Japan….

I still maintain that there are elements of ponzi in what’s going on in Japan and that they’ve essentially put the cart before the horse.  Driving asset prices “higher than they otherwise would be” creates the potential for a very dangerous disequilibrium that ultimately creates the risk that people’s assets fluctuate with great uncertainty thereby resulting in reduced economic activity as the uncertainty causes spenders to freeze….

Tonight’s 5.5% decline in the Nikkei has become the norm for Japanese savers who are simply trying to diversify their savings across a spectrum of assets that includes stocks.  Is this rollercoaster really helping people plan for the future, spend prudently and help expand the economy?  Call me extremely skeptical….

Japan

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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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Comments

  1. Where are the Market Monetarists to tell us all how great this is working? Remember when they were cheerleading it a few weeks back when it appeared to be working?

  2. Yeah, Japan’s market performance validated their ideas just a month ago.

    http://www.themoneyillusion.com/?p=21161

    Then the crash started and they backed away from it faster than you can believe….After SIX months of saying that Japan was evidence that their ideas can work….

    There isn’t a doubt in my mind that if the Nikkei rebounds Sumner will start cheerleading Abenomics again, but still hedging his position with “they’re not doing it exactly as I’d like”….

  3. Has anyone considered something so complex as interest rates, stocks, etc are too complicated to “target” so just let them be?

  4. Too bad I have no opportunity to trade those options. Have you ever seen that kind of volatility in a broad index for developed nation?

  5. Heresy! If it’s not through regular channels, I got good connections to the lizard people, and we control everything.

  6. The scary thing here is the surge in margin debt on the way up. What if Abenomics actually destabilizes pvt firms by encouraging them to lever up and then essentially defaulting them on the asset price implosion down. The risks in Abenomics are tremendous. I just can’t believe how irresponsible this has all been…truly idiotic.

  7. And now all the other central bankers are scared. A lot ! And there will be mounting pressures to go in the other direction faster than necessary. Politicians will mount this for their own short term advantage, and when gangs start to fight there will be blood on the street.

  8. Funny how I can change “Japan” by “USA” in your prose and all remains valid.
    Give Japan a break, you are starting to sound like zero hedge.

    It is too early to judge if Abenomics are working, Nikkei is burning foreign spielers (good !).

    The only thing that matters to main street is real estate and in that department nothing has moved yet.

    And then JGBs have stabilized now.

  9. Seems to me the real problem here is the usual one. Here we have what really should be a fundamentally base multi year policy attempt to change the future economic path of Japan from one universally agreed to be unsustainable. As usual the market want’s to front run it and as the mom get’s going positioning and economic analysis respond with the same kind of “are we there yet” response.
    FFS if this is going to work out at all it will take a lot longer than a few months to do it. How long as Japan been trapped in a deflationary warp…20 years ish?
    About all that is really wrong here is both markets and analysts are almost universally showing the attention span of a 10 year old.

  10. Seems to me the real problem here is the usual one. Here we have what really should be a fundamentally base multi year policy attempt to change the future economic path of Japan from one universally agreed to be unsustainable. As usual the market want’s to front run it and as the mom get’s going positioning and economic analysis respond with the same kind of “are we there yet” response.
    FFS if this is going to work out at all it will take a lot longer than a few months to do it. How long as Japan been trapped in a deflationary warp…20 years ish?
    About all that is really wrong here is both markets and analysts are almost universally showing the attention span of a 10 year old.

    I blame it all on Twatter, Facebook ,the Net in general. We appear t have entered a period in which access to making noise leads to frequency of making noise leads to a decrease in the value of the noise being made. Am I glad we still live in caves here and I can ignore most of it.

  11. Haha, exactly!
    I expected more from the article – say, support for the paper Ponzi. :-)

  12. If the government simply let everyone fail back in 1989, I can’t see how anyone would be worse off today. Now some have begun to discuss whether Japan government should default. Finally!
    Soon gold should make a move up in recognition of Abenomics. Arigatoo!

  13. Today is a weird day for pragcap.com : It has become zerohedge.com

    Just a few things :

    -The Nikkei is foreigners favorite way of playing Japan. Now some got badly burned, that should temper some enthusiasm.
    Until now, Japanese individual investors participation has been (and always has been) minimal. In Japan, stocks are considered very…risky.

    -Nikkei has always been very volatile (or not at all) and having traded volatility on the beast for 15 years, I would say it is business almost as usual. Remember we had Fukushima two years ago.

    -What matters for Watanabe-san is whether his house is finally going to go up, not because he will get a second mortgage and buy more (Japanese defined prudence) but because he wants to know that real estate has finally stopped going down.
    This will be the sign that “deh-fu-reh”, deflation, is on the mend and that he should open his wallet.
    Aside from a 1% increase of real estate transactions in Tokyo compared to last year, the signs are very still quiet on that front. Goldman is buying office space in Tokyo but has always been since 2005…

    -Your average 30 year old employee for Canon has had his pension plan locked up in JGBs (with not much to say about it). You can forget about being young and reckless by investing in stocks, this is financial repression at its best.

    -In that respect, what has been worrying the BOJ is volatility in the JGBs. They might have stabilized now.

    – Japan is doing its own QE, just like the US, the rest (buying of stocks, ETF, fiscal expansion) is for the show. There is nothing more to see in it IMHO.

    Conclusion : it is not over yet, that thing is just starting to play out.

  14. The BOJ is buying ETFs explicitly. That is different than what the Fed is doing. Zero Hedge is always sloppy with details.

  15. Right, as I often say, the power of a central bank is not in the saying, but in the willingness to actually DO. The BOJ might claim they’re not targeting stock prices, but they’re buying huge amounts of ETFs and REITs. Watch what they do, not what they say.

  16. Might be worth looking into the “huge amounts” we are talking about here…Information is available on the BOJ website, and in English.
    You might find that what they are putting on the table to buy ETF (and Reits) is much less than what TARP was.

    Just because the S&P has had a longer run than the Nikkei should not make us forget that it all boils down to the same tactics…

  17. It’s a different tactic. They’re actually buying stocks in Japan and the PM has come out at points and actually stated a price where he’d like the Nikkei.

    The Fed is only indirectly influencing stocks through other channels. I think you have to be more specific about it than you’re being.

    Saying the Fed’s ops are the same as the BOJ’s ops is like saying that buying stocks is the same as buying bonds on a secondary market. No, they’re entirely different things. Buying sov bonds means the issuer is just setting the price of something it issued. Buying stocks means the govt is directly and explicitly manipulating the price and value of things it has very little control over. There’s a big difference there in my opinion.

  18. And how is buying $250 Billions worth of crappy assets from banks in 2008 so they can start with a brand new balance sheet and then shooting their stocks up in the process is not trying to push up prices of assets ?!!

  19. Well, QE1 was different than the other QE’s. I say that quite often. With assets selling at 30 cents on the dollar the Fed basically revamped the bank balance sheets. That’s not what they’re doing now since asset prices have recovered more than fully.

  20. I am sorry but I am not entirely convinced it is all that different.
    As always, I appreciate the inputs I am getting on your site.
    And still think pracap is a better read than zero hedge :-)

  21. I just think there’s a big difference between saying “we want the Nikkei at 13,000″ and then having your central bank buy ETFs and REITs than the Fed buying t-bonds and MBS and continually saying they’re not necessarily targeting stock prices. I think the Fed is only indirectly trying to influence stock prices via the portfolio rebalancing effect. But hey, I can totally understand how someone would say that’s just semantics….

  22. I think you make some good points expat

    Many were quick to castigate Sumner for doing victory dances a few weeks after Abenomics started, so we shouldnt be throwing dirt on their grave yet. It is a long term game here and your point about Japanese citizens and foreign investors is quite good I think. The point of Abenomics SHOULD BE for the Japanese citizens, not American or European vultures looking to make a quick buck (or Euro). Your point about Japanese people being more bond investors than equity investors is god as well. There are cultural differences that matter.

    Ive always felt the US overplayed the Japanese downturn due to their biases towards stock markets. In general their real metrics like unemployment, % of people with health care, % of people with mortgage defaults were better than ours. If this isnt a significant point of econ policy what else should be? If econ policy is not about making life better for more of your own citizens what should it be about?