ANOTHER Economic Miracle

🧠 The Big Brain
A Brand New Japan

Japan’s economy is supposed to be stagnant, boring & uneventful. While FX traders focus on the battle to stop the Japanese yen from weakening beyond the 150 level, there’s a bigger storm rumbling in the background…

Great! What does that mean, and what are the potential implications?

See, Japan has struggled with deflation (or very low inflation) & stagnant growth for decades now. They became known as a ‘savings’ economy.

That’s best explained with some charts from this excellent Martin Wolf article.

The concept of ‘excess savings’ often crops up in economic chatter. Japan was the world leader in the 2010’s:

You get the idea. They just love keeping spare cash under the corporate mattress. Now, why does this matter? Because ‘excess savings’ keep a lid on wages & consumption…

Martin Wolf laid out three potential solutions. One fits the current context perfectly:

Which is one of the reasons you’ll often hear wages crop up in Bank of Japan policy discussions…

It’s looking likelier than ever that this can be achieved. 

Prime Minister Kishida laid out a vision, along with some things that the Japanese government is “determined to do going forward” in a speech at the Economic Club of New York on Friday.

There’s loads in there. The intent is clearly a structural overhaul of the economy, in particular the asset management & investment side of the ledger.

However, wages are also a key target:

Labour reforms are always contentious issues. Kishida might not have the cabinet support to push through the changes. The one thing that’s clear is the intent and desire to shift the structure of the Japanese economy.

The implications of this shift could be far-reaching as mentioned here back in July:

See this is the thing with US deficit spending. It works while everyone else is running a big trade surplus to absorb those deficits.

Right now, the focus has shifted towards investment & increasing the household share of the economic pie (via wage increases).

It’s an entirely different ball game…

⚡ The Spark
Is Your Broker Solvent?

OK. This doesn’t just apply to brokers. Basically, if you give money to anyone, and they hold it on their account, it’s always good to check if they’re gonna stay solvent…

Good old counterparty risk.

That said, it’s looking dicey for CFD brokers. The linked article is more about whether there’s any real value in a broker business once it’s stripped for parts.

It also highlights some upcoming ahem strains for two publicly listed brokers (the only ones that have to publish accounts).

Anecdotally however, so many brokers overspent during the pandemic period when trade volumes went through the roof. Now those volumes (revenues) have evaporated, while the costs remain...

Insolvencies & consolidations are very likely to rise.

This isn’t unique to CFD brokers. Gambling group Entain warned on revenues yesterday too.

So, across the board, gaming/gambling/speculation revenues are down. Some brokers have ‘negative cash flow’ 🤐 and you’ve given them your money…

Now is a really good time to consider minimising the amount you keep with your broker, check where they’re actually regulated & see if you have any protection at all in the case of insolvency.

And when we say that, we mean REALLY check where they’re regulated.

Take this case that ran from 2019 to 2021

So that’s a UK company that’s EEA authorised & regulated in Cyprus.

Clear as mud. The only thing you know for sure? No FSCS protection means no money.

Even if you do have the law on your side, why put yourself through the hassle of making claims…?

The entire point of leverage is to minimise (your) counterparty risk

Use it. Deposit only the minimum that you require to trade. If your balance is currently higher than it needs to be, withdraw the excess.

“If you’re going to panic, be first”

💡 The Lightbulb
The Dysfunctional US Government

So yeah, the government of the largest global economy might shut down at the end of the week.

On the plus side, the Fed won’t be able to credibly hike interest rates in November because they won’t have the economic data:

The shutdown might not happen, but the fact that we go through this every year or two is astoundingly amateur. Put the Brits back in charge! 😉