Abenomics: medicine or poison for Japan?

[Puppycow]

Paul Krugman makes the pro case.

William Pesek expresses skepticism.

As far as what has actually been achieved so far, the yen which was trading at around 80 to the dollar before Abe's election is now around 90, and officials have said that they would not mind if it went to 100. For perspective around 2005-2007 the yen was around 110-120/dollar. The strong yen in recent years has been bad for Japanese exporters.

[stevea]

It might work in Japan, but this is predicated on several issues specific to Japan. The new policy has BoJ targeting 2% inflation (up from ~0%). In the US we'd have to curb the currency supply to get down to 2% inflation.

Weakening/devaluing the currency an creating some internal inflation certainly helps exports, impedes imports, and encourages investments outside of bond, yen-denominated assets. Painful to consumers, esp Jaanese pensioners who often invest only in their bonds. It could also have a dramatic effect on their (extremely high) debt to GDP ratio by increasing nominal GDP, and probably wont make borrowing more difficult (nearly all Japanese debt is sold internally).

So yes if they steal just enough from bond/currency holders so they aren't annoyed enough to sell these devalued and poorly performing assets it could help. Questionable if it can help enough.

--
It could encourages other nations to follow suite in a race to the bottom where no one wins.

[Skeptic Ginger]

You need to tell us what Abenomics is. I don't have the time to look it up.

[Puppycow]

The links I gave explain it a little bit, but I'll see if I can summarize.

Shinzo Abe (pronounced 'ah-bay') is the recently elected prime minister of Japan. The term 'Abenomics' is just a neologism like 'Reaganomics' to describe his economic policies.

His economic platform is to add some new stimulus spending to the budget and, perhaps more importantly, to put pressure on the Bank of Japan (the Japanese counterpart to our Federal Reserve Bank) to set a higher inflation target and purchase more government bonds. In theory (supporters would say) this would increase inflation expectations which would drive up inflation and hopefully end the cycle of deflation or weak inflation that has been driving up the exchange rate of yen and hurting economic growth. A strong yen hurts Japanese companies that export products, and makes imports cheaper, which could also hurt Japanese companies that are domestically focussed but have to compete with cheap imports. Japan used to have a perennial trade surplus, but in recent years has had a trade deficit, partly because of the strong yen.

[Skeptic Ginger]

I lean heavily toward Krugman's opinions but don't know enough about Japan's current economic situation so I voted "don't know".

[Tsukasa Buddha]

Japan's economy has always been like going through the looking glass for me.

But Krugman's statements about how they "didn't do solution X enough" seem like attempted discounting of when his favoured solutions didn't work. It may be true in further review, but it makes me very dubious right now.

[Skeptic Ginger]

Originally Posted by Tsukasa Buddha

....

But Krugman's statements about how they "didn't do solution X enough" seem like attempted discounting of when his favoured solutions didn't work. It may be true in further review, but it makes me very dubious right now.

If you're talking about the economic stimulus, the evidence absolutely supports the Keynesian solution Krugman promotes.

The private sector in the US is creeping out of the recession because of the stimulus while the bulk of the continued employment failure is in the public sector, police, teachers, little infrastructure investment. A lot of the burden of public budget cuts is falling on the states because federal money isn't flowing like it should. If the public sector economy was stimulated that creeping rise in the private sector would be faster.

And there's no evidence despite the constant drone of the right wing that the deficit is an urgent immediate crushing problem.

[balrog666]

Originally Posted by Tsukasa Buddha

Japan's economy has always been like going through the looking glass for me.

But Krugman's statements about how they "didn't do solution X enough" seem like attempted discounting of when his favoured solutions didn't work. It may be true in further review, but it makes me very dubious right now.

It's an unfalsifiable hypothesis which is why is the argument never goes away.

[Skeptic Ginger]

Originally Posted by balrog666

It's an unfalsifiable hypothesis which is why is the argument never goes away.

There's no evidence in the case of Krugman that the claim is wrong. Of course there is a threshold for the stimulus to work, what evidence do you have the argument is specious?

And do you deny the economy is slowly recovering? Doesn't that suggest more stimulus might have made the recovery faster?

[stevea]

Originally Posted by Skeptic Ginger

I lean heavily toward Krugman's opinions but don't know enough about Japan's current economic situation so I voted "don't know".

Consider using simpler and more direct sentences like
"I don't know anything on the topic , but I always agree with Krugman".
Better an honest sycophant.

Originally Posted by Skeptic Ginger

If you're talking about the economic stimulus, the evidence absolutely supports the Keynesian solution Krugman promotes.

Ridiculous ! Show the evidence for this specific point you claim.

You cannot assess exactly what works and what doesn't based on an isolated case, and all of the larger studies show that government spending stimulus is less effective.

Quote:

The private sector in the US is creeping out of the recession because of the stimulus

It's creeping out in 5+ years rather than bouncing out in the typical <28 months, most likely can be attributed to policy. I favor the high tax, anti-business policies as the culprit, but that's speculation. In any case something about the recent policies have cause this recovery to be horribly slow.

Quote:

while the bulk of the continued employment failure is in the public sector, police, teachers, little infrastructure investment.

Absolutely FALSE !!!
Civilian employment is ~4.6Mill lower than the 2007 peak.
Total public employment is off by about 660k in that same period.
Unemployment is 5.6M higher that 2007.

Yes, public employment has taken a bigger percentage hit in employment, but percentages are NOT a rational way to assess the "bulk of the continued employment failure". Otherwise "mobile home installers" with a 35% unemployment rate are the "bulk of the continued employment failure". It's not a percentages game.

Quote:

A lot of the burden of public budget cuts is falling on the states because federal money isn't flowing like it should.

Define "federal money isn't flowing like it should" without reference to normative standards or personal opinion. It's a nonsense conception.
It really means "other peoples money flows like you want".

Quote:

If the public sector economy was stimulated that creeping rise in the private sector would be faster.

Yes, if you build a road, then the private sector contractors and the follow-on benefit, but it's been demonstrated quite convincingly that reducing taxes by the same amount and allowing the private sector to spend or invest results in higher and more sustained gains.

AFAIK the public sector employment is still dropping and in all likelihood that will continue as the general trend. In order to maintain a constant Federal government spending, and allow for the non-discretionary spending to grow by the expected ~25% in the next ~8 years, the discretionary branches will have to shrink by ~40% of current. Of course there is far less government employment in non-discretionary (social security, medicare, medicaid, federal pensions) than in discretionary (military, DOJ, State, Agriculture ...). Many states & muni's have a similar dilemma.

Quote:

And there's no evidence despite the constant drone of the right wing that the deficit is an urgent immediate crushing problem.

Yes. What could possible go wrong when debt service, at historically low rates, is already using up almost 8.5% of receipts ? {sarcasm}. If we returned to the (roughly triple the current) rates of the VietNam era or the mid-Clinton era, then we would be using 25% of tax receipts to service debt ! That should alarm any reasonable person.

Merely following those with a political ax to grind, like Krugman, and adding your own partisan ad hominems does not make you a well informed citizen, nor a critical thinker. You need to read the numbers and study the issue - and then give a coherent opinion on your position.

Debt, deficits and the overhang of social programs are very real problems to anyone who understands the situation on even a rudimentary level. Every Party & political partisan has a tendency to want to ignore the hard fiscal truths and prefer to spend like there is no next-term while they are in office.

Originally Posted by Skeptic Ginger

There's no evidence in the case of Krugman that the claim is wrong. Of course there is a threshold for the stimulus to work, what evidence do you have the argument is specious?

And equally no evidence he is right - so it's just another unevidenced assertion, like pixies in your pantry. We don't give credence to unevidenced assertions here.

You brought up Krugman's assertions - the burden is on you to defend them.

Quote:

And do you deny the economy is slowly recovering? Doesn't that suggest more stimulus might have made the recovery faster?

In the same exact sense that this graph suggests Internet explorer cause murders - (i.e. not at all). Correlation = causation fallacy.


http://gizmodo.com/5977989/internet-...te-chart-today

[Puppycow]

Optimism in Japan:

Junk Euphoria Crosses Pacific as Sharp Worry Fades

Quote:

Japan’s junk bonds are joining the global rally as optimism over Prime Minister Shinzo Abe’s economic stimulus boosts investor appetite for riskier debt.

Sharp Corp.’s 0.846 percent bonds due 2014 soared to 77 yen per 100 yen face value on Jan. 28, from 46 yen two months ago, according to JS Price data. The notes of junk-rated Tokyo Electric Power Co., Nippon Sheet Glass Co. and Kawasaki Kisen Kaisha Ltd. (9107) also climbed. Global non-investment grade debt has gained to a record 105 cents on the dollar, Bank of America Merrill Lynch index data dating back to 1997 show.

Investors are seeking higher returns, emboldened by Abe’s plans for 10.3 trillion yen ($113 billion) of fiscal stimulus and global monetary easing that has contributed to record inflows into funds that own speculative-grade debt. Sharp’s bonds maturing in 2014 yield 19.5 percent while the television maker warns there is “material doubt” about its ability to survive. Tepco, which may have an active fault under one of its atomic plants, has a yield of 3.3 percent on its 2017 debt.

“The market has become bullish to the point of euphoria,” Taketoshi Tsuchiya, Tokyo-based director of credit trading at Barclays Plc, said in a telephone interview on Jan. 28. “Sharp’s bonds are overheating.”

[Belz...]

Originally Posted by Skeptic Ginger

There's no evidence in the case of Krugman that the claim is wrong.

I think Balrog's point (I never thought I'd write those two words together in a sentence) is that he should prove himself right, actually.

[Puppycow]

Originally Posted by Belz...

I think Balrog's point (I never thought I'd write those two words together in a sentence) is that he should prove himself right, actually.

Krugman uses evidence:

http://krugman.blogs.nytimes.com/201...f-and-the-gop/

More evidence:

http://www.policymic.com/articles/86...erity-theories

It really is not unfalsifiable, although it is true that can't run a double-blind experiment or use a control group in macroeconomics. But that's equally true for all macroeconomic theories. You do have natural experiments in macroeconomics. These are not ideal, but it's not unfalsifiable.

[stevea]

Originally Posted by Puppycow

Krugman uses evidence:

Krgman isn't posting in this thread - Ginger "whatever Krugman says is right " did w/o any support.

Quote:

http://krugman.blogs.nytimes.com/201...f-and-the-gop/

More evidence:

http://www.policymic.com/articles/86...erity-theories

It really is not unfalsifiable, although it is true that can't run a double-blind experiment or use a control group in macroeconomics. But that's equally true for all macroeconomic theories. You do have natural experiments in macroeconomics. These are not ideal, but it's not unfalsifiable.

So you do longitudinal studies across a large number of cases and find that Krugman's case is not very convincing. Yes (duh) government spending increases GDP by definition. That expansion comes at a LT expense. The question is - what is the net cost vs outcomes ?

Your reference is to a false dichotomy, Krugmans ardent support for the Keynesian government stimulus has many alternatives and just the strawman "GOP austerity". Highly unlikely the GOP wouldn't have proposed stimulus measures - just different ones then government expansion. What about stimulus by tax reduction rather than spending ?

[Puppycow]

Here comes the medicine. Abe finally has the man he wanted in charge of the central bank and he is implementing the plan.

Initial reaction

Quote:

Asian stocks rose, with Japanese shares surging toward the highest level in almost five years, after the Bank of Japan’s new governor announced unprecedented monetary easing to end two decades of economic stagnation.

Japan’s Nikkei 225 Stock Average (NKY) surged 3.2 percent, climbing above 13,000 for the first time since August 2008, as the yen fell against all its major peers. Toyota Motor Corp., the world’s largest carmaker, jumped 3.2 percent and Canon Inc. jumped 3.7 percent as the weakening currency boosted the earnings outlook for companies making sales abroad. Stocks outside Japan fell.

It's about 11 AM Tokyo time and the Nikkei is up 483 points in trading so far today.

[kevsta]

Bond market obviously not happy

http://www.zerohedge.com/news/2013-0...rcuit-breakers

Quote:

Just over 4 hours ago we discussed the stunning collapse in 10Y Japanese bond yields. Since then - things have taken a very dramatic turn for the worse for bonds. 10Y JGB yields have exploded higher.

The move from 32bps to 65bps triggered circuit breakers on the Tokyo Stock Exchange in JGB Futures trading as JGB prices plunged by their largest amount since September 2002.

We can only imagine there is liquidations galore occurring given the massive outsize moves we are seeing in Japanese bonds, stocks, FX, swaps, and CDS. Did the BoJ just lose control?

also did anybody see Draghi respond directly to questions from Zerohedge in the press conference yesterday? quite amusing. Draghi clearly knew who they are.

Quote:

This happened earlier today, at the ECB press conference:

Scott Solano, DPA: Mr Draghi, I've got a couple of question from the viewers at Zero Hedge, and one of them goes like this: say the situation in Greece or Spain deteriorates even further, and they want to or are forced to step out of the Eurozone, is there a plan in place so that the markets don't basically collapse?

Is there some kind of structural system, structural safety net, especially in the area of derivatives? And the second questions is: you spoke earlier about the Emergency Liquidity Assistance, and what would have happened to the ELA in Cyprus, the approximately €10 billion, if the country had decided to leave the Eurozone?

Mario Draghi, ECB: Well you really are asking questions that are so hypothetical that I don't have an answer to them. Well, I may have a partial answer. These questions are formulated by people who vastly underestimate what the Euro means for the Europeans, for the Euro area. They vastly underestimate the amount of political capital that has been invested in the Euro. And so they keep on asking questions like: "If the Euro breaks down, and if a country leaves the Euro, it's not like a sliding door. It's a very important thing. It's a project in the European Union. That's why you have a very hard time asking people like me "what would happened if." No Plan B.

Secondly, I think the ECB has shown its determination to fight any redenomination risk. And OMT with its precise rules and acting within its mandate, is there to this purpose. So that's the answer to the first question.

The second question was about the ELA, but again it's related to "if Cyprus leaves" and again we don't have that in mind, so.... No Plan B.

Informative. We do have three follow up questions:

http://www.zerohedge.com/news/2013-0...here-no-plan-b

[lomiller]

Deflation and very low inflation increase bond values. Bond values will always drop going from these to the modest inflation levels required for economic growth. Meanwhile the value of stocks is tied to economic growth, and they will go up in periods of economic growth.

IOW these numbers suggest the markets are predicting economic growth.

[kevsta]

Originally Posted by lomiller

Deflation and very low inflation increase bond values. Bond values will always drop going from these to the modest inflation levels required for economic growth. Meanwhile the value of stocks is tied to economic growth, and they will go up in periods of economic growth.

IOW these numbers suggest the markets are predicting economic growth.

more like monetary growth.

[stevea]

Originally Posted by lomiller

Deflation and very low inflation increase bond values. Bond values will always drop going from these to the modest inflation levels required for economic growth. Meanwhile the value of stocks is tied to economic growth, and they will go up in periods of economic growth.

IOW these numbers suggest the markets are predicting economic growth.

Amazingly shallow thinking. I hope you aren't an investor. Markets are "predicting the obvious", currency devaluation.

As the yen decline in value the value of assets like Toyota Corp remain the same, therefore TOY prices rises when denominated in yen. To argue that this automatically implies "economic growth" is dubious, unevidenced. It's similar to claiming that a blow-out discount sale is good for the bottom line; you cannot say without a careful calculation considering volumes and margins.

The price of J.export goods will necessarily not decline as much the currency. The only ways to cause a decline in the real price of a Sony laptop or a Honda car is to cause a decline in the standard of living of the labor involved OR to increase productivity by automating further OR to invent/find materials that are lower cost. Wages that don't keep up with inflation are one less-painful means of devaluing Japanese labor, and somewhat likely.

J.Bond prices declines b/c policy creates a near-certain yen devaluation. Yes bond prices are based on inflation rates (currency devaluation rate) but also on currency and principle risk; and importantly on alternative investment opportunity which also (very short term) means a flight to equities for the Japanese. This flight to equities is also part of the bonds-down, equities-up picture.

[kevsta]

Originally Posted by stevea

Yes. What could possible go wrong when debt service, at historically low rates, is already using up almost 8.5% of receipts ? {sarcasm}. If we returned to the (roughly triple the current) rates of the VietNam era or the mid-Clinton era, then we would be using 25% of tax receipts to service debt ! That should alarm any reasonable person.

although stevea was referring to the US, this quote is extremely apt for the OP, except the figures are alarmingly higher.

Japan owes more than 20x it's annual tax revenue, and currently uses 25% of the revenue to service this debt, whilst at historically low rates.

every 1% rate rise costs them another 25%. So here's an idea, lets print 75% as much as the Fed do very month for a year or two, (for an economy 1/3 the size) double the monetary base by end 2014 and make sure we get 2% inflation..

once again..

Originally Posted by stevea

Yes. What could possibly go wrong ?

In fact it looks as though it might have started already

Quote:

Japan's 13 sigma bond swan

For six months the Japanese jawboning has seen investors front-running the BoJ, selling JPY and buying whatever risk-asset is the most correlated that day - whether it is the Nikkei 225 or the S&P 500. However, now that words have been replaced by actions, it appears that someone (cough Japanese institutions cough) has decided the 13.4-sigma swing in JGBs last night is just too much and have rotated to US Treasuries.

The selling of JPY and buying of EUR (to fund peripheral bond buying) and USD (to fund Treasury buying) is very clear. That means, implicitly, that every ramp higher in JPY (weaker JPY) is simply more bond-buying - which leaves the algos directionless.

If you were a risk-manager, what would you do?

but hey the Nikkei went up so its all good.

but then it should really, shouldn't it when the value of the currency it's priced in suddenly went (back) down between 5% and 7% in 2 days, depending on exactly which currency you compare it to, and looks like going down a lot more yet.

[stevea]

Originally Posted by kevsta

although stevea was referring to the US, this quote is extremely apt for the OP, except the figures are alarmingly higher.

Japan owes more than 20x it's annual tax revenue, and currently uses 25% of the revenue to service this debt, whilst at historically low rates.

One difference - Japan relies almost exclusively on Japanese investors and pensioners for bond sales. They had better hope th epopulation doesn't drop bonds in favor of equites, or they will see some severe taxes & likely inflation.

Quote:

but hey the Nikkei went up so its all good.

Hapy happy joy joy {sarcasm}

Quote:

and looks like going down a lot more yet.

+1

Hopefully this isn't the straw that breaks the international camel's back. {serious}. We have a bond bubble in the US and there is no hope Bernanke can over-rule a market panic.

[spin0]

'Don't know', as Kuroda said: "We took all available steps we can think of. I'm confident that all necessary measures to achieve 2 percent inflation in two years were taken today."

Interesting experiment going on, and we'll learn it's long term effects later on. Kuroda's simplified presentation and message was about twos (2x, 2a, 2%). I'm not sure if BoJ is committed to this experiment on a long term basis - are they actually ready to do more if their target of 2% is not approaching in two years (3x perhaps?).

ETA: Referring to this

Later we'll see the effectiveness of the monetary policy.

[kevsta]

Originally Posted by stevea

One difference - Japan relies almost exclusively on Japanese investors and pensioners for bond sales.

but much of it institutional isn't it? NYT

Quote:

60 percent of Japan’s government bonds are held by Japanese banks, insurance companies and pension funds. An additional 20 percent or so is owned by governmental organizations and the Bank of Japan.

institutional fund managers will put profit (and their jobs) before patriotism and will be the first of the first ones out of the door if it looks like they'll be getting negative real rates, surely?

and as I understand it they're struggling a bit with public buying slowing recently.

http://www.telegraph.co.uk/finance/e...ent-bonds.html

Quote:

Japan hires top girlband AKB48 to sell government bonds
Japan's cash-strapped government is reportedly turning to popular music group AKB48 to help it sell government bonds, as interest in the low-yield paper wanes.

I wouldn't expect this to reverse as the deal gets worse?

[stevea]

Originally Posted by kevsta

but much of it institutional isn't it?

Yes, ~75% by institutions, but these include pension funds and insurance companies. I don't have a breakdown of bank holdings vs these investment institutions. For example consider that the Japanese postal system holds ~$2.1TrlUSD in bonds for individuals and another $1.2TUSD as life insurance; that's 25% of household assets ! My main point is that only ~5% are foreign held (vs ~50% for the USA).

Quote:

institutional fund managers will put profit (and their jobs) before patriotism and will be the first of the first ones out of the door if it looks like they'll be getting negative real rates, surely?

But if bond demand and prices decline, their yield increases until competitive. I would not anticipate negative real returns, as the US bond bubble has produced.

There are cultural, regulatory, and central bank influences at work. There are also a lack of investment options at the 'retail' level (inefficiency).

Quote:

I wouldn't expect this to reverse as the deal gets worse?

If J.wages lag behind J.prices (as is likely) then they likely will save less causing a drop in bond sales. Otherwise, I assume that new issue bond prices will decline so that rates incorporate inflation+ to compete with alternative investments. Whether their financial markets are efficient enough to do this is unclear.

[kevsta]

Originally Posted by stevea

My main point is that only ~5% are foreign held (vs ~50% for the USA).

ok, yes, the USA are fundamentally even worse off, long term

Originally Posted by stevea

But if bond demand and prices decline, their yield increases until competitive. I would not anticipate negative real returns, as the US bond bubble has produced.

but if the yield increases, somebody's selling (sold) ? and if it increases much at all, it's checkmate on the debt service vs tax revenue?

or what am I missing?

Originally Posted by stevea

There are cultural, regulatory, and central bank influences at work. There are also a lack of investment options at the 'retail' level (inefficiency).

If J.wages lag behind J.prices (as is likely) then they likely will save less causing a drop in bond sales. Otherwise, I assume that new issue bond prices will decline so that rates incorporate inflation+ to compete with alternative investments. Whether their financial markets are efficient enough to do this is unclear.

I think we shall see soon enough, the pace of the global problems seems to be accelerating fast at the moment.

[lomiller]

Originally Posted by stevea

Amazingly shallow thinking.

Yup, that Milton Friedman was such a "shallow thinker"


http://www.hoover.org/publications/h...t/article/6549

[kevsta]

Kyle Bass on this a couple of months back. if you dont know Bass he nailed subprime, and he nailed Greece on CDS trades from 2009. He says this is the really big one.

he actually said a while back

Quote:

this is the most obvious thing I've ever seen in all my career, its only a matter of when.

YouTube Video This video is not hosted by the JREF. The JREF can not be held responsible for the suitability or legality of this material. By clicking the link below you agree to view content from an external website.

I AGREE

Quote:

While Kyle Bass notably remarks that pinpointing the end of a 70-year debt super-cycle is naive, the combination of the resurgence of nationalism (impacting trade with China) and the dreadful impact of the earthquake/tsunami (drastically changing Japan's supply chain) has secularly shifted Japan's trade balance for the worst at a time when the current account is already negative. "They are all in denial," Bass notes as the government has failed to deal with its problems over the last 20 years.

Simply put, Japan needs a Schumpeterian 'creative destruction' moment instead of the constant rolling of debts and expanding of government balance sheets to paper over the cracks. The 'moment' feels like it is now, he notes, expanding that "JPY could hit 200," as they lose control; following two decades of volatility-smoothing, the chance of a disorderly collapse are high.

Critically, he fears, "the social fabric of Japan will tear," as with one-third of the nations at retirement age, the fallout from the policies of Abe-Kuroda could cause them to "lose 30-50% of their life savings." What is perhaps even more concerning, he adds, "you are starting to see the central banks not trust each other."

At a certain point in time, "nationalist interest takes over the global [G7] kumbaya," and that is occurring now.

"When your debts are 24-times your government tax revenue, you have a secular decline in population, and all of the things are finally catching up to you, what happens when you have a debt crisis?"

Central Banks believe "Devaluation is 'supposedly' the way to freedom"


3:00 - Japan's tearing social fabric

4:30 - G7 Kumbaya unwind

6:00 - "There is no way out" for Japan - it's a matter of when not if. And "if there is no way out for them, there is no way out for the rest of us - unless we change the way we operate."

6:30 - "If there is no consequence to the US profligacy [rates not moving against them] well then they will keep spending." - "Central banks are enabling the spending"

7:15 - "The Modus Operandi of the west is running deficits; and what that has meant in the past is runaway cost-push inflation - and I think that is what we are going to see"

8:00 - "Investors are too complacent" - this is the single-most riskiest time to be complacent in our generation - "investing with the typical endowment model... is not going to work"

9:00 - "The insidious nature of a runaway inflation is that it bankrupts the middle class... the poor stay poor, the middle class (with savings in the banks) get wiped out, the wealthy (with productive assets) do the best"

9:40 - ... which leads to social unrest globally - and that is a problem...

[Tippit]

Originally Posted by stevea

One difference - Japan relies almost exclusively on Japanese investors and pensioners for bond sales. They had better hope th epopulation doesn't drop bonds in favor of equites, or they will see some severe taxes & likely inflation.

Where are all the new yen going if not being used to buy japanese government bonds (besides the Nikkei, apparently)?

[Puppycow]

Originally Posted by stevea

One difference - Japan relies almost exclusively on Japanese investors and pensioners for bond sales. They had better hope th epopulation doesn't drop bonds in favor of equites, or they will see some severe taxes & likely inflation.

According to the new plan, the central bank itself will purchase 70% of all new debt issued. So they only really need investors to buy the remaining 30%.

[stevea]

Originally Posted by kevsta

but if the yield increases, somebody's selling (sold) ? and if it increases much at all, it's checkmate on the debt service vs tax revenue?

or what am I missing?

You are missing nothing important.

Note that bond prices depend on auction & market pricing, with typical supply/demand issues. So no individual needs to sell bonds to cause a decline, a bad auction is sufficient.

The government of Japan has a sovereign currency and can print their way out of debt (soft default).

Originally Posted by lomiller

Yup, that Milton Friedman was such a "shallow thinker"

http://www.hoover.org/publications/h...t/article/6549

You comments bear no relationship to Friedman's suggestion from decades ago. It's pure Argumentum ad Populum fallacy to conflate your statement's w/ Friedman's argument.

Abenomics involves
- targeting inflation
- new government spending (by 2% of GDP)
- quantitative easing
So Abenomics is not nearly the same as Friedman's prescription. Friedmans position was also in the context of rapidly growing world and Asian economies - certainly not the case today.

The shallow thinking is not Abenomics, nor Friedmans idea but your assertions.

Quote:

Deflation and very low inflation increase bond values. Bond values will always drop going from these to the modest inflation levels required for economic growth. Meanwhile the value of stocks is tied to economic growth, and they will go up in periods of economic growth.

Those are three trite truisms that don't tell us anything about whether Abenomics will result in real growth. IOW shallow.

Quote:

IOW these numbers suggest the markets are predicting economic growth.

No - they immediately suggest investors anticipate the obvious yen devaluation.
Strike three, but thanks for playing.

Originally Posted by Tippit

Where are all the new yen going if not being used to buy japanese government bonds (besides the Nikkei, apparently)?

Agreed - the Japanese access to foreign investment seems amazingly underdeveloped. What would you do if you were a Japanese citizen looking to protect a nest egg ?

Originally Posted by Puppycow

According to the new plan, the central bank itself will purchase 70% of all new debt issued. So they only really need investors to buy the remaining 30%.

This 'twist' smells familiar (and bad) ....
I don't yet have any good numbers on their expected outlays for bond repurchase, direct spending, and QE, but this is looking pretty scary.

[stevea]

Originally Posted by kevsta

Kyle Bass on this a couple of months back. if you dont know Bass he nailed subprime, and he nailed Greece on CDS trades from 2009. He says this is the really big one.

he actually said a while back

YouTube Video This video is not hosted by the JREF. The JREF can not be held responsible for the suitability or legality of this material. By clicking the link below you agree to view content from an external website.

I AGREE

Kyle Bass was on CNBC last week and said words to the effect that investing in Japan now is like stopping to picking up dimes in front of a bulldozer.

http://video.cnbc.com/gallery/?video=3000159028

So Bass & lomiller are predicting very different outcomes.
I'm wagering on Bass.

lomiller - care to make any paper trades to prove your point ?

[lomiller]

Originally Posted by stevea

Abenomics involves
- targeting inflation
- new government spending (by 2% of GDP)
- quantitative easing
So Abenomics is not nearly nearly exactlythe same as Friedman's prescription.

Friedman advocated increasing the Japanese base money supply (AKA quantitative easing) until inflation reached a more desirable range. I don't think he gave a specific value but he was probably looking for ~2%

Originally Posted by stevea

Friedmans position was also in the context of rapidly growing world and Asian economies - certainly not the case today.

Friedmans comments were in the context of a Japanese economy that was showing near zero growth despite near zero interest rates because it was stuck in deflation/ liquidity trap which is nearly exactly the case today.

[lomiller]

Originally Posted by stevea

No - they immediately suggest investors anticipate the obvious yen devaluation.
Strike three, but thanks for playing.

Repeating a false claim doesn’t make it any more true, but thanks for playing...

[stevea]

Originally Posted by lomiller

Friedman advocated increasing the Japanese base money supply (AKA quantitative easing) until inflation reached a more desirable range. I don't think he gave a specific value but he was probably looking for ~2%

No - a loose money policy is not QE, you don't understand basic definitions.
http://en.wikipedia.org/wiki/Quantitative_easing
Unless you had a seance channeling Friedman your other claim is nonsense.

Originally Posted by lomiller

Repeating a false claim doesn’t make it any more true, but thanks for playing...

Then YOU should stop repeating all your silly falsehoods on this forum.

YOUR claim about forseeing growth is not the most reasonable conclusion based on the evidence. It fails Occams razor. Your after-the-fact assertion that your statement is a result of Friedman's 30yo suggestion is not just nonsense based on the facts at hand, but an ad Populum fallacy a well. You can't even accurately distinguish Abenomics policy from Friedman's idea. It's genuinely ridiculous for you to assert that long-dead Friedman would still support that same policy idea today.





You failed to address my suggestion that we test out claims by means of a paper trade.

Quote:

lomiller - care to make any paper trades to prove your point ?

So you believe this policy will result in Japanese growth.
I'll suggest that you take the Nikkae225 index as your proxy.
Pick another proxy for Japanese growth if you wish.

I believe that we will see yen devaluation, and I'll take
YCS (ProShares UltraShort Yen ETF) as a proxy.
(somewhat thinly traded & volatile, but ...)

Both converted to any common currency for comparison.
Let's say we start 4/15/2013 /?

[kevsta]

I would just like to say how nice it is to have somebody to discuss actual performance instead of *theoretical academic* all the time.

I have taken some stick here over the years for putting more credence into fund managers who actually perform, rather than talk about vagaries.

Originally Posted by stevea

You failed to address my suggestion that we test out claims by means of a paper trade.

So you believe this policy will result in Japanese growth.
I'll suggest that you take the Nikkae225 index as your proxy.
Pick another proxy for Japanese growth if you wish.

I believe that we will see yen devaluation, and I'll take
YCS (ProShares UltraShort Yen ETF) as a proxy.
(somewhat thinly traded & volatile, but ...)

Both converted to any common currency for comparison.
Let's say we start 4/15/2013 /?

the Yen devaluation is just easy money so far, as long as you can get in safely.

against the Euro the question du Jour is

Quote:

"can the BOJ firehose "money" faster than the Euro can collapse ?"

just out of EJ counter-trend trade, will looking for reversal (long) again wherever they stop-run the bottom. it will probably just keep going without me now, like on the way up, I was pretty pleased with 180 pips off 1.19, until it ran 1100 more the next week lol

[stevea]

Originally Posted by kevsta

the Yen devaluation is just easy money so far, as long as you can get in safely.

Which is exactly my point.

Originally Posted by lomiller

Meanwhile the value of stocks is tied to economic growth, and they will go up in periods of economic growth.

IOW these numbers suggest the markets are predicting economic growth.

lomiller fails to recognize that the PRICE (not value) of stocks is tied to the value of the yen vs value of the stock. So lomiller's thesis is that markets are predicting that this complex, new ground, policy will result in econ growth, therefore stock values increase. My thesis is that markets are observing the far more obvious fact that the yen will most certainly decline in value.

The value of Japanese stocks may well increase as they have since 2009 & particularly Q4 2012, but jacking the currency by 2%/yr has a direct impact on price, but not value, of stocks.

Quote:

against the Euro the question du Jour is

The Euro is a mess, but UDSJPY looks very similar as a longer term trend (weeks).

[kevsta]

Originally Posted by stevea

Which is exactly my point.

lomiller fails to recognize that the PRICE (not value) of stocks is tied to the value of the yen vs value of the stock.

So lomiller's thesis is that markets are predicting that this complex, new ground, policy will result in econ growth, therefore stock values increase. My thesis is that markets are observing the far more obvious fact that the yen will most certainly decline in value.

The value of Japanese stocks may well increase as they have since 2009 & particularly Q4 2012, but jacking the currency by 2%/yr has a direct impact on price, but not value, of stocks.

this is a disease that affects the majority of "investors" IMO - "Nominalerium"

[Puppycow]

Originally Posted by stevea

Which is exactly my point.


lomiller fails to recognize that the PRICE (not value) of stocks is tied to the value of the yen vs value of the stock. So lomiller's thesis is that markets are predicting that this complex, new ground, policy will result in econ growth, therefore stock values increase. My thesis is that markets are observing the far more obvious fact that the yen will most certainly decline in value.

The value of Japanese stocks may well increase as they have since 2009 & particularly Q4 2012, but jacking the currency by 2%/yr has a direct impact on price, but not value, of stocks.



The Euro is a mess, but UDSJPY looks very similar as a longer term trend (weeks).

A weak yen has been correlated with a higher Nikkei average for a long time. And conversely a strong yen tends to be seen as bad news at the Tokyo Stock Exchange. This is because export-oriented companies benefit from a weak yen.

Granted 2% inflation could explain a 2% increase in share prices. And the exchange rate could account for some of it too, although the yen is still stronger vs. the dollar than it was in 2007.
When I think about economic growth I think about real growth, not nominal growth. When newspapers report the latest GDP growth or contraction figures, they report real figures, not nominal. I'm pretty sure that when lomiller says growth he means real growth, not nominal.

[lomiller]

Originally Posted by stevea

No - a loose money policy is not QE, you don't understand basic definitions.

Once again you are arguing by repetition. Quantitative easing is simply a term pasted onto the polity Friedman was describing, that is increasing the money supply until there is measurable inflation in the economy.

Here Friedman is again,

Quote:

Defenders of the Bank of Japan will say, “How? The bank has already cut its discount rate to 0.5 percent. What more can it do to increase the quantity of money?”

The answer is straightforward: The Bank of Japan can buy government bonds on the open market, paying for them with either currency or deposits at the Bank of Japan, what economists call high-powered money. Most of the proceeds will end up in commercial banks, adding to their reserves and enabling them to expand their liabilities by loans and open market purchases. But whether they do so or not, the money supply will increase.

There is no limit to the extent to which the Bank of Japan can increase the money supply if it wishes to do so. Higher monetary growth will have the same effect as always. After a year or so, the economy will expand more rapidly; output will grow, and after another delay, inflation will increase moderately

This is what the BoJ is doing now. Not that I needed it but it's also worth noting it fits exactly the wiki link you submitted as evidence

Quote:

If the nominal interest rate is at or very near zero, the central bank cannot lower it further. Such a situation, called a liquidity trap,[21] can occur, for example, during deflation or when inflation is very low.[22] In such a situation, the central bank may perform quantitative easing by purchasing a pre-determined amount of bonds or other assets from financial institutions without reference to the interest rate.[5][23] The goal of this policy is to increase the money supply rather than to decrease the interest rate, which cannot be decreased further.

Again this was your link...

Originally Posted by stevea

Then YOU should stop repeating all your silly falsehoods on this forum.

YOUR claim about forseeing growth is not the most reasonable conclusion based on the evidence.

Again argument by repetition. It IS the most reasonable conclusion based on the evidence, as I've already shown.




Regardless of whether the Yen goes up or down Japanese will:
1) sell bonds on fear of inflation, which is a by product of economic growth
2) buy stocks on the prospect of economic growth.

Since this is exactly what's happening we can conclude Japanese investors are predicting economic growth.

Quote:

lomiller fails to recognize that the PRICE (not value) of stocks is tied to the value of the yen vs value of the stock.

Perhaps for a few multinationals this is true, but the broader market the value of the Yen isn't a big long term factor because it's dominated by domestic investment.


Also you seem to be making a fundamental mistake in treating stocks to something like gold that has little intrinsic value and gains it's price though trade. Stocks on the other hand can be valued based on their earnings. If those earnings are expected to increase the price goes up. This is how investors like Warren Buffet make their money.

[lomiller]

Originally Posted by Puppycow

A weak yen has been correlated with a higher Nikkei average for a long time. And conversely a strong yen tends to be seen as bad news at the Tokyo Stock Exchange. This is because export-oriented companies benefit from a weak yen.

This holds for the larger multinationals but not the broader market. A better explanation is that overly tight monetary policy has strangled the Japanese economy for nearly 2 decades, and only in periods where that has eased slightly has there been any of the economic growth that underpins the growth in stock prices.


Monetary influences aside you should not expect to see a strong currency and weak growth simultaneously, especially in an export heavy economy. High currency value combined with low economic growth suggests a lack of liquidity in the economy. Go back and look what happened to the USD when the banking crisis hit and liquidity disappeared, it shot up a good 20% against most currencies in a few months and then eased back down as liquidity started to return.