Recession in Japan; QE in Europe
Futures in the U.S. markets were way down earlier this week when it was learned that Japan was in a tax-induced economic recession. Thanks to a new consumption tax, GDP fell 1.6% during the third quarter. Why this comes as a surprise to anyone is hard to understand. After all, a consumption tax is like a sales tax. The higher the tax, the less people will spend. The Nikkei 225, Japan’s best-known market index, lost more than 500 points, or almost 3% on the news.
Somewhat surprisingly, U.S. markets began to recover before the opening bell. Japan is our fourth-largest trading partner and year-to-date, it has accounted for about 5% of our total trade. U.S. investors apparently decided that wasn’t large enough for a recession in Japan to rock our economy. Besides, investors are still fixated on quantitative easing. The Federal Reserve may have cut back, but investors are finding their fix elsewhere. Mario Draghi, President of the European Central Bank, gave a speech Monday warning that economic growth in the euro zone has lost momentum. He said that buying government bonds would be an option he would consider. That’s something he had not confirmed before.
That remark was enough to immediately push up stock prices in Europe and the U.S. This just provides further evidence that asset prices continue to be driven by loose central bank policies and not by fundamental factors or expectations for stronger economies.
Read Vahan’s blog at Janjig.com.
Vahan Janjigian is Chief Investment Officer at Greenwich Wealth Management, LLC, a SEC Registered Investment Adviser, where he manages portfolios for clients in separate accounts. Dr. Janjigian is a former Forbes magazine columnist and former Editor of the Forbes Special Situation Survey. According to Hulbert Interactive, his stock picks returned more than 18% annually during one of the market’s worst 10-year periods.
Dr. Janjigian holds the Chartered Financial Analyst designation and has earned degrees in general sciences and finance from Villanova University and Virginia Polytechnic Institute and State University (Virginia Tech). He previously served on the faculties of several universities, including the University of Delaware, Northeastern University, the American University of Armenia, and Boston College, where he taught courses in corporate finance, financial theory, investments, accounting, and economics; and he currently teaches a seminar on equity investment management to business executives in Singapore through Baruch College’s Zicklin School of Business. Dr. Janjigian has served as an expert witness on matters involving portfolio management, churning, suitability, and hedge fund manager compensation.
Dr. Janjigian has published his research in numerous scholarly and professional journals; and has been quoted in many leading newspapers and magazines, including Barron’s, Forbes, The Wall Street Journal, and USA Today. He appears as a guest commentator on various television and radio networks, including Fox, CNBC, MSNBC, and CBS Radio. Dr. Janjigian is the author of Even Buffett Isn’t Perfect (published by Penguin) and co-author of The Forbes/CFA Institute Investment Course (published by Wiley).