The contrarian manager of Eclectica, Hugh Hendry, says hyperinflation is inevitable as many countries face insurmountable debt. And to get there, policy makers need a major deflationary event.
But what’s surprising in Hendry’s investors letter — since he’s been hating on China for weeks — is that he says this crisis could come out of Japan.
Hendry point to the decline of a Japanese credit rating agency as evidence that everyone is ignoring an unprecedented debt burden (via market folly):
Last December saw the closure of Japan’s only truly independent and rational (at least to me) credit rating agency [Mikuni]… The closure of course coincided with Japan’s first ISDA recognised credit default event, the restructuring of the consumer finance company Aiful, and preceded by a mere month the bankruptcy of JAL. It is as though the truth is so unpalatable that investors would rather not hear it, certainly not pay Mikuni $5,000 per quarter to confirm the near certainty that they own over-valued corporate credits. A country with a debt burden that is unprecedented in the modern age and whose companies typically pay less than 2% per annum for 10 year money has decided that it has no need for tales of possible woe. To quote Hillary Clinton, it’s, “Unf***ingbelievable!”
A Japanese deflationary event means a “sudden and dramatic appreciation in the yen that would bankrupt its domestic export base.”
Business Insider Emails & Alerts
Site highlights each day to your inbox.