Abenomics - Take Their Money And Run

Over the past few weeks I have heard from three persons who should know better statements on the order of "despite criticisms of Abe Shinzo's economic stimulus plans, the markets have been sending a strong signal of confidence in the new government."

Really? A massive (and entirely legal) pump-and-dump operation and capital flight are signs of confidence in Abenomics?

If the equities markets were rising due to the buzz around over the adoption of the a new technology, great. If the equities markets were rising on a resolution of the political problems between Japan and its neighbors, great. If the equities markets were rising on a strong signal from the nation's courts that they will protect the rights of shareholders, great.

These are real, structural changes. The equities markets should rise in response.

However, if the equities markets rise in anticipation of the arrival of a titanic wave of cash from the Bank of Japan, cash in desperate need of a place to part itself, then we should call the rise what it is: smart money bidding up the prices of parking places prior to arrival of a lot of dumb money.

The current rise is not, of course, solely due to the monetary side of Abenomics. The proposed increase in public works is plumping up shares in the construction sector -- which is entirely cool, as long as folks in the Abe entourage did not buy into the sector prior to the announcement of the new spending priorities.

Hoping that folks will not take advantage of inside information, however, is self-delusion. One can only hope that the scale of the skim was rather modest.

It takes a blinding pathological obsession with the needs of exporters, however, to consider the fall in the price of the yen to be a vote of confidence in the Abe government. If there were confidence in the Japanese economy under Abe the yen would rise. Folks would be buying yen to get in on the fun.

However, the smart money, seeing the Abe fiscal policies blowing out the budget and the politicization of the Bank of Japan discombobulating prices signals, is getting out while it can sell its yen holdings at a high price. When one considers that these sellers have an inherent interest in getting out as slowly and unobtrusively as possible so as to prevent a run on the yen, the scale and speed of the yen's drop of the last few weeks should be jaw-dropping.

Abenomics is grand larceny. It takes, in the form of the taxes and the value inherent in the yen, money from the people and gives it to the supporters of the Liberal Democratic Party.

That sounds wrong on principle. It would not be if the supporters of the LDP were to take that money, invest it and create profit and/or societal benefits all could share. As we know, however, supporters of the LDP are net consumers of value: the projects they invest in are worth less upon completion than the amount invested. As for the financial profit made on arbitraging the debasing of the currency, I have little faith in it returning to the government in the form of higher tax revenues. If the smart puppies can make money foisting depreciating assets on the unsuspecting, I am fairly sure they can avoid the tax man as well.