It's Show-'n-Tell day at Black Swan Capital. Here is a series of charts that caught our eye this morning. We think you'll be equally interested in what these pictures imply. [The accompanying commentary is ours ...]
A reminder of Japan's precarious debt situation (source: Financial Times)
Tax revenues have been on the rise in Japan the last few years. But consider where they stand relative to expenditures. Can they manage such a dynamic much longer? Without jump-starting growth and inflation (which is currently somewhere in witness protection), they appear vulnerable to their bond market. Hiccups there would make the current debt make-up unsustainable in a hurry. Check out what we said about Japan on Monday.
Labor Force Participation Rate among Developed Nations (souce: Zerohedge)
Following on from the last chart, check out the trajectory of Japan's workforce participation. It looks a lot like the trajectory in the US and it's in the territory of the top three Eurozone economies. The chart has a bit of a time lag, and I'm not sure what it suggests. It might suggest the US and Japan can get by despite this reduction in participation. But that assumes the US and Japan can maintain any of their unique economic integrity (I know -- sounds like a paradox) in spite of an ailing participation rate.
Cost of Distressed Debt Rising relative to Government Debt (source: Zerohedge)
The spread on distressed debt versus government debt is now the widest since March 2009. Zerohedge calls this a canary in the coal mine, following on their exposing of the canard that is improving corporate balance sheets. Basically, all the cash on corporate balance sheets is blinding everyone to the fact that nominal debt on corporate balance sheets is higher than in 2008. In other words: rising interest rates could hurt more and/or sooner than many believe.
Inflation in Canada (source: Reuters)
Canada -- quietly following in the shadows of the US. Inflation is relatively absent in Canada just as in the US. One difference: Canada's housing bubble has not yet burst. That looms as a huge deflationary pressure if global policymaking fallout doesn't spark the sustainable growth and inflation they've promised. The jury is still out. But as the previous chart and comments suggest, the debt dynamic could still very much hamper the positive effects of winding down extraordinary monetary policy. The balancing act continues.