Ad Hoc Commentary – the investment-less recovery

As we mentioned before:

“…Abenomics thinks that inflation will chase money out of hoarding into investments. What he forgot is that the Senkaku-Diaoyu affair gives capital very little confidence to invest within Japan. In all likelihood, money will flee the country…”

Today our belief is validated as Japan’s GDP missed expectations because businesses cut back on investments within Japan. Japanese corporations are still investing globally, just not enough in Japan. As the DBJ (Development Bank of Japan) business investment survey that was released on Aug 5 shows, capital expenditure appetite is reviving among major Japanese companies. The only problem is capital is going overseas.

In other words, Abenomics chased money out of hoarding into investing outside Japan. Pundits are still optimistic on Japan Inc investing within Japan. But yours truly believe that CEOs of Japan Inc will first want to see better policies on Sino-Japan geopolitics, nuclear energy, ageing demographics and the sovereign debt burden before investing at home. These are issues which cannot be solved by simply opening/closing the monetary spigot as Abenomics would like us to believe. If only economics were that simple.

Welcome to the developed world’s investment-less recovery of the 2010s. Britain felt it, now Japan is feeling it. This is a continuation of the jobless recovery of the 2000s, and should hit Europe and Japan especially hard. Without investment, there will be little to no new jobs. Without more jobs, social inequality will rise.

If the stock market continues to rally after a summer correction, then 2014 will be the year of resentment. Chances are the unemployed, especially the young unemployed, will be resentful of the booming stock market. Nobody likes to be “left behind”.

Good luck in the markets.