Japan stocks dive after Europe, U.S. sell-off

Rays of negative-interest- rate spread from country of Rising Sun and that has rattled global financial markets.

Bubbles inflate, bubbles deflate. Not much new in this story, except the the time between the bubbles is shrinking and the size of them is increasing. This is a logical outcome from one of the contradictions of capital, which is compound growth. Eventually an increasing amount of capital in the world must go somewhere and these days it seeks out higher returning asset investments rather than investments in productive capacity. There is now so much capital out there that holders of it, such as banks, can sit on it rather than put it to work. The negative-interest rate is intended to spur lending and investment, but right now, with emerging markets suffering and developed markets aging, there is not that much to invest in, until they smell the next bubble. As long as the growth mantra continues, we'll see this contradiction play out, but with it harder and harder for policy makers to manage.

Rays of negative-interest- rate spread from country of Rising Sun and that has rattled global financial markets.

To be fair, negative rates first appeared in the EU, and it was only after visiting Davos that Kuroda decided to adopt the same strategy. Prior to his visit to Davos, Kuroda promised that the BOJ would not adopt a negative rate. So much for promises. And we now see that Kuroda made an incredible error in judgment.

It looks as though the market has finally lost patience with Abe, and has decided that the "third arrow" doesn't exist. Much of the "record profits" which some people have been spouting that Japanese companies have been sitting on (and were largely the result of stock gains) have vanished into thin air. If you wanted to know why companies have been reluctant to part with their cash, it's because they feared such a thing would happen.

Abe has deficit-spent record amounts of the taxpayer's money supposedly trying to turn around the economy. And Kuroda has no further tools at all to use, except more of the same. If Abe doesn't get that third arrow out of his backside and shoot it on Monday morning, there is nothing more that the BOJ can do which will help. The BOJ is still pumping massively (printing money), interest rates are negative, and now even bond rates are negative. There is literally nothing else to do but pump all the more mightily. But, once again, if there are no real fiscal and regulatory reforms enacted immediately (as in next week), it isn't going to do any good.

Now imagine that the Postal fund had lost 25% if it had gone through investing in stocks, and the general pension fund, oops they did, ouch. Come Monday they have a choice, start selling the yen hard, and crank the printing presses harder than the 30bil$ per month they're alreadpy doing, to get the yen back to 120 area. Or, stop buying USTreasuries.

We cannot ignore the fall in China's stock falling market--and many experts now worry about the viability of China's Big Four banks, which could mean US$34 trillion of bank assets could go "poof" with catastrophic results.

Given how connected the world's national economies are nowadays, a Chinese economic collapse could essentially bring the world's economic engine to a complete halt--a massive "reset" that could take as much as a generation to recover from. And Japan will be hit hard given the strong trade ties between China and Japan.

Eventually an increasing amount of capital in the world must go somewhere and these days it seeks out higher returning asset investments rather than investments in productive capacity. There is now so much capital out there that holders of it, such as banks, can sit on it rather than put it to work.

Capital must seek out higher returning investments, and in the real world where tax and overhead costs are climbing higher and higher, and the public sector consumes ever more of national GDP, it is rather obvious that investing in productivity in developed countries is a loser's game. In America you pay off your corporate tax, and then if you invest your profits in aything, you get hit with capital gains tax as well. Developed countries have more or less priced themselves out of the market, and newer, more competitive developing economies are attracting what investment is occurring. As for banks, they are now required by law to hold onto more capital, 8%, isn't that right ? And most banks are holding that exact amount, some are struggling to earn profits with 8% of their assets being off-limits to invest, and earning nothing.

Much of the capital you speak of has been recently borrowed from the taxpayers, printed into notes, and flooded into the economy, mainly via the stock market, which has seen share values inflated as companies have issued their own debt to borrow at low rates, and buy stocks. The amount of capital might seem significant, but the real value of this capital is less so. The flood of new currency has not yet created much inflation in retail prices, but it has inflated the stock markets, and eventually it will trickle down (or flood down) into the mainstream economy. In the end, the intrinsic value of the assets being held by companies (and banks) is a fraction of what you believe it to be, and that is why they are holding onto it.

The recession Obama "saved" us from might not have even fully hit us yet, and his actions, along with those of the EU, China, and Japan might be opening the door to something far worse.

Shortly after the Federal Reserve raised interest rates 25bps on December 16, 2015 global markets have had an historic drop since the beginning of the year. Interest rates are perhaps the most important function of an economy. Instead of letting the free market decide the price of money, we've had global central bank pegs, through debt monetization, artificially pegging them at 0%, or in the case of Japan, Germany, and Switzerland, a negative percentage in he hopes of greater economic growth. The reality, for the US in particular, is that with over $19 trillion in funded debt, and over $110 trillion in unfunded liabilities, the government is broke. Rather than tell its creditors, you're only going to get .01 on the dollar, they've made up this meme that inflation equals economic growth, so they can print more money through the central bank. The creditor gets paid back, with currency that is worthless. It may seem that the Yen is getting stronger compared to the dollar, or the Euro, because they are only measured against each other. it's as if they all jumped out of the plane together. They're all falling, just at different rates. Everyone is losing purchasing power. The only form of currency which has lasted over 5,000 years is gold. That's what you need to measure you're currency against. A form of money that can't be printed out of thin air, has no counter party risk, has intrinsic value, and is accepted world wide.

Markets up, markets down. When markets up all kind of supportive bullish reasons. When markets crash all kind of bearish reasons. Markets are money games. With all the extreme panic views, probably we are near a major bottom. Time to start loading on stocks. Central banks will still be pumping lots of money into the system; there is no other choices. With government bond yields near zero and some negative, stocks paying dividends of 4% to 8%, priced below book value in many developed countries, stocks will be the next bull game again.

Time to load up. Buy low, sell high....is still the way to go for longer term investing.

We are repeating 2008 all over again. Japan Nikkei tanked more thanf 5000 yen that is relative to the price dropped during the Lehman collapsing.

This is just a beginning. There are 3 causes; 1)China passing on their problems to the world. 2)Oil price is still tanking. 3)US, Europe, Asia are in cometitive deflation including currency, wages and so on. Chesapeke Energy is filing bankraptcy that is a troublej.

We're all.....doomed!

We are repeating 2008 all over again.

Yep. When I say there's no recovery anywhere, some people disagree, just because they think America is doing very well. I mean...really? We are living a global mess, this is the only truth. Plus, I never understood why, when there's a global market crisis like this, the US dollar becomes weaker both against Euro and Yen. Can somebody explain me why the investors never seek refuge in the US dollar? I don't understand it.

Yep. When I say there's no recovery anywhere, some people disagree, just because they think America is doing very well. I mean...really? We are living a global mess, this is the only truth. Plus, I never understood why, when there's a global market crisis like this, the US dollar becomes weaker both against Euro and Yen. Can somebody explain me why the investors never seek refuge in the US dollar? I don't understand it.

Nowadays when growth is almost nil, and stock performance is not based on the performance of companies, or the performance of national economies, investors are reliant on the tempoary sentiments caused by central bank actions. Any country which pumps currency or drops rates will see a spurt in stock prices, causing a movement in capital, and changes in currency valuations.

Europe, America, and Japan have all but removed control of their economies from the private sector by lowering rates to little or negative, and printing money on a large scale. When each region makes a new policy, values change, and investors can make a little money.

The entire problem has been caused by misallocation of capital. The public sector is consuming far too much, and generating a negative return. Worse yet, it spends far more than it consumes. Printing money and lowering rates is less about helping national economies than it is about debt management. It is the economic activity of the people which creates goods, service, and jobs. As the public sector takes more and more, there is less and less for the private sector to spend on these things, which causes deflation as spending slows. Deflation cannot be tolerated by large debtors like national governments who are sitting upon incomprehensibly large debts, so they must manipulate currency and interest rates to keep debt-servicing costs down.

This manipulation hurts more than it helps, as it robs people of the value of their salaries and savings, which do not increase in-step with inflation because employers are earning no more, or less than they were before. The people can aford even less than they could before, which causes further erosion in consumption, and more weakness in the national economy. Then the government responds by "stimulating" the economy by deficit spending more recently printed money, which of course hurts more than it helps, because it further drives down the value of wages and savings.

The yen has become stronger recently because investors know the yen is unstable, due to central bank manipulation, and this volatility creates strong changes in value which investors can profit on. But as all currencies are now being managed with Zimbabwe-like incompetence, the big winner for investors this week was gold.

@sangetsu03: Thanks, nice post.