The collision of global markets and social mood

Friday, May 30, 2014

Japan. What No One Wants To Know

Looks like the New Moon was a dud, along with Abenomics.

In mid 2007, it was the yen that gave me the signal to start buying SPY puts with abandon. Now with most everyone focused on Putin, few seem to be paying attention to the world's largest powder keg (with debt/GDP of 227%).

Last night, Japan's April CPI figures came out much hotter than expected, 3.2% year-over-year. While on the surface it looks as if Japan is finally coming out of decades of deflation (by openly stealing from its citizen's savings), Household Spending plunged 4.6% year-over-year.

So it does not appear that Ms. Watanabe will be buying as many JGBs as was originally hoped for, or consuming as much toro sashimi.

It doesn't end there. Industrial Production fell 2.5% from March -- the slowest year-over-year growth in 8 months.

Hot CPI, cold consumer, cold industry. Not the sort of environment that calls for more stimulus.

Japan "needed" the stimulus to weaken the yen to spur exports. What if the yen gets stronger? What if they lose control of the JGB market and rates rise, thus adding fuel to a stronger yen?

The answer is: No One Wants To Know.

So far, yields up, Nikkei down, yen stronger after the news.

Regardless of what may or may not happen in Japan, 1909.82 is the stop on the S&P today, to keep things simple. There is Fib confluence at 1925.67-1925.88.

Yesterday was another low volume mess of wild-eyed bullish behavior that culminated with someone (or something) buying $1.8 billion worth of e-mini contracts in one minute and, according to Nanex, $64 million of SPY.

I bought SPY puts.

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