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    Profiting From The End Of The Monetary System As We Know It

    Original blog can be found HERE

    While most people will lose their shirts as The End Of The Monetary System As We Know It (TEOTMSAWKI) continues down its predictable path, there are some who will make fortunes.

    At The Dollar Vigilante, we’ve already been ahead of the curve on many profitable ventures related to TEOTMSAWKI. TDV Senior Editor Ed Bugos has been a proponent of owning gold since 2000 when it was at $200. And upon TDV’s founding in 2010, we immediately added gold as the largest part of our portfolio while it was trading near $1,200 and quickly saw that rise to nearly $2,000.

    We’ve also been covering Bitcoin as an emerging currency and possibly a currency of the future during and after TEOTMSAWKI. We first began suggesting people get into Bitcoin on May 24, 2011, (“This Non-Fiat Currency Is Up Over 1000% in the Last Month“) when it was at $6. Today, it trades for well over $200.

    As you can see, the profits that are possible during TEOTMSAWKI can be massive. We believe the gold stocks will soon enter into a bubble for the ages. And today, we will let you in on another way that you could potentially make massive profits from betting against the system.

    Short Japan Debt

    Debt to GDP Comparison of Select CountriesWhen looking to profit from TEOTMSAWKI, Japanese government debt has to be one of the most obvious shorting opportunities I’ve ever seen. And, as I’ll outline below, a number of recent events make me believe the timing is now perfect to look at this trade.

    But first, let’s look at some facts and figures.

    Which country stands out to you on this list of most indebted countries vis-à-vis gross domestic product?

    Chile might stand out on the right side for being so small, and that’s why we chose it as our first location of Galt’s Gulch. But, all the way on the left, Japan sticks out like a sore thumb. A heavily indebted sore thumb.

    Percent Aged Over 65% In Select CountriesJapanese government debt apologists will point out that most of that debt is held by Japanese citizens; and, therefore, it is not as bad as it seems.

    We disagree with that premise. But even if you do agree, some very important things have changed in the past few years that will change the game.

    For starters is Japan’s aging population.

    The amount of people over 65 in Japan has nearly tripled in the past 20 years and goes higher each year. These are the people who worked and “saved” in Japanese government bonds over the past few decades, but now many of them are retired or retiring and will be withdrawing funds from those bonds to live off.

    Much more importantly, in my estimation, is the dramatic change in Japan’s current account in the past few years since Fukushima.

    Japan Current Account Surplus/Deficit (Biliions JPY)

    After decades of running significant current account surpluses, Japan has now moved into negative territory on trade. Much of this was caused by the shuttering of nuclear plants after Fukushima in this country devoid of energy resources. With this unexpected to change, it means that the large amount of savings in the country in the past will dwindle as it goes offshore in payment for trade.

    And today, there are hardly any savings to go into Japanese government bonds anyway.

    Japan Household Savings Rate as % of Disposable Income

    Why Short Japanese Government Debt Now?

    Some of the reasons for wanting to short Japanese government debt have been known for some time. So why do I think the timing is right to wade into this bet against Japanese government debt now for decades?

    Japanese Government Bond Interest Rate

    Betting against Japanese government debt has been a bad idea for decades, as this chart of the JGB interest rate shows. (Interest rates are the inverse of the value of the bond.)

    But two things have happened recently that have me thinking the time is now.

    April 4, 2013 will be an important date to remember in financial history. The Bank of Japan (BOJ) has embarked on a financial experiment that could put the Japanese on a collision course with default. The BOJ announced an aggressive attempt to generate 2 percent inflation and has committed itself to doubling the monetary base over the next two years. To put it mildly, this is Keynesian madness.

    Has anyone stopped to consider what the Japanese central bank is doing with this strategy? The BOJ intends to weaken the yen by buying Japanese assets, including bonds, farther out on the yield curve than the five-year limit previously set. The yen should weaken, and is weakening, severely. The yen is roughly 30 percent off its highs versus the U.S. dollar since November, and some large investors like George Soros are warning of an “avalanche” of yen hitting the market.

    Now ask yourself two simple questions. Why would a bondholder be willing to accept a 10-year bond that pays a .5 percent interest rate if there is an inflation target of 2 percent? Why would a bondholder be willing to lend the government money at .5 percent if he is going to be paid back in a devalued currency?

    It is my opinion that market sentiment changed on April 4, 2013. When all that bond buying was announced, it would seem logical that bond prices rallied right? Government buying bonds equals bond prices going up. Well, the Japanese government bond market is trading sharply below levels it was trading at before the BOJ announcement. Something has changed.

    Here’s the proof. After a Japanese Central Bank announcement, on April 5, the Japanese bond market was rocked.

    Japanese Govt Bond 5 Year YieldThis is a massive move in the bond market and may show that the market has finally had enough.

    How To Short Japanese Government Debt

    I feel the time is now to begin wading into this market as a short trade. There’s just one problem. It’s not very easy to short the Japanese bond market.

    Most individual investors think a trade of this type is exclusively the realm of the institutional world, and they’ve been mostly right until recently.

    A fund specifically designed to short Japanese government bonds has been set up and is operated by a good friend of mine, Tres Knippa, who is an expert on shorting JGB’s and regularly featured on CNBC, Bloomberg, FOX Business and many others. (It should be noted I have no financial incentive to market his fund; I just believe it is the best way to short Japanese debt.) Knippa uses exchange traded futures and options to execute a short position in Japanese government bonds.

    His strategy seeks to give investors downside exposure limited to the cost of options while waiting for a significant move in bonds. In some ways, Knippa views his strategy as a hedge for an existing portfolio. Why should the situation in Japan matter to investors around the world? Remember when Greece went through its debt restructuring? The U.S. stock market came under real pressure two summers ago as Greek bond markets swooned. Greece has the same GDP as the State of Indiana. Greece simply does not matter. Japan matters. Japan is the third-largest economy in the world. A debt crisis there will send bond and equity markets reeling. It is my opinion that having some position short the Japanese government bond market is a hedge against some very difficult times coming in the global economy.

    You could trade the futures yourself, but I don’t advise that to anyone except the most expert of futures traders as this strategy necessitates repeated rollover of positions over time.

    But now there is an easy way for a retail investor to short JGBs and have an experienced trader, Knippa, do it for you. The minimum allowed is $30,000. But for anyone who wishes to profit from the potential demise of the absolutely ludicrous policies of the Bank of Japan and a decent amount of money and time (give yourself two years to give yourself some leeway) to invest, I would suggest taking a look at Knippa’s fund at

    The fund is heavily levered so as even a move up in JGB yields by just 1 percent can create significant profits.

    Another Potentially Lucrative Way To Profit From TEOTMSAWKI

    Shorting Japanese government debt is now officially another of the ways that I’ll be playing TEOTMSAWKI alongside owning precious metals, investments into Bitcoin-related businesses, foreign real estate such as our expat development in Chile and speculative positions in gold stocks.

    Jeff Berwick Anarcho-Capitalist. Libertarian. Freedom fighter against mankind’s two biggest enemies, the State and the Central Banks. Jeff Berwick is the founder of The Dollar Vigilante, CEO of TDV Media & Services and host of the popular video podcast, Anarchast. Jeff is a prominent speaker at many of the world’s freedom, investment and gold conferences as well as regularly in the media including CNBC, CNN and Fox Business.

    | All posts from Jeff Berwick

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