Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009) and “The Coming Collapse of the Municipal Bond Market” (Aucontrarian.com, 2009…
The Bank of Japan is sticking to its policy of fiscal stimulus to try to stoke inflation, and that’s rattled markets worldwide.
A few weeks ago The Economist depicted Japanese Prime Minister Shinzo Abe as a super-hero on its May 17 cover. Noting specifically, “Is it a bird? Is it a plane? No….It’s Japan.”
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’s unlimited stimulus initiative known euphemistically as “Abenomics.”
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.
But like Fed Chairman Ben Bernake’s spending here and Draghi’s spending in Europe, it’s ultimately going to fail.
Sure the short-term effects are great…a wildly enthusiastic stock market that’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 devalued Yen. No question, I’ll take a bull market any day.
It’s the hangover I’m worried about – nobody knows how long this run will last.
This is especially problematic because most investors don’t have the discipline needed to trade in and, of course, out when the party stops.