This Chart Shows When the Smart Money Saw The Abenomics Fail

The year 2014 has been lumpy, to use Cisco CEO John Chambers’ propitious term, for stock markets around the world. Gone are the ferocious rallies followed by mild rallies interrupted by minor downticks, followed by more ferocious rallies. That’s so 2013.

It’s as if on December 31, someone turned off the spigot. The hype and investor exuberance are still out there, at least on the surface and with retail investors, as the well-planned and meticulously executed rotation from the smart money to those who are plowing their life savings into stocks is in full swing. The smart money has been bailing out, not just in the US, but nearly in all major markets – as the chart by Doug Short at Advisor Perspectives makes amply clear.

And look what happened in Japan:

World-indexes-2014-Doug-Short

So for last week, hope for more stimulus drove Shanghai up 3.5%, with China’s economy teetering and its credit bubble cracking. On the other side of the spectrum, the Nikkei (red line) plunged 7.3%.

For the year through Friday, there are only three indices of the major eight that are up: the Indian BSE SENSEX (+ 6.9%), the French CAC 40 (+1.6%), and Shanghai (+0.7%). The rest got knocked down: Hong Kong’s Hang Seng -1.3%, the S&P 500 -1.8%, the UK’s FTSE -2.8%, and Germany’s DAX -3.1%. Though still minor, this amount of red had been absent during our crazy money-printing times when they’d gone up automatically, regardless of what happened in the real economy.

The standout is the Nikkei.

For the year through Friday, it’s down 14.3% (not including Monday’s additional decline of 0.36%). The downward momentum has turned into a plunge in April, just when Abenomics is trying to persuade the hapless citizens of Japan, whose sacred yen his policies are destroying, to take their life savings out of the banks that are drowning in deposits and invest them in the stock market. It’s offered as an escape of the financial repression that Abenomics is inflicting on them, with inflation and a brutal zero-interest-rate policy eating up their savings in tiny bites. Their purchasing power too is getting whacked by inflation. Though old hat for Americans, that phenomenon – inflation without compensation – is new to the Japanese.

So now Abenomics has been pitching the stock market as the savior based on some kind of miracle. It worked. The smart money dove into Japanese stocks starting in mid-November 2012, with the hope and hoopla of Shinzo Abe’s coming money-printing policies. And for the next six months, the Nikkei soared. After a big mid-year swoon, it hit a new recent high on December 31, up 88% during the initial phase of the Abenomics hype.

But now reality has set in, as has the consumption tax increase. The front loading by consumers and businesses ahead of the increase is reversing. The smart money has been pulling out. And the hapless Japanese who recently followed the government’s encouragement? Instead of watching their money lose value very gradually in their bank accounts, they watched it plunge.

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