Japan's House of Cards is Toppled

"The difference between playing the stock market and the horses is that one of the horses must win." - Joey Adams

On Thursday this week the Nikkei, Japan's main stock market index, tumbled 7.3% in one day.  It was the biggest one day decline since March, 2011, when the Tsunami hit Japan's coast.  Up to that point Japan's market had been on a one way tear higher, up over 45% year to date and 70% since November.  The reason for the massive stock appreciation was due to the enormous money printing efforts of Japan's central bank (sound familiar).  On Thursday however weak economic news out of China which imports a lot of Japan's products spooked investors and set off a spiral down.  Friday saw a slight recovery of 3% but during the day the enthusiasm waned and the market ended essentially flat. 

For me this week turned out to be a pretty good one due to my shorts on the Japanese stock market.  I had placed these shorts a month ago expecting some form of a significant draw down in the market and was rewarded for my investment.  That said I have reduced the short as I have no doubt that all hands will be on deck next week to try to rally the troops and take the Nikkei back higher.  Once again, as with the United States, the success of all the government intervention has been essentially limited to a rallying market and so with this one trophy in their cabinet, there is no way that they are going to let one poor day spoil the party.

Whether they will be able to drive the market higher or not is irrelevant because what is abundantly clear is that the market is teetering on the edge of a very sharp blade.  One slight gust of wind will be enough to send it into a tailspin.  The sell off certainly spooked global markets but for the time being it appears that the issue has been contained however if there is another one it could topple the house of cards.  As we witnessed it will not take a lot for investors to run for the exits and right now the only thing preventing this is more money being thrown at the problem by central bankers.

This contraction gave a clear indication that when the confidence in the reserve bankers of the world wanes, the sell off will be sharp and ruthless.  There will not be many stocks left standing as speculators rush for the exit.  The problem is that there is only one exit and with everyone trying to squeeze out of the door at the same time the last person will take the brunt of the hit.  Do not let this person be you.  See the warning signs and make sure that you are already out of the door safely before the alarm bells start to ring.  You have seen the smoke now don't wait for the fire to appear.