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Abe Action Implies Nikkei 15,000

Wednesday April 24th 2013

images/uploads/SPL Abe Action Implies Nikkei 15,000.pdf

Client response and dialogue...

Hi Steve
Nice paper but if you do the same thing for the US and the UK you will find a negative correlation. My interpretation is different from yours. Rising growth in the US and the UK tends to be associated with falling inflation because the fastest rates of growth occur when the economy is operating beneath its productive potential.  Even so, brave call on the Nikkei—we’ve been overweight since the late summer and would concur there’s a lot more to go for.
Cheers, John.
Kind regards
John Clarke BA (Hons) Chartered FCISI
Dear John,

Thank you for your kind words? 

I would tend to agree that too much inflation is of course a bad thing, after all that is why in the US in the 1980's President Reagan had no issue with the Fed Chairman Paul Volcker moving Fed Funds to counter a CPI rate of 15%.

The Fed led by Volcker raised Fed Funds which had averaged 11.2% in 1979, to a peak of 20% in June 1981. Prime was also boosted to 21.5% in 1981 as well.CPI retreated swiftly and touched 2.5% in July 1983. (It is widely thought that eventually Volcker and Reagan fell out over the pace of de-regulation).

The BOE data base from 1975 has the peak Base Rate at 17% in November 1979, however, let's take a nearer example...in April 1991,  Base was 11.875% when CPI tracked at 8.5%. The inflation levels I am indicating are unacceptable, however, the case of Japan seeking to reflate their economy is that they have to provoke some inflation...not hyper of course but some to brake the siege mentality that has seen cash hoarded. I very much wish the ECB could do the same especially after the dire Flash PMI data this week.



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