Open letter to the good people of Japan

Dear Hard Working People of Japan,

It is with sorrow and respect that I bring you the sad news that your economy is bankrupt and your banks and major corporations will leave little doubt as to this fact in the coming months and years.  You don't need this kind of bad news after the tsunami and the Fukushima incident but bad news generally travels together as the saying goes.  As evidence of this coming collapse, I present Toyota Motors.  Toyota is a great company but it was built on unsustainable debt and as deflation takes hold there will be little to economically distinguish it from General Motors in the USA. 

How can Toyota be in trouble if it makes such good cars?  If you are asking this question it shows that you don't understand economics.  The question is, how much debt does Toyota have and can it afford to pay it?  IF the debt is too high then it proves that Toyota's manufacturing capacity was borrowed, not earned.  Borrowing to overproduce is the sin of every exporting nation in the world that is foolish enough to believe that exporting is a sustainable profit generation mechanism.  Like fractional reserve banking and fiat currency, it appears to work for a number of years but it eventually proves to be an unsustainable scam.  The scam of exporting as a mechanism of wealth generation is only made possible by the vendor finance scam.

As I have explained before, the only true value of exporting (another word for trade) is to achieve diversity of consumption.  Japan is darned good at making cars but it cannot consume all the cars that it makes.  It must export them in hopes of getting other things that it needs but does not produce internally.  The problem is that Japan has gotten so good at making cars that its customers can drive them for a very long time if they want to before buying another one.  In fact, it it is not difficult to get 200k miles out of a properly maintained Toyota.  At the same time, Korea and China have followed Japan's fine example and are now making quality cars of their own.  Competition for the small car market has never been more fierce.

The only fundamentals you need to know about Toyota right now are that they have $157 B-B-Billion in debt (and growing) and only 45 billion in cash according to Yahoo finance.  When I was telling people about the coming demise of TM a couple years ago it only had $125 bn in debt.  So it is accumulating debt about as quickly as the Japanese government itself.  At the end of the day, the Japanese government will default on its debt (which has recently exceeded 200% of GDP) and the default of Toyota Motors will probably precede that by some short period of time.  Toyota will go the way of General Motors before this economic
crash is over.  As to when this will happen, I fear it will be sooner rather than later.  The Elliott Wave model of the TM stock chart tells me that the sucker bounce is most likely (herd-watching is a game of odds, not certainties) over and that we are now into the C wave.  This is just a model so take it for what it is worth (which is no more than what you paid to read it).  However, if that red support line from 2003 breaks down then I think TM stock will be technically broken and looking to create a significantly lower low.

幸運と多幸をお祈り
-The Captain