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The Bottom Line #9 - Land of the Rising Debt-to-GDP Ratio
The way we see it, Japan has no choice but to sell more bonds to foreigners. They cant cut their debt service costs because they would then essentially be in default, and would lose access to the capital markets; they cant reduce their retirement costs, because even if they tried, the retirees would have no choice but to make up the shortfall by selling more bonds. In technical financial market terms, we call this a Catch-22.
The Bottom Line #6
What we can learn from the past is that in the current environment, being nimble, buying at major fear-induced selloffs and, even more importantly, selling into strength, is a strategy that will outperform the buy-and-hold crowd. For nimble traders, volatility represents opportunity. Having someone by your side to help calm the fear and quell the exuberance helps the returns a lot. Its when you have volatility like weve seen of late, or after the Great Depression, or experienced in the Japanese market over the last 20+years, when you really need a good execution strategy to stay profitable.
The Bottom Line #5
Today marks the third anniversary of the death of Lehman Brothers, not the first, nor the last, bank or broker-dealer to require emergency meetings of exalted officials to take place over a weekend, but it is the only one that resulted in a complete loss for shareholders and significant losses for bondholders. Whether you see this as the example of the officials getting it right or stunningly wrong really depends on where you sit, and it should color your perspective on everything that has occurred since.
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