Once again, the end of a week has come, this one relatively painless though a bit bumpy. U.S. stocks generally took the low road. As of Thursday's closing bell, the Dow was down 506 points, NASDAQ slipped 188 points, and the S&P 500 dropped 52.
Last week's big winner, the Dow Jones Transportation Average, was flattish, though u 12 points on the week, close to its all-time high, flashing bullish signals at Dow Theorists. The Trannies never confirmed the primary bull trend of the Dow. Maybe it doesn't need to do so, given old school dynamics have been supplanted by AI and other market indicators, some of which work, others that give incomplete views, even more that suffer from irrational reasoning.
In any case, the bull marches onward, despite a scare from the Bank of Japan and the demise of the "carry trade", in which the venerable institution raised interest rates 0.25%. Japan finds itself at a crossroads, with the general economy and the currency itself in the crosshairs, needing to save one or the other, but not both. If recent history is any kind of guide, it suggests the authorities in Japan will do little to salvage its currency, the yen, which is down sharply against the U.S. dollar the past three days and especially overnight, the USD:JPY pair rising from 155.59 to 157.29 in the past 12 hours.
A devalued yen carries certain obvious trade advantages while at the same time causing domestic inflation, something which Japan has yearned for since the demise of its economy back in the 1980s, and which it is now about to get, in spades. Rising costs of imports upon which Japan is heavily dependent, may lead to domestic grumbling and dissatisfaction, very un-Japan-like, given how gracious, reserved, and polite Japanese people usually are. Considering the alternative - a deep recession or devastating depression - the Japanese people and their leaders would probably opt to throw off the yoke of Western imperialism which has bound them since the end of World War II.
Japan, which has long been the outright leader in sophisticated Keynesian experimentation and fine-tuning, may find the path of least resistance in wholesale devaluation without guardrails, a condition that might lead to more severe problems for their trading partners. An escape hatch from 80 years of U.S. neocolonialism is opening wide enough for Japan's financial authorities to walk right through into a new economic order, one predicated on hard assets rather then tired, worn-out promises from the West. Japan sees development all around it and may be willing to depart from long-standing alliances that has turned the country into little more than a U.S. vassal state.
A yen collapse would reverberate wildly throughout the global economy. It's not something anybody should fear nor not see coming. The demise of the weakest of the fiat currencies has been telegraphed for decades. The break, which is likely to be not sudden but rather a continuation of a longer trend, would be a first and crucial step towards a reordering of the global financial order. In the longer view, initial pain would be ameliorated by the prospect for a better future, not only for Japan, but the world as a whole. The trick would be to do so without major escalation in trade or military hostilities. If there's one country possessive of restraint and due diligence regarding financial outcomes, it would be Japan. The world hesitantly may wish them good luck.
With the highly-sensitive carry trade unwinding, again, markets appear to be taking a wait-and-see attitude this Friday morning. Asian and European markets showed little stress and little movement. U.S. stocks are poised for a slightly upside open, but FX traders are nervous that the situation could turn from bad to ugly without much warning. The usual tug-of-war in precious metals shows few signs of abatement. Every bid is met by a short-seller though recently there's been more commitment from the buyers to resist the price suppression at the COMEX. Eventually, the buyers will prevail. Supply-demand dynamics, especially with regard to silver, insist upon it.
At the Close, Thursday, Decemebr 18, 2025:
Dow: 47,951.85, +65.88 (+0.14%)
NASDAQ: 23,006.36, +313.04 (+1.38%)
S&P 500: 6,774.76, +53.33 (+0.79%)
NYSE Composite: 21,807.87, +51.85 (0.24%)
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