Japan Has an Inflation Problem
Dennis Gartman has been directly involved in the capital markets since 1974 and has been publishing his daily commentary, The Gartman Letter, since 1987. Mr. Gartman is a strategic partner with the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN) and lends his institutional insight to educate advisors and investors about trading gold in different currency terms.
We begin by noting that on Friday Japan reported that inflation at the consumer level “stalled” and that household spending actually… and unexpectedly… fell in June. This is disconcerting of course to Mr. Abe and even more so to the leadership at the Bank of Japan, for both have said that they want an inflation rate that is at and above 2% and thus far they are failing to achieve that goal. According to the report today, core inflation… that excluding food prices… rose 0.1% in June, and although the “Street” in Japan had been looking for “unchanged,” this is still far below the BOJ’s and Abe’s hopes.
Further, household spending fell 2.0% year on-year in June and this is surprising in light of the fact that it had risen a very stout 4.8% in May. The “Street” is blaming weather for this sharp decline and indeed Japan was inundated by severe rainy weather in June and especially in Tokyo, but even so where “The Street” had been expecting +1.7%,to have fallen by 2.0% is stunning.
The Bank of Japan, it seems to us, shall have no choice but to err on the side of materially aggressive easier monetary policies, and although the Bank may be willing to wait for another month before acting in light of the “weather” concerns regarding this report, the case is being made and being made clearly that they’ve not been expansionary enough.
As for Europe, we shall again say that the situation in Greece has moved away from the centre stage and is out of garish klieg lights, but that does not mean for a moment that the situation there is resolved for it is very, very far from being so. Mr. Tsipras is continuing his efforts to forge a coalition in the Parliament that he can count upon given that he’s effectively lost his supporters within the Syriza Party on his far left. However, in the end, he and Greece shall be better for having had the Left Platform effectively removed from real influence.
That said, in the end, the game of “Pretend and Extend” continues in unabated fashion, for there is no way…none… that Greece can ever pay its current debts. We know that; Greece knows that; Germany and Merkel know that; the IMF and the Brussels Group both know that; but for the moment at least everyone has agreed to “pretend” that Greece is viable when of course it is not. However, as we have said countless times, it is the German exporters who hold sway. It is they who want/need/demand that Greece be kept in the Euro-zone and the single currency, for without Greece the EUR goes skyward and BMW, ThyssenKrupp, Volkswagen, Bayer et al want to keep the EUR as weak as they can for it clearly inures to their benefit.
Perhaps most beneficially, gold did not sell off on Friday as had become all-too-often the custom in recent months and that we found “refreshing.” Too, we find it bullishly interesting that the “specs” in gold are short while the “Commercials” in gold are holding their smallest net short position since back in ’01 when they were actually modestly “net long” and gold made its bottom at approximately $250/oz. The “Spec” shorts are now essentially at the highest level in modern history. The “commercials” are also holding one of their smallest net short positions in Silver of the past fifteen years, and in the past each time their net short position has become this small prices rose smartly.