Dr. Marc Faber said on Talking Numbers that if the yen ever strengthened, the Bank of Japan would intervene. Though they recently said they won't do that, one analyst thinks they will be forced to. What does that mean for US stocks and gold?
On May 20, we had Dr. Marc Faber, otherwise known as Dr. Doom, on Talking Numbers to discuss the Japanese markets. Here’s what he had to say:
“What makes me confident that this time is different is that the government in Japan will continue to monetize. In other words, they’ll continue to print money. And, I agree the yen is oversold and stocks are overbought and the correction is forthcoming. But, any time the market would drop in Japan and the yen would strengthen, there will be more money-printing.”
Three days later, the Japanese market peaked. It has since fallen by 15%. Meanwhile, the US dollar weakened against the strengthening Japanese yen by nearly 7%.
The Bank of Japan recently indicated it will not continue with monetary stimulus. That’s why we asked CNBC Contributor Todd Gordon, Founder of TradingAnalysis.com, if Faber was right and Japanese monetary policy will change at all.
“They have to,” says Gordon. “The global community is going to come down on the Bank of Japan to get them to continue to monetize.”
“This yen strength we’ve seen since the top in May is actually derailing this stock market rally,” says Gordon.
And, it’s not the Japanese rally that’s being affected by a strong yen. It’s the US rally, too.
“Stock investors have to look at what’s going on in the currency markets,” says Gordon. “
Gordon overlays the chart of the US market benchmark S&P 500 index against the price of US dollars in Japanese yen terms to show the two have been moving in lockstep since the start of 2013. With the dollar now falling, Gordon believes it will affect the S&P 500. But, he thinks this will bring opportunities for investors. He anticipates intervention by the Bank of Japan at some point to weaken the yen and strengthen the dollar, pushing the S&P 500 up with it.
Talking Numbers contributor Steve Cortes, Founder of Veracruz TJM, disagrees with Gordon’s thesis. Namely, Cortes doesn’t think the Bank of Japan can weaken the yen even if it tries. As well, Japan’s economic fundamentals are also a problem. “The Japanese people must save,” says Cortes, “and they cannot become big inflationary spenders.”
Cortes also doesn’t see the yen’s strength having affecting gold prices as much as another major factor: market sentiment.
“For the first time in a heck of a long time, I’m actually somewhat bullish on gold,” says Cortes.
“A year ago, it was hard to find anyone who didn’t like gold. Now, you have the opposite scenario where there are no gold bulls,” notes Cortes.
“So, because of positioning and market internals, I actually think gold can hold reasonably well.”
For more analyses by Gordon and Cortes on Japan, the US markets, and gold, watch the video above.
Be sure to visit Talking Numbers on Friday as we interview the Commodities King, Dennis Gartman, on how he’s trading the gold market.
NEW! Talking Numbers Technicals Tutorials here:http://finance.yahoo.com/video/playlist/talking-numbers/