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This note was originally published at 8am on October 31, 2014 for Hedgeye subscribers.

“When I suck, I’ll retire.”

-Tom Brady

I suck this morning.

While many may very well have nailed this, I did not. The Japanese economy is so bad that they just went all 1920s Germany on the rest of the world, printing 80 TRILLION Yens.

Panic Plan, CTRL-Print - EL chart 2

Back to the Global Macro Grind

Just how bad does the Japanese economy suck? Well, right before they came out of left-central-planning-field with this decision, here’s what they reported, in economic growth terms:

  1. Japanese Household Spending -6% year-over-year
  2. Japanese Housing Starts -14% year-over-year
  3. Japanese Construction Spending -40% year-over-year

No, the down -14-40% prints aren’t typos. Abenomics is killing it, literally.

Q: “So”, what do central planners do when all else fails?

A: moarrr of the same! (*definition of insanity)

Japan’s equivalent of Janet (his name is Kuroda) said that Hedgeye nailed it on the #GrowthSlowing call and that the Bank of Japan is at a “critical point to overcome deflation.”

There’s that word again, #deflation.

Forget what 80 TRILLION is in the context of what the Germans did in the 1920s for a second (99% of people in this world don’t get the econ #history lesson anyway) and think about what this Panic Policy in Japan is going to do to the rest of the world’s economics in 2015:

  1. Burning The Yen = Dollar Up = Oil Down
  2. Oil Down = Russia Down
  3. Job growth in Texas, North Dakota, etc. Down

In other words, what these macro morons in Japan don’t get is that what they just did is only going to perpetuate worldwide #deflation.

Did I just call them morons? Yes. And I said I suck this morning too. Get over it and get on with the next move in the game that is Global Deflation Risk. Did you know that 27% of the high yield/junk debt market in the US is levered to some version of Energy inflation?

Again, follow the bouncing puck on that thought. Yen burnt to a crisp à #StrongDollar à Quad4 deflationary pressures à Down Oil à Down Energy stocks à Down Energy related debt #Bubble.

And, while you’re going to see the mother of all month-end markups (many mutual funds have their year-end in October too, so isn’t Japan falling into the ocean perfect timing!), what does that mean for #deflation risk to the US stock market as it re-tests all-time highs?

Technically speaking (my 4 year old daughter just pointed this out after she looked at the chart), an all-time high in the SP500 is a long time. “So”, there has never been more risk that US equities deflate, starting in November.

REMINDER: the last US stock market #bubble peaked in OCT 2007 and Japan’s Nikkei hasn’t been this high since NOV 2007 either.

If you’re looking to buy either Japanese or US stocks on this “news”, how do you explain it to your investors? ‘Well, you see, our thesis all along was that these money printings would result in economic collapse, so we wanted to be long the #PanicPlan associated with that.’

My asset allocation of 0% (net) to US equities will be dead wrong this morning. Zero percent allocation to Commodity Deflation and its related energy stocks and bonds is right though, so I don’t have to retire just yet.

Our immediate-term Global Macro Risk Ranges are now:

SPX 1900-2011

RUT 1071-1175

VIX 12.89-21.78

Yen 108.11-111.98

WTI Oil 79.03-81.65

Gold 1162-1231

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

Panic Plan, CTRL-Print - Chart of the Day