{"id":38258,"date":"2013-05-13T22:52:42","date_gmt":"2013-05-14T02:52:42","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=38258"},"modified":"2013-05-13T22:52:42","modified_gmt":"2013-05-14T02:52:42","slug":"abenomics-cannot-master-the-immutable-laws-of-money","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/05\/13\/abenomics-cannot-master-the-immutable-laws-of-money\/","title":{"rendered":"\u2018Abenomics\u2019 Cannot Master the Immutable Laws of Money"},"content":{"rendered":"<p>By <a href=\"http:\/\/www.MoneyMorning.com.au\" target=\"_blank\"><u>MoneyMorning.com.au<\/u><\/a> <\/p>\n<p>The Japanese  Topix Index is up more than 40% this year (and nearly 71% since July 2012)  thanks in large part to Prime Minister Shinzo Abe&#8217;s unlimited stimulus  initiative known euphemistically as &#8216;<strong>Abenomics<\/strong>&#8216;.<\/p>\n<p>The argument  behind this spending is a classic one, at least in economic terms: stimulate  the economy to produce higher inflation, weaken the currency and aid the  exporters.<\/p>\n<p>But like US  Fed Chairman Ben Bernanke&#8217;s spending and Draghi&#8217;s spending in Europe, it&#8217;s  ultimately going to fail.<\/p>\n<p>Sure the  short-term effects are great&#8230;a wildly enthusiastic stock market that&#8217;s  trading at the highest levels seen in 4.5 years, a relaxation of risk and fresh  strength in export focused companies that are showing stronger results on <a href=\"http:\/\/www.moneymorning.com.au\/category\/financial-system\/currency-market\/japanese-yen\" title=\"more on the Japanese Yen\">a  devalued Yen<\/a>. No question, I&#8217;ll take a bull market any day.<\/p>\n<p>It&#8217;s the  hangover I&#8217;m worried about &#8211; nobody knows how long this run will last.<\/p>\n<p>This is  especially problematic because most investors don&#8217;t have the discipline needed  to trade in and, of course, out when the party stops.<\/p>\n<h2>Piercing the Veil<\/h2>\n<\/p>\n<p>I bring this  up because it&#8217;s not popular right now to look behind the scenes or inside the  kimono, as the old expression goes:<\/p>\n<ul type=\"disc\">\n<li>Although Japan is known as an       export market, it actually imports more than it exports, to the tune of       $857 billion in imports versus $793 billion of exports. This is       particularly a vexing problem with regard to fuel.\n<p>Ninety-six percent of Japan&#8217;s  reactors remain off-line since the earthquake\/tsunami of 2011. The  corresponding rise in liquid natural gas expenditures was more than 50% in Q1  at 624 billion Yen. That hasn&#8217;t yet hit earnings, especially in power intensive  manufacturing sectors.<\/li>\n<\/ul>\n<ul type=\"disc\">\n<li>Japanese citizens have       experienced a 27% drop in purchasing power (against the USD) since       September 2012, when the Yen began its slide. At the same time, costs are       going up faster than wages. I see the effects in my neighbourhood (in       Tokyo) daily as once spotless cars go unwashed, paint is peeling off       buildings and the formerly flawless facade of Japan starts showing some       cracks.<\/li>\n<\/ul>\n<ul type=\"disc\">\n<li>The Japanese mortgage market       is backfiring in reaction to stimulus. Case in point, the latest data from       Mizuho Securities shows rates rising at a time when they should be falling       thanks to the Bank of Japan flooding the system with cash. <\/li>\n<p>The 30-year mortgage, for example,  rose from 1.80% to 1.81%. Contrast that with the US, which saw mortgage rates  fall by nearly 50% in reaction to Bernanke&#8217;s stimulus from 2008 to May 2 all  the way to 3.35%.<\/ul>\n<ul type=\"disc\">\n<li>Combined public, private and       corporate debt was already approaching 500% of GDP before this stimulus.       Nobody knows how much higher it can go, but to say the nation is       functionally bankrupt is an understatement.<\/li>\n<\/ul>\n<ul type=\"disc\">\n<li>The population is literally       dying off and household savings are in decline. This means the excess       capacity needed to absorb newly minted Japanese bonds is also in decline.       Unless, of course, Japan goes to external sources. <\/li>\n<p><\/p>\n<p>But then,  there&#8217;s a real problem&#8230;international markets will demand higher rates to cope  with higher risks. Derivatives traders are already lining up to play this game  the way they did with Greece, Spain and Italy. The true cost of capital will  more than double.<\/ul>\n<ul type=\"disc\">\n<li>Volatility risk is rising, so       this game is already underway. Because the Bank of Japan is buying       government bonds, they are effectively locking out other market       participants and reducing liquidity. Not surprisingly, volatility is       rising and the markets are going to fast become addicted to implicit BOJ       support the way a drug user depends on his next &#8216;fix&#8217;.<\/li>\n<\/ul>\n<h2>Are There Any  Winners?<\/h2>\n<\/p>\n<p>Yes. Quite a  few actually: 310 out of 521 Topix companies that have reported since April 1  have beaten analyst estimates soundly.<\/p>\n<p>But to  really home in on the winners, you&#8217;ve got to focus on those sectors that will  derive the biggest benefits from Abenomics: Japanese financial companies, car  makers and industrial ceramics.<\/p>\n<p>The  financial companies are pretty easy to understand. The flood of government  liquidity will help them generate higher profits while also flushing them with  cash.<\/p>\n<p>If they lend  it into the system instead of hoarding it like the big banks in the United  States, there could be some huge profits working their way to the bottom line.<\/p>\n<p>At the end  of the day, stimulus is what it is&#8230;a well-intentioned but completely flawed  effort to master the immutable laws of money.<\/p>\n<p>That&#8217;s why  you want to go with investment choices that have the equity necessary to  underwrite the risks that come with it.<\/p>\n<p><strong>Keith Fitz-Gerald<\/strong><br \/>\n    <strong>Contributing Editor, <em>Money Morning<\/em><\/strong><\/p>\n<\/p>\n<p><strong><a href=\"https:\/\/plus.google.com\/106516983215198267222\/posts\" title=\"Join Money Morning on Google Plus\"><u>Join Money Morning on Google+<\/u><\/a><\/strong><\/p>\n<\/p>\n<p><em>Publisher&#8217;s Note: <\/em>This is an edited  version of an article that originally appeared in <a href=\"http:\/\/moneymorning.com\/2013\/05\/13\/three-abenomics-proof-investments\/\" target=\"_blank\"><em>Money Morning (USA)<\/em><\/a><\/p>\n<p><strong><em>From the Archives&#8230;<\/em><\/strong> <\/p>\n<p><a href=\"http:\/\/www.moneymorning.com.au\/20130510\/why-small-cap-resource-stocks-beat-blue-chips-hands-down.html\" title=\"Permanent Link to Why Small-Cap Resource Stocks Beat Blue Chips Hands Down\" target=\"_blank\">Why Small-Cap Resource  Stocks Beat Blue Chips Hands Down<\/a> <br \/>\n10-05-2013 &#8211; Dr Alex Cowie <\/p>\n<p><a href=\"http:\/\/www.moneymorning.com.au\/20130509\/can-australian-stocks-defy-gravity-if-the-australian-dollar-falls.html\" title=\"Permanent Link to Can Australian Stocks Defy Gravity if The Australian Dollar Falls?\" target=\"_blank\">Can Australian  Stocks Defy Gravity if The Australian Dollar Falls?<\/a><br \/>\n9-05-2013 &#8211; Murray Dawes <\/p>\n<p><a href=\"http:\/\/www.moneymorning.com.au\/20130508\/build-wealth-fast-through-the-resource-sector.html\" title=\"Permanent Link to Build Wealth Fast through the Resource Sector\" target=\"_blank\">Build Wealth  Fast through the Resource Sector<\/a><br \/>\n8-05-2013 &#8211; Dr Alex Cowie<\/p>\n<p><a href=\"http:\/\/www.moneymorning.com.au\/20130508\/36-potential-upside-for-australian-stocks-over-the-next-two-years.html\" title=\"Permanent Link to 36% Potential Upside for Australian Stocks Over the Next Two Years\" target=\"_blank\">36% Potential  Upside for Australian Stocks Over the Next Two Years<\/a> <br \/>\n7-05-2013 &#8211; Kris Sayce <\/p>\n<p><a href=\"http:\/\/www.moneymorning.com.au\/20130506\/the-key-to-becoming-a-successful-investor.html\" title=\"Permanent Link to The Key to Becoming a Successful Investor\" target=\"_blank\">The Key to  Becoming a Successful Investor<\/a><br \/>\n6-05-2013 &#8211; Kris  Sayce<\/p>\n<div class=\"feedflare\">\n<a href=\"http:\/\/feeds.feedburner.com\/~ff\/MoneyMorningAustralia?a=US9ieI0Okq8:uRoCuObk47Y:yIl2AUoC8zA\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/MoneyMorningAustralia?d=yIl2AUoC8zA\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/MoneyMorningAustralia?a=US9ieI0Okq8:uRoCuObk47Y:V_sGLiPBpWU\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/MoneyMorningAustralia?i=US9ieI0Okq8:uRoCuObk47Y:V_sGLiPBpWU\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/MoneyMorningAustralia?a=US9ieI0Okq8:uRoCuObk47Y:gIN9vFwOqvQ\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/MoneyMorningAustralia?i=US9ieI0Okq8:uRoCuObk47Y:gIN9vFwOqvQ\" border=\"0\"><\/img><\/a>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~r\/MoneyMorningAustralia\/~4\/US9ieI0Okq8\" height=\"1\" width=\"1\" \/><\/p>\n","protected":false},"excerpt":{"rendered":"<p>By MoneyMorning.com.au The Japanese Topix Index is up more than 40% this year (and nearly 71% since July 2012) thanks in large part to Prime Minister Shinzo Abe&#8217;s unlimited stimulus initiative known euphemistically as &#8216;Abenomics&#8216;. The argument behind this spending is a classic one, at least in economic terms: stimulate the economy to produce higher &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/www.investmacro.com\/forex-news\/2013\/05\/13\/abenomics-cannot-master-the-immutable-laws-of-money\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;\u2018Abenomics\u2019 Cannot Master the Immutable Laws of Money&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-38258","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/38258","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=38258"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/38258\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=38258"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=38258"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=38258"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}