In the classic Hans Christian Andersen fable, a self-absorbed emperor parades through town in a suit made by two swindlers of “magical fabric” that is supposedly invisible to the stupid or incompetent.
Not wanting to be seen as stupid or incompetent, everyone gushes about how beautiful his suit is — that is, until a child cries out the obvious: “but, the emperor has no clothes!”
I can’t help but think of this story every time I see Abenomics mentioned in print, but not for the reasons one might imagine. In my minds eye, I see Abe and Kuroda as the two swindlers — spinning magical economic policy into a non-existent recovery.
Earlier this morning, S&P finally cried out what a few of us have been saying all along: Abenomics isn’t working, and it is unlikely to work. Japan was downgraded all the way from AA- to A+ (hey, it’s a start.) And, in a statement that would only make sense in a fairy tale, they pronounced Japan’s outlook “stable.”
The S&P press release came out at 5:47 ET, so naturally at 5:47 the Nikkei futures dropped a massive (sarc) 0.245%, regaining 0.547% over the next 2-1/2 hours. Currency traders at the BoJ, having obviously already been tipped off, actually made sure that the yen strengthened after the announcement (the white arrow), then continued the weakening which is essential to the yen carry trade’s effectiveness. Ironically, it strengthened much more when this morning’s US economic data hit a few hours later (the yellow arrow.) The e-minis (in purple) declined all of 4 points in sympathy, but added back 8 points as USDJPY “recovered.”
The “market” might be manipulated, corrupt and very much rigged, but it’s not stupid. The downgrading, the continuing economic malaise in Japan and the US, all point to one thing: more magical fabric!
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