Investors are likely to see a serious downturn in the value of the yen ahead, says gold and equities expert David Skarica. Oil, too, is likely to sink in the near term as the Japanese economy staggers under the cumulative weight of misfortune.
Japan’s exports to the United States will fall, naturally, as it deals with the aftermath of the 9.0 magnitude quake, a massive tsunami, and serious problems at several of its nuclear reactors in the quake zone, Skarica tells Newsmax TV.
“At first you will see a decline, then a positive impact when the reconstruction starts,” he said. “The big ‘if’ right now is what’s going to happen with these nuclear reactors. Obviously, a meltdown will lengthen the size and impact of the downturn. If you avoid that, you will see a sharp downturn and a sharp rebound.”
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Once the immediate crisis is resolved, insurance companies will repatriate the yen to pay claims. But then heavily-indebted Japan will print yen to pay for rebuilding, inevitably cheapening the currency, said Skarica, editor of The Gold Stock Adviser newsletter and author of "The Great Super Cycle: Profit from the Coming Inflation Tidal Wave and Dollar Devaluation."
“Then you’re going to see, I think, a real downturn in the yen,” Skarica said. “The Japanese central bank has already flooded the market with $85 billion worth of yen. It’s essentially going to have to print more money to add liquidity to rebuild the country.”
Skarica pointed out that even Chile, which has only about a 5 percent debt-to-GDP ratio, borrowed and printed pesos after its massive quake to finance a recovery. Japan is a much larger economy and faces debts equal to more than twice the size of its economy.
“So I think, at first, yen strength, followed by maybe more severe yen weakness than people think,” he said.
Don’t expect oil to keep moving up, given the problems in Japan and the end of quantitative easing in the United States, he said. The Fed is expected to end its latest round of money printing in June.
“In the short term, we may have already seen peak gas prices, even going into the summer season. But I think in 2012 and 2013, because the Japanese and American central banks will be aggressively printing money, you could see higher gasoline prices at that time,” Skarica said.
As for gold, seasonal factors will have a bigger role to play than will current events. Skarica expects gold to test resistance levels at around $1,430-$1,440 an ounce and perhaps move higher, peaking likely in April or May.
Gold normally bottoms in the summer before rallying again in the fall, Skarica said.
“I think in the coming weeks we’re going to break this resistance and then maybe trade up to $1,450, $1,500, maybe a little higher than that, before we see this significant pullback,” he said. “We’re definitely going to see short-term strength, followed by a pullback into the summer.”
Stocks, meanwhile, are likely to remain range bound — albeit in a wide range of between 30 percent and 40 percent — for up to a decade, he said.
Skarica is an expert in economic cycles. He believes stocks are behaving in a way similar to action seen in the economies of 1974 and 1907. The reason is government presence in the economy, he says.
“When you get a crash, the government prints money to try to get out of it. This causes inflation. Inflation allows stocks to keep their value, but usually that inflation leads to higher rates, which prevents them from going to higher levels,” Skarica said. “Hence you get this trading range.”
Whatever happens in the rest of the world, don’t bet on the U.S. dollar as a safe haven, Skarica said. He compared the greenback to the British pound after World War II. Once the global reserve currency, the pound suffered because of huge British government debts.
As the world abandoned the pound for the dollar as a reserve, it fell from being worth $5 to nearly on par with the dollar by 1980. “That’s losing 80 percent of its value. I think we’re in a similar long-term decline for the dollar,” Skarica said.
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