Jeffrey Gundlach’s latest global macro commentary looks at the only issue that really matters right now – easiness in interest rates around the world.
His thoughts on Japan in particular below, thanks to Advisor Perspectives for collecting this all:
Japan is now setting the pace for aggressiveness in the global quantitative easing derby, Gundlach said. The ultimate consequences for the country’s “great debasement” will be dire, but in the short term, Japanese stocks will rally, he said.
Japan has a “horrific” debt-to-GDP ratio of 240%, Gundlach said, up from 212% a little over a year ago. Government spending has increased in every quarter since 2008, and the only way its government can sustain future spending is with “massive money printing,” he said. Japanese society has accepted that; newly elected Prime Minister Shinzo Abe ran on that policy.
Japan’s birth rate has fallen from 19 births per 1,000 people in the 1970s to approximately eight per 1,000 today. Its declining population is its biggest problem, because there are fewer workers per retiree. Added to Japan’s shrinking private savings pool and negative trade balance, there is no longer any way Japan can finance its deficit, Gundlach said.
Accordingly, the value of the yen has “collapsed” relative to the dollar since November, Gundlach said.
But the other consequence has been in the Japanese stock market, which has risen by approximately 30% in dollar terms since November. A weak yen is good for exports and helps Japanese industries, he said.
Those who bet that Japan’s unfolding crisis would translate to higher bond yields were mistaken, Gundlach said. Japan has succeeded in keeping interest rates low.
Those who believe that quantitative easing helps stocks markets – and also believe that growth and prosperity through strong exports helps an economy – should be particularly fond of Japan’s equity markets.
Gundlach said it’s likely the Nikkei will be up 20% in dollar terms this year.
“Japanese stocks are cheaper than U.S. stocks,” Gundlach said. “If I was forced to own one stock market, it would be the Japanese stock market.”
You can read up on all of Jeffrey Gundlach’s recent comments below.