Saturday, March 29, 2014

Abenomics Crash and Burn

On December 29, 2012, I wrote that Abenomics would fail (please refer to: Here's Why A Weak Yen Will Destroy Japan). One year later the Nikkei 225 was sitting pretty at about ¥15,600 + (actually went up to over ¥16,200!) and the cracks were beginning to show on Abenomics. Immediately after the Nikkei tanked for a ¥518 drop in one day, on June 5, 2013, I added another missive... Abenomics Has Failed showing that the twisted reasoning of Abenomics needed a very weak yen to ever have the chance of succeeding (which it doesn't) and that the market doesn't like instability (as if ¥500 daily increases and drops in price don't point to market instability!)

The word on the street back then (and today) was was that "they" needed a yen that was much weaker than ¥100 to the USD (I understood that to mean ¥120 to USD) to ever have the chance of succeeding and that the yen sitting around ¥100 to the USD was the death knell of Abenomics. 

From those posts I received 3 emails in total from "financial advisors" in Japan (and on Linkedin message) telling me something along the lines of "It's too early to judge whether or not Abenomics is a failure." Two guys challenged me by adding something like, "Do you think I should give up my positions just because you say Abenomics is a failure?"

Keep in mind that these people were expecting, like a lot of people, that Abenomics would have had the Nikkei 225 at or over ¥20,000 by April, 2014. Well, folks, it's March 29, 2014. A 60% sales tax increase is about to be implemented (3 percentage points) and the Nikkei is about ¥1600 below its Dec. 30, 2013 high of ¥16,291.31. Today, March 29, 2014, the Nikkei sits at ¥14,696.

For you "financial advisors," I don't think you should "give up your positions." Do what you want with your money.

But I do think you use your heads and stop advising people to funnel their retirement money into the stock market and churning accounts so that you can earn a commission on selling this crap and a business plan built on jawboning and hope. How about doing some real research (you know investigation and basic simple math?) and getting people into something that will benefit them, rather than your company bottom line or your commissions? (I know the term, "needs selling," but that doesn't mean YOU need to sell; it means you are supposed to sell people what they need.)

By the way, you can earn the same commissions by recommending stable investments over investments built on "Hopium."

One of these investors made a bet with me for dinner and drinks claiming that Abenomics and the Nikkei were good investments. Since he's down ¥1695 on the Nikkei (about a %10 loss) since the highs, think I should call him up and ask when he's buying my dinner? 

Nah. Poor guy. For one, he's lost a bunch of money - as well as the money of his clients (of which come from a pool that I hope is quickly shrinking) - and, two, I don't eat hamburgers nor do I drink anymore.

Well, today, comes more and more damning evidence that even Mr. & Mrs. Watanabe have figured it out; while everyone and his economist were expecting an increase in household spending before the sales tax increase, household spending has dropped! From Zerohedge: Japanese Prepare For "Abenomics Failure", Scramble To Buy Physical Gold 

"(Household spending) dropped 2.5% on expectations of a 0.1% increase in the month ahead of Japan's infamous sales tax hike."

Hmmm? That is surprising to say the least! So the Japanese aren't buying stuff?... But wait a minute! What are they buying if they aren't buying junk they don't need?

Well, lookie here, even though gold is in a bear market, they are buying precious metals!

From the very same Zerohedge article:

"Tanaka Kikinzoku Jewelry, a precious metals specialist, reported that sales of gold ingots across seven of its shops are up more than 500% this month. At the company’s flagship store in Ginza on Thursday, people queued for up to three hours to buy 500g bars worth about Y2.3m ($22,500). March has been the busiest month in Tanaka’s 120-year history." 

And just to add to the good news all around, Bloomberg reports

Japan’s trade deficit widened to a record in January as surging import costs weigh on Prime Minister Shinzo Abe’s campaign to drive a sustained recovery. The 2.79 trillion yen ($27.3 billion) shortfall reported by the Ministry of Finance in Tokyo today exceeded the 2.49 trillion yen median estimate in a Bloomberg News survey of 28 economists. Imports rose 25 percent from a year earlier and outbound shipments gained 9.5 percent. 

Yes, indeed.

This Nikkei 225 at ¥14,696 is an illusion and I am expecting the Nikkei to slide far under ¥14,000 as soon as the figures come out for household consumption for April to July... I wonder if it can hold at ¥10,000?

You "financial advisors" think sales of gold can help to ease the drop in household spending? I don't. There aren't too many people in the middle and lower income brackets (the vast majority of the population) who are running around with ¥2.5 million yen to buy 500 gram gold bars... They are just trying to make ends meet on a daily basis.

But, hey, you financial advisors, I advise that you "hold your positions"!

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