Japan PKO (Price Keeping Operation)   

• Last week was a very welcome respite from doomsday scenarios, financial fragility concerns and irritation over the slow response of governments to promised stimulation. After hitting new bear market lows, stock markets around the world led by the US snapped back like an over-stretched rubber band. While a welcome relief, we hold little expectation for anything but a modest pullback to around 50-day MAs. 
• Economic estimates everywhere continue to be slashed, and the February number roll call so far indicates no signs of a bottoming yet essentially anywhere, including China.
• Yet King copper has already perked up, and crude oil is also trying to rally. Gold also continues to position well for a renewed challenge of a new historical high (above $1,033/ounce) despite continued USD strength.   This apparent contradiction between recovery scenarios (copper and oil) and doomsday scenarios (e.g., $2,000~$3,000 gold) reflects, a) expectations for an earlier recovery in China, and at the same time, b) the conviction of an inevitable debasement of fiat currencies because of debt-financed reflation efforts. 
• As the largest buyer of US treasuries, China has put the US on notice that they are "concerned" about the safety of their holdings in US Treasuries. China is now in a position to exert "moral suasion" on the US treasury market, and while Hillary Clinton’s trip to Beijing was undoubtedly aimed at assuaging China concerns (as was the Obama Administration's announcement of "big picture" scenarios for the US long-term fiscal balance), China is now an influential player not only in global manufacturing, but in financing US reflation plans.  
• Sadly, it is now very apparent that Japan never came back, and is still in the midst of a monster bear market that began in 1990 the worst ever experienced in Japan. This has the LDP-led government dusting off out-dated policy prescriptions (e.g., a government stock purchase plan) that were a bad idea 45 years ago when first introduced, and are an even worse idea now. These plans only delay the inevitable, i.e., that Japan must reform and rejuvenate if it wants to recover.

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