During these last five years of the “recovery” many analysts have repeatedly warned that not all is well in the world. The so called PIGS (Portugal, Ireland, Greece and Spain) tended to be front and center as the main antagonists in cautionary thinking against any complacency. And while it is certainly a fact that those countries are hardly giving anyone comfort in their performance or (for the most part) future prospects, there is now growing concern with much bigger problems.
Japan and India are so large that any thoughts of bailouts are of course, preposterous. Yet even as the U.S. stock markets have held up, albeit choppily, these two countries seem to be at or near a death spiral. What the heck is going on? Well, as PrimeRates readers are undoubtedly aware Japan has decided to join the quantitative easing (QE) party with a vengeance. India meanwhile, has been all over the map policy wise and have even resorted to trying to curb physical gold sales among its citizens (gold is especially popular in India, both culturally and as an investment). But that is not all that is shaking the world’s confidence in India’s leadership. In addition to new gold regulations, the country seems to be behaving as if it is a third world regime:
Since the start of July, Indian policy makers have curbed trading in foreign-exchange derivatives, restricted cash supply and asked foreign investors to prove they aren’t speculating on the rupee, in an attempt to arrest the currency’s slide.
As you might imagine this has hardly led to confidence in India’s future prospects. And as we know, the reaction to these policies have been, well, predictable:
“Quite clearly, there is panic in the market which is exacerbated by the fact that the measures invoked so far have delivered limited results,”Madan Sabnavis and Anuja Jaripatke, economists at Credit Analysis & Research Ltd. (CARE) in Mumbai, wrote in a report today. “The Fed meeting in September will provide more clarity on currencies, and till then it is unlikely that the rupee will stabilize.”
Meanwhile, Japan is on a roll in the wrong direction and has the real possibility of dragging down the rest of the world with it. Even as some currencies are, going higher in relation to the yen (the dollar too), there is a definite sense that this is all a race to the bottom:
The tick is clocking…and Japan Inc. has the very real potential to send the world’s economies into a tailspin that will make 2008 look like a minor speed bump on the way to a concrete barrier.
About the only consolation to this viewpoint is that it appears to be more or less a consensus opinion, although the degree of destruction varies wildly. But even if it is, for now, only moderately and temporarily disruptive, the medium to long term consequences of their policies will only be known quite far down the road.
There are always “very important” issues to deal with as investors do their best to navigate a portfolio. These countries could be in a different category than the usual, though. Both India and Japan are needed to be in the stable sections of the world and any slippage could have devastating consequences. These next few months will be crucial and could tell the tale.