Outside the Box

What We Missed: Japanese Liquidity Flows

John Mauldin

May 8, 2006

About a month or so back I wrote about some of my thoughts regarding interest rates and monetary policy being affected by both velocity and the money supply (see When Will the Fed Stop?). In my letter, I highlighted some exceptional research performed by my good friends at GaveKal. Well they have done it again, this time turning their attention towards Japan and the global economy.

Founded in 1999 by Charles and Louis-Vincent Gave and Anatole Kaletsky, GaveKal is a global investment research and management firm that provides an array of financial services worldwide. They are best known for their study of monetary policy, fiscal policies, secular trends, technical analysis and asset class valuations which they use to form a unique perspective on the relationship between the financial markets and the global economy.

In "What We Missed: Japanese Liquidity Flows," we are presented with an in-depth analysis of the role of Japan amongst the growing interconnectedness of today's financial markets. Both the past and current decisions of Japan's policy makers have had a profound effect on the global economies that has produced a new metric which they call the "international yield curve." I think that you will find this study to be as equally intriguing as I have. It is, indeed, outside of the box thinking.

John Mauldin, Editor
Outside the Box

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What We Missed: Japanese Liquidity Flows

From GaveKal

With economic activity seemingly still powering ahead, with large caps still underperforming small caps everywhere, with emerging markets still outperforming the more developed markets, with commodities still outperforming almost everything else out there... we have clearly missed a boat in recent months. Indeed, while we had argued in all of our research that the structure of our economies was sound, we have also highlighted our fears…

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