We interrupt this broadcast to bring you some terrific news – Direct to you from the BOJ…
“On the 24th of December, 2011 the Japanese Cabinet approved a draft budget for the 2012 fiscal year. The numbers reveal that we, Japan, have proved once and for all that those opinionated morons over at CapitalistExploits.com, who are betting on an inevitable and overlooked crisis, don’t have a clue what they’re talking about!
“We have proved that ‘BIG in Japan’ isn’t just a song, but rather how we do things around here. They’ve even have had the nerve to suggest that our life insurance companies aren’t bulletproof. Capitalist bastards, they’re probably shorting us right now!
“When it comes to earthquakes and Tsunamis we set the records, and when it comes to sovereign debt, frankly we hit the ball out of the park.
“While it’s impolite to say so, after all we are a very polite people, we are secretly laughing in the face of those Greek wimps, with their paltry ‘debt burdens.’ We are so confident in fact that we are now considering providing consulting services to central banks on how to do it ‘Japan style.’
“To ensure you understand how superior we are in this game we proudly present you with this years budget:
- Outlays – ¥ 90.3 Trillion
- Estimated tax revenues – ¥ 42.3 Trillion
- Deficit – ¥ 48 Trillion
“These are the base figures, however to prove how truly great we really are, we need to add in the expense items for reconstruction, which tally up to ¥ 3.8 Trillion and rising, as well as pension payments which were left out of the budget – another ¥ 2.6 Trillion.
“Now that we have some truer figures to work with, you will notice (after picking your jaw up of the floor and cleaning up the coffee you just spat across your keyboard) that we will be borrowing north of 56% of our entire budget for the fiscal year 2012. Impressed yet?
“Now that we have your attention and you are in stunned awe of our capabilities, we’d like to point out that we routinely pass supplementary budgets, so we believe that we can quite easily throw a few trillion more into the borrowing pot.
“Our present forecasts indicate we will eat through roughly ¥ 22 trillion servicing our existing debts with our present sub 1% interest rates. This in itself accounts for about 52% of present tax revenues. We realize that we may need to push rates down a bit further actually, but we have a plan for that… please read on.
“In years gone by we have managed to maintain our deficits with a large trade surplus which has been reinvested in JGB’s. This combined with a historically high savings rate, with that savings being reinvested in our bond markets, has allowed us to break Guinness records.
“Unfortunately 2011 has not been kind to our trade surplus as shown below, and our savings rates are now running sub 3% down from 15% in the 80’s.
“Some of you may be concerned that this combination of rising outgoings and collapsing inflows is not sustainable, but you have not figured into your calculations the ingenuity, and sophisticated resources that we at the BOJ have available to us.
“After looking at the graph shown above and reviewing our data, we have decided to mobilize these resources and propel Japan into a new era of prosperity.
“We are instituting a ‘Love Japan’ policy. This will be a joint initiative with our very own department of immigration, Japanbrides.com and Hugh Hefner.
“We will be running an advertising campaign utilizing YouTube, Twitter, Facebook and various other social media sites which will showcase young, good-looking, sexually frustrated Japanese ladies seeking ‘relief.’ Our market research indicates that with the use of social media, these campaigns will go viral and the flood of male immigration applicants will be enormous. We have already mobilized teams of outsourced telemarketers in Mumbai and Manila to deal with the impending demand.
“Acceptable applicants must be under the age of 35 and earn in excess of US$200,000 annually. They will receive permanent residency in Japan and choice of one of the ladies in the program as their bride. All that will be required is a statutory declaration enabling the Japanese Government to have pay packets docked an additional 20% (we’re calling it a ‘love Japan tax’) which will be used to fund our bond issuance.
“We are very excited about this new initiative and look forward to many more years of humongous deficits! Meanwhile we invite you to ‘love Japan!’
OK, obviously that was satire, however the reality is that Japan’s budget situation is completely out of control. I firmly believe, as do quite a few others, that shorting Japanese government debt could be one of the most profitable trades ever!
Supporters of this thesis include hedge fund seer Kyle Bass of Hayman Capital, who recently said, “Japan is a giant Madoff-like Ponzi Scheme that will blow up starting in the next few months.” You may remember Bass as the guy who made millions gambling against the sub-prime mortgage bond market.
I’m reviewing some ways that individual investors, you know, guys like us without $10M to throw at the CDS market, can trade this. Long USD/JPY and XAU/JPY are how we’re playing it for now as my contention is that the currency will be used as the escape valve with a desire to keep the bond market in tact.
Meanwhile, tell us what you think. Do you have an opinion on this situation or a way to play it? Drop us a comment below.
“… When you look at Japan, they’ll sell more adult diapers than kids diapers by 2013.” – Kyle Bass