UBS Investment Management Guru Warns of “Abegeddon”
from 24/7WallStreet:
Since the beginning of the year, the Japanese yen has fallen from around 86 to the dollar to around 100. The rapid depreciation is down to a massive easing program instituted by the countrys recently elected Prime Minister Shinzo Abe, and if the Nikkei is any guide, Abenomics is having the intended effect. The Nikkei is up 44% in the past six months.
But there are cautionary voices, one of which belongs to UBS Wealth Managements chief investment officer Alex Friedman, who had this to say on CNBCs Asia Squawk Box this morning:
Its possible we could see a stagflation scenario, where you see inflation in asset prices but no real growth. The ultimate story is you need a hand off to real growth in Japan theres a real question of whether thats possible.
Friedmans big fear is that investors will flee Japanese government bonds (JGB) and put their money into equities that may or may not be accurately valued. Friedmans view is that without real growth the country faces Abegeddon soaring inflation, asset price bubbles and collapsing JGB prices.
There are plenty of economists who believe that inflation is a feature of Abenomics, not a bug. When a central bank commits to acting irresponsibly and allowing inflation to rise, people see little gain to saving, so they spend more. By spending more they juice up the economy and what Friedman calls real growth kicks in. Guarding against asset bubbles and falling bond prices is not all that difficult either, but the steps are surely unconventional. ............(more)
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