|Dow||+13.01 to 17,647.75|
|S&P 500||+1.50 to 2,041.32|
|Nasdaq||-17.64 to 4,670.90|
|10-YR Yield||+.02 to 2.34%|
|Gold||+$1 to $1,186.60|
|Crude Oil||-$0.34 to $75.48|
So let me see if I get this straight …
You spend 80 TRILLION yen every month to buy bonds, stocks and real estate ETFs. That’s up 10 trillion from just a few months ago (which itself was up trillions from a year or two ago).
You direct your 127 trillion yen government pension fund — the biggest in the world — to double the amount of money it invests in stocks at home and abroad.
You purposefully drive your currency into the toilet, sending it down 36 percent in just a couple of years.
|Japan slides into recession as tax hike takes toll.|
You tell the world and the markets that these moves will boost your economy. You even give the policies a catchy name: “Abenomics.”
And what happens? You buy yourself a recession! The fifth recession in the past decade.
No, I’m not kidding. The Japanese economy shrank at an annualized rate of 1.6 percent in the third quarter, after plunging 7.1 percent the quarter before that. Economists were expecting an increase of 2.2 percent, so the recessionary data was a major shock. Even adjusting for the effect of falling inventories, “core” growth was virtually nonexistent.
One problem for Japan’s economy is higher sales taxes. The country raised its sales tax to 8 percent from 5 percent in April, and was originally planning to raise it again to 10 percent next year. That plan will likely get shelved in light of the economy’s epic fail.
|“This is the fifth recession in Japan in the past few years.”|
But again, this is the fifth recession in Japan in the past few years. That proves something much more fundamental is going wrong. Specifically, it provides even more proof that printing money and plowing it into stocks doesn’t do squat for the real economy, even as it can drive asset values higher. Yet that’s exactly what the U.S. has been doing, what Europe has been doing, and what the Ivory Tower “experts” keep saying is smart policy.
As an investor, it’s hard to get your head around all of this. I mean, the Japanese economy is tanking. The Japanese currency is tanking. Yet thanks to government and central bank manipulation, Japanese stock prices just hit multi-year highs anyway! Let me know if you think that’s insane or not by hopping over to the Money and Markets comment section and weighing in.
I’m also curious about your thoughts on the wave of merger announcements over the past couple of days. You’ll find more details in the news roundup below. Do these deals signal a fresh leg up for the markets? Or do they look more like the kinds of things you see at a market top?
|Our Readers Speak|
After my recent column on the currency and wealth destruction in Japan, several of you weighed in on what the broader message might be. Indeed, many of you said the collapse in the yen could offer a view of OUR future.
Reader Skipp M. said: “Anyone thinking that this situation in Japan could never happen here in the United States is either a fool, a die-hard Democrat, or has ear plugs and blinders on to see what has happened to the purchasing power of the almighty dollar — it has lost 95 percent of its purchasing power! And, when the United States loses its ‘reserve currency’ status, the value of the American dollar will plummet like a rock thrown into the Grand Canyon!”
Reader JRJ added: “The dollar is just the best of a bad bunch. All these fiat currencies are taking the hit for every country’s economic problems. This isn’t going to end well. No matter what politicians promise, you can’t get something for nothing.”
Finally, Reader Mitch was even more blunt. He said: “Save the chart of the fall of the Japanese yen. You can use it for the U.S. dollar in the future.”
Thanks for the comments everyone. If you’d like to add your thoughts on the yen, the euro, the dollar, and what the big currency moves we’ve seen recently mean for your wealth, don’t forget to click here and let me and your fellow readers know.
|Other Developments of the Day|
In one “Hall” of a deal, oil services giant Halliburton (HAL, Weiss Ratings: A-) confirmed it will buy competitor Baker Hughes (BHI, Weiss Ratings: B) for $34.6 billion. That’s equal to $78.62 per share, 31 percent above where BHI shares closed on Friday. The deal comes as falling oil prices have put the squeeze on energy drilling, particularly big overseas or underwater projects.
As for those oil prices, the next major OPEC policy meeting is getting closer — and this Wall Street Journal story explores whether an output cut is coming. If so, it would be the 11th time in the past 30 years the group has cut production to bolster oil prices.
Allergan (AGN, Weiss Ratings: B) snagged a $64-billion-plus bid from Actavis Plc (ACT, Weiss Ratings: C-), a deal that would derail Valeant Pharmaceuticals’ (VRX, Weiss Ratings: C) earlier buyout offer. We’ve seen several buyouts in the drug space, some tied to the desire among companies to cut their taxes by moving their corporate headquarters overseas.
ISIS is still at it in the Middle East, releasing a video yesterday of yet another tragic hostage execution. The victim this time was Peter Kassig, an American aid worker. ISIS also murdered 12 Syrian soldiers.
Until next time,