David R. Kotok
March 11, 2013



Japan is on a tear.

After two decades of financial repression and deflationary suffering, a new government has changed policy in a fierce way. Japan now seeks inflation. It will get it. It seeks higher asset prices. It will get them.

It seeks economic growth. It may get it if there are reforms to allow it.

The yen will head over 100 and to 115 to the dollar in the shorter term. Longer-term it may get much weaker still. The Japanese stock market is rallying, after endless malaise.

Disclosure: we are in that market, using DXJ, the Wisdom Tree currency-hedged ETF, to participate.

In the near term the Japanese central bank will be the catalyst to take the G4 central banks’ total assets above $10 trillion. The G4 currencies are the yen, dollar, pound, and euro.

The Fed and the UK will boost that $10 trillion even more, and the ECB will struggle with what to do but eventually succumb. We expect the G4 total to top $11 trillion by yearend.

Zero interest rates are bullish for asset prices. There is more ahead.


David R. Kotok, Chairman and Chief Investment Officer, Cumberland Advisors

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