. This guy is a 100% display of "nothingness." 
May 24, 2013 9:54AM
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Until the unemployment figure drops to near 6%, we really don't know if Uncle Ben is concerned about unemployment figures as claimed. There are so many variables that can change. Uncle Ben biggest concern has always been the Stock Market.

Some say yesterday's drop was triggered by a sell program. As we approach again Record Buying on Margin, an extend drop can be triggered by Margin Calls. As dirty assets on Big Banks balance sheets are only growing, how can Uncle Ben slowly back off anything?

May 23, 2013 9:29PM
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Jim, Normally I would agree with you but today I found two letters from Congressman Boehner written on Department of the Treasury stationary.  The first dated April 17 expresses concern about the elimination of the debit ceiling by congress.  The second dated April 20 states that the federal government and US postal service will no longer be able to fund retirement accounts as a result of the elimination of the debit ceiling.  To my knowledge, this act of congress has only been reported in foreign press releases and the Department of the Treasury website.  Much of the profit in the equities market for the last three months is due to the belief that the US dollar will fare better than other currencies.  I am concerned, first because congress may have burst the bubble and second because there is so little information on a congressional act of such significance.  Deja Vu  from 2008 when the first warning of the economic collapse came from Homeland Security.
May 24, 2013 1:01AM
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Anticipated end of QE will probably commense next year as the unemployment rate continues to decline. The pullback of liquidity by the central banks and resultant loss of GDP by this action is expected to be offset by the increased spending of new and existing retiring boomers.
May 23, 2013 11:37PM
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Wrong! The SEC needs to find out which firm initiated the computerized stock dump and who else was involved in starting this catalyst. There were no little guys involved in this, it was the big players. Unamerican short-selling bastards. Short-selling should be illegal. 
May 23, 2013 11:32PM
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Deepest respect that you limited this to one page and stuck to the facts without injecting an opinion of doom and gloom. So this whole affair was caused by a computerized stock dump on a massive scale? I wonder how "widespread" this selling really was or which of the big mutual funds started it? What a shame we can't prosecute those who try to influence the markets to their advantage. So many enemies of the state trying to keep this President down and halt our recovery efforts but even without the Congress, who will forever more be known as the most worthless Congress in U.S. history, we will overcome. The American Way of Life is idolized and respected all over the world as the ideal for all markets to achieve and America will always win as long as we believe in our dreams and have the drive to make them come true. DOW 16000!!!
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