Is The Sun Setting on the Japanese Empire, Finally?

I miss those wacky Sunday night opens. We're very likely to see one tonight.

Here's what I'd email my traders if we were still running Traditum.

"Be very careful tonight. Japan is in big trouble. We may be about to enter a period similar to LTCM, 9/11, Lehman, the pandemic. That kind of exogenous stuff. Spreads will move & may move a lot. Don't feel the need to step in and fade the very first breakout sign you see. Markets can remain irrational, as we know, longer than our tiny dinghy of a firm can remain solvent. Don't be a hero.

Japan needs to launch some sort of "Shock and Awe" monetary policy. Clearly, raising rates in Tokyo is off the table. This is one of these periods where you'll hear all kinds of words like economists at University of Chicago use - such as quantitave easing, sterilization, ZIRP; devaluation. Watch stocks. The Topix & main indices in Japan should open 3-6% lower in line with where equities went out here Friday. I expect a lot more selling as the week begins. Contagion is in play & for real. Innocent bystanders around the world will also get unexpectedly nicked & when they do, they'll look to own Treasuries, too. Chaos in Japan could ensue for hours, days, weeks, months, or longer.

It will settle down and turn around someday. I do not think that will be tonight, however, although I may be wrong. But I doubt we see a recovery so soon.

Oh, this just in, the Pentagon is warning, separately, about a wider conflict in the Mideast. Another reason to refrain from selling U.S. fixed income products, also known as bonds, or Treasuries.

The Fed sees all this. But the pandemonium hasn't hit home yet. They can be patient but cannot wait forever. Rates are definitely going lower. But at least at this moment, I do not see an intraday move or a 50 basis point cut imminently. THAT CALCULUS COULD CHANGE DEPENDING ON MARKET CONDITIONS.

Japan needs to pull a rabbit out of their hat. I don't know what that looks like. The longer they go without a statement to calm markets & encourage confidence, it becomes that much more obvious they don't, either.

I am not a worrywart by nature. I am a (former) trader & risk manager. Japan has enormous problems. Many of them are systemic & some may be unsolvable. LTCM blew up the world; the main countries involved in that economic debacle were, initially, Russia, Thailand, South Korea and a handful of other 2nd/3rd tier economic nations from a GDP standpoint (at that time). Japan is the 3rd largest economic power in the world. Their population has shrunk since this century began while Nigeria's has doubled. If Japan falls into a true depression, the reverberations will be felt everywhere on the planet in one shape or form from a financial perspective.

Be very careful tonight, as mentioned at the top. Days and nights like this do not come along often. Nerves & balance sheets will be tested. Require an appropriate amount of edge to participate. Charge the market for your liquidity. And good luck."