John Hussman: The Market Hasn't Even Begun To Sell Off, And Investors Are Still Wildly Bullish

The selling was a joke, argues John Hussman in his weekly note.

The market action of the past two weeks contrasts with the generally uncorrected advance of recent months. The chart below places this pullback in perspective, relative to the " big picture" for the S& P 500, showing monthly bars since 1996. I suppose it's possible for investors to characterize the recent decline as a " panic" if they press their noses directly against their monitors, but in that case, they really do have a short memory. The pullback has been negligible even relative to the action of the past several months, and is indiscernible in the big picture. As of Friday, the market remained in an overvalued, overbought, overbullish, rising-yields syndrome that has typically been cleared much more sharply than anything we saw last week.

We still expect to establish a moderate positive exposure to market fluctuations if we can clear some component of this syndrome, provided that market internals (breadth, leadership, sector uniformity, etc) don't also deteriorate substantially enough to signal a shift to risk aversion among investors. We've already seen meaningful breakdowns in international markets, both within and outside of Asia. Thus far, market internals in the U.S. have maintained intact, though still burdened with a negative syndrome of conditions over the short-to-intermediate term. Even with a more constructive position, we would still expect to maintain a strong line of put option protection in the event of abrupt weakness, but suffice it to say that we don't require a major change in valuation in order to be willing to accept greater market exposure - just enough to clear this syndrome without strongly damaging market internals.

In order to clear this syndrome, last week's decline would have required either a meaningful retreat of investor bullishness, or a deeper price decline on the week. That said, the pullback did clear very short term overbought conditions, and we covered some short calls and lowered some put strikes as the market briefly challenged the 1250 level. This maintains a defensive line of index put options for the entire portfolio of Strategic Growth, but leaves us with short calls against only 60% of the portfolio. The change wasn't very observable on Thursday and Friday, because the sharp drop in implied volatilities (to a VIX of 23) created some short-term drag. But even here, any sustained upmove in the market should be far more comfortable than what we've experienced since QE2 triggered the recent speculative run.

REPORT: 4 Missing New York Times Journalists Have Been Freed In Libya

Namik Tan, Turkey's ambassador to the United States, just tweeted that the four New York Times journalists who have been held in Libya since last week, have been freed following negotiations with the Turkish government.

FUKUSHIMA: SMOKE BILLOWING FROM REACTOR #2, POWER COMING BACK TO REACTOR #4

7:44 AM March 21 ET: Some possible good news from reactor #4 -- home of the potentially dried out spent fuel rods. According to Reuters, the Japanese government says power will be back soon.

6:08 AM March 21 ET: Now there are reports of smoke from reactor #2.

: The general sense throughout Sunday has been that the corner is being turned. And that's still the sense, somewhat. However, the latest headlines from Kyodo are less encouraging. Smoke is " billowing" from reactor #3, and some workers have at least been (temporarily) been evacuated. However there other headlines about pumps working at the plant, which is obviously quite good news.

 

--------

SUNDAY: 9:36 ET March 20: A series of hopeful news announced by the Nuclear Industrial & Safety Agency (via VOA's Steve Herman).

Reactors 5 & 6 reached cold shutdown today. Pressure is under control at reactor 3, and there is no need for more radioactive venting at the moment. They are attaching a power line to reactor 4, and the fuel rods are being cooled by external water spray. Seawater is being pumped into reactors 1 and 2.

Deputy chief cabinet secretary Tetsuro Fukuyama said reactors 1-4 are " showing signs of improvement." He also said he would feed his kids spinach and water from the area -- and that they don't drink milk anyway, according to VOA.

As a show of faith, Prime Minister Kan will visit within 20 kilometers of the plant tomorrow, according to Kyoto.

LAST NIGHT: Japan Times: trace amounts of radiation detected in Tokyo tap water.

Update 20:20 ET: Some video has been released which has a great, on-the-ground look at the firefighting operation.


Update 17:43 ET: Power has been reconnected to reactor 6 and reactor 3 is being showered with water at all times, according to CNN.


Update 17:00 ET: TEPCO will have power reconnected to the other 5 reactors at Fukushima by Sunday, according to CNN.

Bloomberg, on the other hand, is reporting that only reactors 1 and 2 will be reconnected tomorrow, and that their cooling systems will be back online.

In either case, definitely good news.

Update 8:35AM ET: Milk and spinach with higher-than-normal radiation levels have been found near the plant (Kyodo). The radiation levels are not high enough to pose a risk to people.

Update Saturday, 8:28AM ET: Power cable connected to reactors 1 and 2. Engineers will try to restart pumps at these reactors on Sunday morning. There is no guarantee that the pumps still work (and given the number of explosions and fires at the plant, it wouldn't be surprising if they didn't).

 

---

Update 14:38: According to Reuters, electricity can now be supplied to the plant. Of course, we've heard this several times already. We shall see.

Update 10:43: The first radioactive particles have been found in the US, says AP.

Update 10:38: It's been an extremely quiet morning. The NYT reports on an increased exodus of foreigners in Japan. Airlines say flights out are booking up fast.

Update 7:38: There was just a good technical discussion of the crisis on NHK. One thing that's clear: simply plugging in everything won't solve the problem, because whatever pumps they plug into may be too severely damaged.

For updates before this, see the original Fukushima Nuclear Plant post >

Image: Daily Yomiuri

4:20 AM March 21 ET

The Truth About Hyperinflation: It's More Than Just A Monetary Phenomenon

Hyperinflation is poorly understood.  As it’s name might imply, most people believe hyperinflation is merely inflation on steroids.  But that’s not necessarily accurate.  Inflation can and does occur in a perfectly healthy economy.  In fact, since 1913 when the Fed was founded inflation in the USA has soared.  One might assume that this means the country has experienced some great injustice, but the truth is that the 1900′ s were characterized by the greatest economic expansion and wealth creation the world has ever seen.  Despite the common citation that “the $USD has lost 90% of its value” Americans experienced an unprecedented period of prosperity during this inflation.  In fact, the prosperity became so gross in the 1990′ s that Americans felt entitled to second homes, second cars, and just about every other luxury good known to man. What has not occurred is hyperinflation, which is a very different animal than hyperinflation.  Hyperinflation is a disorderly economic progression that leads to complete psychological rejection of the sovereign currency.

Contrary to popular opinion deficit spending and high government debt levels are not the actual cause of a hyperinflation.  In most cases they have been the result of other exogenous events such as ceding of monetary sovereignty, war, rampant corruption or regime change.  It is these exogenous events that result in the public’s rejection of the currency, a collapse in the tax system and the government response of printing more money to fill in the confidence void.  Ultimately the confidence void cannot be filled and the currency is fully rejected by the public in the form of hyperinflation.

In my treatise on the monetary system I discuss the importance of this unspoken agreement between the private sector and public sector:

“What backs these notes we created?  What gives them value?  Ultimately, these notes represent some amount of output and productivity.  The notes in and of themselves have no intrinsic value, but serve as a medium of exchange that allows the citizenry to exchange various goods and services.  The willingness of the consumers in the economy to use these notes is entirely dependent on the underlying value of the output and/or productivity and my ability to enforce its usage.    The government cannot force its value on its citizens.  The value of these notes is ultimately determined by the goods and services that are produced by the citizens and the value that other citizens are willing to pay for these goods and services.  Therefore, government has an incentive to promote productive output.  Otherwise, they risk devaluing the currency.  Paying its citizens to sit at home doing nothing, buy cars they don’t need or purchase homes they can’t afford are unproductive forms of spending (sound familiar?).  If government is corrupt in its spending and becomes an institution that is mismanaged and detracts from the private sector’s potential prosperity then it is only right that the citizens revolt, denounce the sovereign currency and demand change.

…

The United States Secret Service was in fact created specifically for this purpose – to protect the US Dollar.  There is arguably, nothing more important to government stability than maintaining the value and faith in the sovereign currency. As long as an economy is productive, the sovereign nation can enforce the use of said currency, and as long as we don’t issue excessive currency there should always be demand for it. In other words, trust in the national currency is safe as long as the rule of law is maintained, corporations are productive and I maintain my ability to tax you.  If my government becomes corrupt, spends well in excess of productive capacity or mismanages the economy then there is an increasing chance of currency collapse (hyperinflation).  In essence, this occurs when the citizenry lose faith in the sovereign currency and slowly refuse to transact and produce in that currency.”

The users of the currency can always reject that currency.  And I believe they should reject the currency if it is not being utilized in a manner that furthers private sector prosperity.  This rejection occurs in the form of a collapse in the tax system.  When the sovereign loses the ability to tax the game is up.  This occurred in Russia in the 90′ s, in several Euro nations in the 1920′ s (no, Weimar was not the only country that suffered hyperinflation) and most notably in Zimbabwe in recent years.

A Historical Review

A quick review of the modern economic cases of hyperinflation show striking similarities.  Most notably, they involved war, regime change or foreign denominated debt.  All resulted in catastrophic hyperinflations.

(Figure 1)

But it’s important to note the cause and effect here.  These hyperinflations were not merely monetary events.  It was not just “high inflation” or excessive government spending.  It was a full blown rejection of the sovereign currency.  This is a dramatically different set of circumstances than a gradual increase in inflation or a consistent inflation. The citizens rejected the currency due to these exogenous events.

But why does the hyperinflation occur?  As I mentioned above it generally occurs due to extreme exogenous events.  Hyperinflations have generally occurred in nations with rampant corruption, war, productive collapse, or other extreme exogenous factors.    The “money printing” that generally results is not actually the cause of the hyperinflation.  It is merely the result of this exogenous event.

The Case of Weimar

The Weimar Republic is the most notable hyperinflation.  But it was not the only case of hyperinflation that occurred in Europe at the time.  In fact, several European nations were ravaged by the war, war reparations and regime changes that ensued.  In the case of Weimar the country was already in a fragile state after Germany lost WWI.  To add insult to this injury the allied nations demanded punitive war reparations resulting in foreign denominated debt.  Mises elaborated on the insurmountable pressures this caused for Germany:

“The German government has no alternative way of covering its reparations obligations. It would have no success if it tried to raise the sums demanded by issuing bonds or raising taxes. Given the way matters currently stand with the German people, a policy of compliance could not count on the stand with the German people, a policy of compliance could not count on the consent of the majority if its economic consequences were clearly understood and they were not deceived as to its costs. Public opinion would turn with elemental force against any government that were to try to fulfill the obligations undertaken toward the Allied Powers completely.” (Mises 1923, p. 31)

In his excellent book, “When Money Dies” Adam Fergusson described how hyperinflation is more a psychological event than a purely monetary event:

“To  ascribe  the despair  entirely  to infl ation  would  be  misleading.  Undoubtedly, though, infl ation aggravated every evil, ruined every chance of national revival or individual success, and produced the conditions in which extremists could raise the mob against the state. It undermined national resolution when simple want might have bolstered  it.

Money is no more than a medium of exchange. Only when  it has  a  value acknowledged  by  more  than  one person can  it be used. Once no one acknowledged it, the Germans learnt, their paper had no value. The discovery that shattered their society was that the traditional  repository  of  purchasing power had disappeared and that there was no means  left of measuring  the worth of anything.

When  life  is  secure,  society acknowledges the value of luxuries, those enjoyments without which life can proceed but which make it much pleasanter.  When  life  is  insecure, values  change.  Without  warmth,  a roof, or adequate clothes, it may be difficult to sustain life for more than a few weeks. Without food, life can be shorter still. At the top of the scale, the most valuable commodities are water and air. For the destitute in Germany, whose money had no exchange value, existence came very near these metaphysical conceptions. It had been so in the war. In All Quiet on the Western Front, Müller died ‘and bequeathed me his boots—the same that he once inherited  from  Kemmerick.  I  wear them, for they fi t me quite well. After me, Tjaden will get them: I have promised them to him.’”

In the above quote from “When Money Dies”, Fergusson was describing the depression that arose in the Weimar Republic in the 1920′ s when they suffered their hyperinflation.  The Weimar Republic was a war torn region with a government in turmoil.  Economic upheaval compounded the problems as the war reparations from the Treaty of Versailles and the foreign occupation of the Ruhr placed severe strains on the Republic’s ability to prudently manage their domestic economy/finances and resulted in a reliance on foreign denominated debt.    All of this combined to create a scenario that was highly unusual and combustible.    German Financier Carl Melchior nicely summed up the situation in Germany in 1921:

“We can get through the first two or three years with the aid of foreign loans. By the end of that time foreign nations will have realized that these large payments can only be made by huge German exports and these exports will ruin the trade in England and America so that creditors themselves will come to us to request modification.”

Melchior was ultimately proven correct as the global economy collapsed in spectacular fashion in the late 20′ s.    But the hyperinflation was well underway when Melchior spoke these famous words and it was not solely due to the government printing presses, but rather a complex (and unusual) series of events that reduced private sector aggregate demand, shattered the public’s faith, led to extreme government intervention in currency markets and ultimately resulted in the failure in the national currency.

Severe (and unusual) exogenous circumstances lay the groundwork for the hyperinflation to begin, these severe (and unusual) exogenous circumstances initiate the cycle, severe government ineptitude furthers the hyperinflation, severe public mistrust exacerbates it and government ultimately completes the cycle when they desperately crank the presses in an attempt to flood the market with an unwanted currency.  What’s important to note here is that the printing press exacerbates and ends the cycle rather than actually initiate it.  What lays the groundwork for the hyperinflation is severe exogenous forces or a highly unusual environment that government responds to ineffectively or inappropriately.

The final salt in the wounds was the French occupation of the Ruhr, the dominant manufacturing region in Germany.  So Weimar was not merely a case of “money printing” gone wild.  In fact, it was the regime change, fragile state of mind, foreign denominated debts and productive collapse that resulted in the excessive “money printing”, collapse in the tax system and hyperinflation.

The Case of Zimbabwe

The other often cited case of hyperinflation is Zimbabwe.  This is another extraordinary circumstance.  To call these events “rare” and “severe” is a vast understatement.  Zimbabwe is an utter economic catastrophe.  GDP has declined 40% since 2000, unemployment has risen as high as 95% and hyperininflation has ravaged the country.    The issue is far more complex than I have the time or space to deal with here, but in essence, Zimbabwe has proven a highly inefficient and corrupt nation for several decades.    This was another case of fragile emotional state due to rampant government corruption, regime change, productive collapse, foreign denominated debts and an eventual collapse in the tax system.  The Mugabe government is one of the most controversial in the world and has proven to be financially incompetent.  A former government minister of Rhodesia, Denis Walker nicely summed up the environment in Zimbabwe in 1989:

“Zimbabwe’s government, already morally bankrupt, will decline towards economic collapse.”

Like Melchior before him, he was proven correct.  But unlike Germany’s war torn economy the Zimbabwean economy is a sad story of centuries of racist regimes followed by incompetent leadership.  The situation in Zimbabwe has largely arisen from the controversial land reallocations which sliced up their largest export and domestic form of productivity into the hands of the agriculturally incompetent.  As internal production of food collapsed the government was forced to rely on the kindness of strangers.  The Grecian “beggar thy neighbor” policy began as Zimbabwe started to rely on foreign imports of food.  Unemployment increased, civil unrest increased and the government lost control of its internal finances and the currency ultimately collapsed as the citizenry voted “no confidence” in the government currency.  Allow me to repeat what I said above:

“Severe (and unusual) exogenous circumstances lay the groundwork for the hyperinflation to begin, severe (and unusual) exogenous circumstances initiate the cycle, severe government ineptitude furthers the hyperinflation, severe public mistrust exacerbates it and government ultimately completes the cycle when they desperately crank the presses in an attempt to flood the market with an unwanted currency.  What’s important to note here is that the printing press exacerbates and ends the cycle rather than actually initiate it. What lays the groundwork for the hyperinflation is severe exogenous forces or a highly unusual environment that government responds to ineffectively or inappropriately.”

The Cause & Effect

What is consistent generally consistent among cases of hyperinflation is a number of things:

• A reliance on the kindness of strangers (usually in the form of foreign denominated debt, a currency peg, etc).
• Extraordinarily unusual social circumstances (severe exogenous forces).
• Very low levels of faith in government during regime change (high public mistrust).
• Ineffective government response or rampant corruption.
• Combustible political environment.
• A collapse in the domestic economy.
• A breakdown in the tax system.

The most notable environments involving hyperinflations are war, regime change, government corruption and a ceding of monetary sovereignty. 

Wars are particularly disruptive for a society for obvious reasons.  Being on the losing end of a war is not only disruptive, but catastrophic.  It’s not surprising that hyperinflations tend to occur in war torn nations because the tax system tends to fail when the citizens begin to question whether or not their government will exist in the coming years. Civil wars have tended to result in hyperinflation as the tax system collapses and the currency issuer continues to spend to finance their losing cause.    The American civil war and the Confederacy is exhibit A.

Regime changes are equally disruptive. While they can be highly beneficial in the long-run regime changes have tended to coincide with hyperinflations due to the fact that a new government is greeted with skepticism.  The uncertainty in such an environment is extraordinary. This was most notable following WWI when several regime changes in Europe ultimately led to hyperinflations.

Rampant government corruption is a highly destructive environment. A currency is based on an agreement between the public and private sector. If one party of this agreement is seen as corrupt the other party is likely to want out of the agreement. Zimbabwe is the modern day poster child of corruption and mismanagement of a domestic economy.

A ceding of monetary sovereignty is another primary culprit in hyperinflations.     This is generally due to government incompetence (such as the current Euro arrangement), productive collapse or corruption.  Notable cases include Argentina, Zimbabwe and the Weimar Republic.  A ceding of monetary sovereignty via a pegged currency or accumulation of foreign denominated debt is a sure sign that a government is increasingly unstable and at risk of currency collapse.

Is Hyperinflation Coming to the USA?

While some of these ingredients exist in the modern day United States (to a very minor degree) I would argue that we are a long long way from experiencing the type of environment and downfall that is consistent with past hyperinflations.  The most important aspects of currency collapse simply do not exist in the United States today:

• We do not rely on the kindness of strangers (no foreign denominated debt).
• We are not experiencing any sort of extraordinarily unusual social circumstances or severe exogenous forces (losing war, regime change, government corruption, etc).
• We are not lacking confidence in the sovereign nation.  If there is one thing that Americans are known for it is their resilience and borderline arrogance with regards to the strength of their country.
• We are not experiencing a collapse in the domestic economy (not yet at least).

In sum, if you’re betting on hyperinflation in the USA I believe you’re effectively betting on the existence of a highly unusual and severe circumstance that happens to coincide with dependence on foreign denominated debt (of which there is none), an economic collapse in the United States (not happening yet), a dramatic decline in Americans’ confidence and ultimately the destruction of the world’s reserve currency.    I do not believe that the current environment is consistent with the disorderly economic environments that are generally consistent with hyperinflations.  Don’t get me wrong – we have big problems in the USA, but I think they are more manageable than many presume.    Could the US government become corrupt and incompetent to the point of resulting in a rejection of the sovereign’s currency?  Sure, but I don’t think that’s a very realistic outcome given the current environment.  Thus far, markets have tended to agree with this as USA CDS remain among the lowest in the world and bond yields remain near their all-time lows.

Conclusion

In sum, hyperinflation is not merely high inflation.  Hyperinflation is a disorderly economic progression that leads to complete psychological rejection of the sovereign currency.  While government debts and deficit spending can exacerbate a hyperinflation they have not generally been the cause of hyperinflation, but rather the result of exogenous events.  The excessive and incompetent monetary response is generally the result of severe exogenous forces at work such as war, regime change, corruption, or a ceding of monetary sovereignty.

Silverado, ITRI, Food Security and Radiation

Food security has come in to the spotlight with the radiation issues from Japan, but the issue of food security is far bigger than that, nations around the world are legislating on food security.

Taiwan’s Industrial Technology Research Institute (ITRI) and Silverado Digital Technologies, LLC have technologies in place to show radiation levels ($280 USD for the device, $.15 cents for the tag) at no cost to the consumer.

Taiwan’s Industrial Technology Research Institute (ITRI) and Silverado Digital Technologies, LLC deliver food security around the world.

The Industrial Technology Research Institute (ITRI), a quasi-government, non-profit, research and development organization is teaming with Silverado Digital Technologies, LLC (an ITRI Open Lab Partner) to commercialize a performance static certified testing process to assure that all RFID tagged products entering a supply chain will have a successful read rate.

ITRI is one of the largest research institutions in the world, with over 6,000 employees, more than 1,100 have Ph.D. degrees. Since its inception, ITRI has three mission statements: first, to expedite the development of new industrial technology two, to aid in the process of upgrading industrial technology techniques and three, to establish future industrial technology.

However, in order to face a new economic era and serving as a nation’s premiere technology research institute, ITRI must transform Taiwan’s research capability from a “follower” to a “pioneer” in order to provide major advantage and opportunities for domestic industries.

In the past few years, ITRI has serviced various technological, research, and consulting services to more than 30,000 domestic companies annually, averaged over two thousand patent applications per year, three research symposiums per day, and four research collaboration opportunities.

ITRI continues to be at the forefront of technological innovation and research capability, strengthening the overall domestic industrial research capability, and channeling those benefits to every related industry in Taiwan. In 1996, Open Lab was formed to nurture new start-ups and foster their developmental direction to maximize their R& D results. Since Open Lab’s inception, there were 255 companies that have utilized the program, with 150 of them being start-ups. In all, ITRI invested more than 47 billion NTD and houses more than 7,500 employees under Open Lab.

ITRI’s Identification and Security Technology Center (ISTC) has formalized an agreement with Silverado Digital Technologies LLC (a Xantech affiliate) on the development of a Performance Static Testing Process for Taiwan and China manufacturers shipping products through Wal-Mart’s supply chain with EPC Global Certified tags. Shippers have encountered low read rate problems once the passive RFID tags are placed on shipping cartons and shipped on pallets and sent through the supply chain.

The problem is the result of radio wave interference due to the materials in the carton, products with metal will reflect radio waves and products with liquid such as bottle water will absorb radio waves thus preventing a 100% read rate of cartons on a pallet.

With two years under R& D development ITRI has developed a proprietary technology that will certify compliance through a Chamber and External Module testing process.

The supplier will submit their RFID product to ITRI’s Silverado Open Lab for testing in an anabolic chamber, the process will determine the most ideal location on the case for the RFID tag and will make recommendations of an antenna design that will most likely achieve a 100% read rate.

A six month pilot will begin this month in collaboration with Bureau Veritas, one of the world’s largest testing organization’s with facilities in over 80 Countries. BV will work together with ITRI and Silverado on this Pilot to commercialize and perfect the process both in Taiwan and in China.

As part of the Pilot Silverado will invite Wal-Mart supply chain suppliers to participate by contributing products for testing before entering the supply chain.

About ITRI

ITRI continues to carry out research that will integrate readers and mobile phones. Combined with telematics, MEMS sensor, wireless sensor network and service-oriented industry development projects, this will provide fully automated real-time monitoring and safety systems in the integration of RFID and databank management systems, computer networks and firewalls. Integrated applications include baggage monitoring systems for airlines, the production of automated controls, warehousing management, monitoring of transportation systems, as well as management of security and medical treatment systems. In 2005, ITRI completed RFID airport applications and supply chain modules, and received groundbreaking patents in airport surface monitoring systems and methods.
On September 14, 2005 EPCglobal announced that ITRI-established Pacific RFID Performance Solutions passed screening inspections, becoming the world’s fourth certified RFID testing center and the only one in Asia. This will enable ITRI to be a core player in setting global RFID specifications and propel Taiwan to stay on top of research trends and business opportunities.

ITRI aims to promote the establishment of a comprehensive RFID industry value chain, playing a foremost role in everything from upstream component design to midstream integrated applications and other downstream innovative applications. RFID front-end products will be mainly sold in the international market, while systems integration and innovative services will take advantage of Taiwan’s ideal geographic location to provide services to the Asian market. Taiwan’s RFID industry output value is expected to exceed NT$70 billion in 2012.

Silverado is an ITRI Open Lab Partner and is 40% owned by Heffernan Capital Management.

Robert Pimentel
Business Development Director
Industrial Technology Research Institute

US Market Sentiment + Bulls vs. Bears

Trading the JPY Japanese Yen

Charts by HCM Pro Trader

What you need to know if you are trading the JPY.

BoJ’s reluctance to finance borrowing to be tested as Japan gets ready to Rebuild

The Bank of Japan’s reluctance to fund government borrowing is set to be tested by the economy’s need for stimulus in the aftermath of the March 11 earthquake.

Japan’s bill for clearing wreckage and rebuilding roads, housing and utilities is forecast at 5T Yen ($62 billion) or higher. With debt issuance poised to rise, BoJ Governor Masaaki Shirakawa warned last week the bank must avoid underwriting debt to retain its credibility.

The BOJ’s reluctance is an echo of the European Central Bank’s initial decision to refrain from buying government bonds as the Euro-region’s sovereign debt crisis spread a year ago, before it agreed to do so in May. As the scale of the efforts needed to restart an economy already shrinking at the end of Y 2010 becomes clear, Shirakawa and his colleagues may have to step up.

Additional monetary stimulus would help combat an appreciating Yen, by increasing its supply. The Nation’s currency climbed to a post-war high against the USD on March 17, prompting Finance Minister Yoshihiko Noda the next day to request that the Group of Seven (G-7) mount its 1st coordinated intervention in the foreign-exchange market since Y 2000.

The Yen then fell the most in more than 2 yrs during the day on March 18, before paring some of the losses to close down 2.1% at 80.58 per USD.

Charts by HCM Pro Trader

The drop in the currency, that helps bolster export competitiveness, offered a boost to equities, with the Nikkei 225 Stock Average rising 2.7%, limiting its loss from March 10 to 12%.

Policy makers cut the main interest rate to a range of Zero to 0.1% last year to help bring an end to prolonged deflation, leaving asset purchases at their main instrument.

Shirakawa and his fellow board members last week expanded a fund used to buy items including Japanese government bonds, known as JGBs, exchange-traded funds and real-estate investment trusts by 5 to 10T Yen.

The BOJ kept a separate program of monthly JGB purchases at 1.8T Yen. The central bank has a rule of keeping its holdings of public debt at less than the value of banknotes outstanding. It also has a 3T Yen Venture Capital type facility designed to channel capital to growth industries.

The Key determinant for the magnitude of the hit to Japan’s economy will be the duration of power outages, which threaten to disrupt production.

Saturday, the government said efforts to stabilize the Fukushima Dai-Ichi nuclear plant, crippled from the tsunami after the magnitude-9 quake and discharging radiation, had some success, though a quick resolution is unlikely.

With Japan’s public debt already at about twice the size of its GDP, Moody’s Investors Service said last week that the disaster may push forward Japan’s “tipping point” for investors to lose confidence in the Nation’s credit quality.

The BOJ, too, may want Mr. Kan’s government to spell out how it will pay for additional spending and provide assurance that debt will be reined in over time, some analysts said.

A lack of inflationary pressure undermines the argument that BoJ debt purchases run the risk of spurring inflation. A government report due this week is forecast to show consumer prices, excluding fresh food, fell 0.3% in February from a year before.

Eventually,Shayne and I believe is that the Bank of Japan has to be a buyer of last resort for JGBs.

Paul A. Ebeling, Jnr.

Paul Ebeling Wall St Technical Report

There is important economic data out this week, and if the Japan news subsides then there will be some focus on it.

There is a Tombstone Doji on the S& P 500, so that may indicate a pullback to start this week to continue the need consolidation and a test of the December support marks.

There are lots of factors out there now considering the Quad Witching expiry last Friday, and the geopolitical actions + the military action in Libya that kicked off Saturday .

This is a week that, at least for the 1st 3 days can go either way and if you are going to play you will have to be ready, and nimble. I believe in sitting out the 3 days before and 3 days after Quad Witching Expiration. Call them Observation Days…

There will always be plays, and they are never far away.

If you have to be in the action then look at a Southside play on the SPY, for a move to the November high and then a turn North again.

There has been a lot of bad news in the market re the Tech Sector, and the action has made the QQQQ look weak, but it did not tank, the techs consolidated in a pure technical move, the geopolitical events served up the reason to sell.

The US markets are putting in a normal consolidation, and with that it looks pretty good in here. The US economy has to fall over to change my POV. This rally is based on massie liquidity from the US Fed + a just OK economic recovery in the USA.

So, this week if you have to be in the action be nimble and ready for Northside and Southside plays, as the market is not finished the consolidation IMO. Stay cool and keep dry powder.

U.K. Economic Recovery Set To Continue: BoE

(RTTNews) - The British economic recovery is likely to continue and the recent weakness in M4 money supply growth is unlikely to have much impact on spending, Bank of England Chief Economist Spencer Dale said Monday.

" The recovery in the United Kingdom looks set to continue," Dale wrote in a foreword for the BoE quarterly bulletin.

He said there are economic factors pushing up spending relative to its historical trend. " These are likely to persist in the near term, suggesting that a given rate of growth in nominal spending is likely to be associated with weaker growth in broad money than was typically the case before the crisis," the central banker said.

Australian Market Ends In The Green Uranium, Gold Stocks Rise

(RTTNews) - The Australian market ended the trading session on Monday, the first day of a fresh trading week, in positive territory with modest gains, as nuclear concerns in Japan continued to ease further and normalcy seems to be returning to the country, albeit at a slower pace. Positive trading across the major Asian markets, except the Japanese markets which were closed for a public holiday, also lifted market sentiment. Uranium and gold stocks as well as banks led the gains in the market.

The benchmark S& P/ASX200 Index advanced 16.40 points, or 0.35 percent, to 4,642.80 points, while the broader All Ordinaries Index ended at 4734.80 points, representing a gain of 18.30 points, or 0.39 percent.

Light sweet crude oil futures for April delivery was trading at $102.96 a barrel in electronic trading, up $1.89 per barrel from previous close at $101.07 a barrel in New York on Friday.

Uranium related stocks advanced as concerns about nuclear reactors in Japan eased considerably.

Gold related stocks also ended higher on bullion prices in the international market. Newcrest Mining gained 0.79 percent, while Kingsgate advanced 83 cents from previous close.

Mixed trading was witnessed among resource stocks. BHP Billiton slipped 8 cents lower, while rival Rio Tinto advanced 50 cents from previous close. Fortescue Metals managed to end in the green with a minor gain of 1 cent.

Banking related stocks ended in the green with modest gains. ANZ Bank surged up by 1.5 percent, Commonwealth Bank of Australia gained 0.66 percent, National Australia Bank climbed 0.98 percent, and Westpac Banking Corp. was higher by 0.66 percent from previous close.

In the U.S., stocks failed to sustain an initial rally and gave back some ground over the course of the trading day on Friday but still closed mostly higher. While certain positive developments overseas generated buying interest, lingering concerns helped to limit the upside. Although the major averages ended the session well off their best levels of the day, they remained in positive territory. The Dow rose 83.93 points or 0.7 percent to 11,858.52, the Nasdaq edged up 7.62 points or 0.3 percent to 2,643.67 and the S& P 500 climbed 5.49 points or 0.4 percent to 1,279.21.