Courtney Smith

I was recently in Japan having dinner with a very well connected gentleman. Let me just call him Mr. Roppongi. We were discussing the current situation in Japan. What will the new head Shinzo Abe do?

One key question: How far does Abe want to see the yen depreciate?

Frankly, his answer shocked me.

We were sitting in a very high end restaurant. It is a restaurant where the chef decides what you will eat. You don’t get to choose! Of course, the food was unbelievable. And very very expensive! And this is in a very expensive city!

My friend leaned back and just looked at me. He then leaned forward and quietly said that Abe wants the yen to drop by 50% more from current levels.

The yen has already gotten hammered. By a lot.

A further cut of 50% would be one of the most dramatic moves for a major currency in history. After all, this is not Zimbabwe but Japan!

The ramifications would be huge.

The first and most clear way to make money would be to short the yen against the US dollar. You would make 50% on your money without leverage. The returns would be astronomical with leverage. The Japanese stock market will continue to skyrocket.

EWJ is an ETF that tracks the yen.

The Japanese economy is still largely export driven. This will be jet fuel for the Japanese exporters.

Here’s the rub. All major countries are saying that they are not in a currency war. The the Abe government is doing a blitzkrieg attack on the rest of the world. This is not some subtle move but a sledgehammer move.

There is no pretense anymore.

Cry havoc and let loose the dogs of currency war!

The housing crisis was a huge disaster for the US and the world. Yet ALL the causes of it are still there. ALL of them.

The Community Reinvestment Act was never repealed. Yes, Fanny and Freddy are no longer there but the FHA has stepped neatly into their role. Do you think that Wall Street has gone underground? And, of course, Congress is still there promoting house ownership to everyone whether they can afford it or not.

A lot of people think that the Dodd-Frank law was there to solve the causes of the housing crisis. In fact, it did nothing to stop any of the reasons for the crisis.

From today’s Wall Street Journal:
“The Federal Housing Administration is expected to report later this week that it could exhaust its reserves because of rising mortgage delinquencies, according to people familiar with the matter. That could result in the agency needing to draw on taxpayer funding for the first time in its 78-year history.

The FHA guarantees fewer mortgages than either Fannie or Freddie, but it now has more seriously delinquent loans than either of the mortgage-finance giants. Overall, the FHA insured nearly 739,000 loans that were 90 days or more past due or in foreclosure at the end of September, an increase of more than 100,000 loans from one year ago. That represents around 9.6% of its $1.08 trillion in mortgages guarantees.
The FHA’s annual audit estimates how much money the agency would need to pay off all claims on projected losses, against how much it has in reserves. Last year, that buffer stood at $1.2 billion, representing around 0.12% of its loan guarantees. Federal law requires the agency to stay above a 2% level, which it breached three years ago.”

Is the Fed easing to help boost the economy? That’s what Ben Bernanke says.

But here is what ace silver expert David Morgan (http://silver-investor.com – highly recommended) says:
“The primary reason is NOT to stimulate lending as advertised by the mainstream press, but to allow the federal government to continue. The lower the interest rate, the less the interest payment due by the US citizens for the spending that the District of Columbia (the federal government) did on their behalf.”

Really, who is the biggest beneficiary of the Fed easing. The federal government! Long term interest rates averaged about 2.5 times higher than they are now over the last 20 years. Interest payments on the federal debt are now over $200 billion per year. This means that they would be about $500 billion per year if interest rates go back to normal!