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Commentary

Japan Shocks With Negative GDP Growth

Tokyo, just as we speak, has fallen prey to another recession. Japanese GDP came in at -1.6% despite their efforts in flooding the world with a lot of money. Here’s the Nikkei:

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Japanese Premier Shinzo Abe wanted to increase a recently increased sales tax to perk up GDP. What a sales tax should do do is make things more expensive and in some random way impact inflation. But it will increase GDP too, or so they hoped. But apparently it did not, so further hiking it may be out of the question.

Japan’s become a basket case in economics. No GDP growth, no inflation, the stock market refuses to hit new all time highs no matter how much money is printed, protection of the top houses, the central bank buying equities, their pension fund increasing equity allocations, the presence of a massive carry trade which on unwinding can hurt…in the words of John Mauldin, a bug looking for a windshield.

However, there is a record amount of money that has been printed all over the world. You never know when things can turn, and short positions all over the world have been mauled to death. To the extent that in India, even dabba-operators (Bucket trading, i.e without actually placing the trade in the market, effectively a gamble on the position) have stopped accepting orders, because a book requires players on both sides of the market, and everyone has only been going long (and winning).

No one-sided trade has lasted too long. How long, though, is a matter of conjecture. I’m holding tight and am ready to jump off on a trailing stop loss.

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  • DJ says:

    “Japan’s become a basket case in economics. No GDP growth, no inflation, the stock market refuses to hit new all time highs”
    Ok, I promise not to hog the comments section, but I wanted to point out that the former does not follow from the latter. One can have a perfectly good economy with no GDP growth, no inflation and no new highs in the stock market. Especially, for a developed economy with declining demographics, the economy is not so bad even without growth. Not that Abe and the developed countries and the creditors would agree but that is the issue. They want to sodomize (stimulation without consent is sodomy) the economy to bail out the creditors. That is the only problem of economics here, not the state of actual productive activity or quality of life per se, nor the lack of growth or lack of inflation.

    • I’d had a recent large argument about this. The problem isn’t just that. The government has no revenue mechanism to pay up if the declining demographics and deflation continue, since they need to pay something (even principal) on a bond without adequate income. And then, the demographic challenge is: How to fund the retirees through what’s paid by the declining working pop? In effect, the issue is what you said but bigger than what you said – it is fixed obligations but lower income that is a problem, but it’s a larger economic problem which is currently a bug looking for a windshield 🙂
      Of course, Japan isn’t quite so bad yet – we still buy their cars, their TVs and all that…

  • Wages are not rising and Labor Force Participation Rate is declining due to ageing population. Retirees live on pension savings and do not contribute to tax or GDP.

  • GDP is an overrated metric. Japan has no reason to chase “GDP growth at any cost”. With a very small domestic economy, Japan is already oversized in terms of its production capacity and output (GDP). It should accept that its fortunes will be hostage to performance of its foreign trading partners, overwhich it has no control. Japan should be content with reducing leverage, increasing savings & net worth and just rest on its past laurels. Be happy. Why bother whether the GDP grows or not?