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Avenomics - The Clock Runs Out for the Japanese Economy

Economics / Japan Economy Nov 27, 2013 - 10:00 AM GMT

By: John_Mauldin

Economics

By Grant Williams: In 1853 the French romantic composer Charles Gounod wrote a melody that was especially designed to sit over the Prelude No. 1 in C Major written by Johann Sebastian Bach over a century earlier. He titled it (somewhat unimaginatively, perhaps) "Meditation sur le Premier Prelude de Piano de S. Bach."

Interestingly enough, Gounod's father-in-law, the magnificently named Pierre-Joseph-Guillaume Zimmerman, transcribed the improvised melody and arranged it for violin, piano, and harmonium; and thus a piece that Gonoud himself never actually wrote down went on to become one of the most-recorded and most-played pieces of music in the history of mankind.


It was the addition by Jacques Leopold Heugel in 1859 of the words from the Latin text of the prayer Ave Maria that put Gonoud's noodlings on the road to ubiquity at church ceremonies throughout the Christian world.

Ave Maria is of course a traditional Christian prayer that asks for the intercession of the Virgin Mary in one's life, to deal with any number of tricky situations that may arise and leave the supplicant feeling as though divine intervention is the only solution.

The Ave Maria is more commonly known to most people by its English translation: Hail Mary.

As the last refuge of the hopeless, the Hail Mary has also taken its place in the sporting lexicon over the years, particularly in American football, where it was popularized through the play of two members of the fabled Four Horsemen (Notre Dame's legendary 1924 backfield, consisting of Don Miller, Harry Stuhldreher, Elmer Layden, and Jim Crowley) in an era when sports reporters such as Grantland Rice (who brought the Hail Mary to the gridiron) were capable of prose seldom seen on the sports pages today.

Exhibit A is the lead for the piece in which Rice introduced the Hail Mary in October 1924, after Notre Dame upset a heavily favoured Army team:

Outlined against a blue-gray October sky, the Four Horsemen rode again. In dramatic lore their names are Death, Destruction, Pestilence and Famine. But those are aliases. Their real names are Stuhldreher, Crowley, Miller and Layden.

They formed the crest of the South Bend cyclone before which another fighting Army team was swept over the precipice at the Polo Grounds yesterday afternoon as 55,000 spectators peered down upon the bewildering panorama spread out on the green plain below.

Beautiful!

Exhibit B is the opening paragraph from a NY Post recounting of a NY Jets loss to the Buffalo Bills:

The Jets brought Ed Reed in on Thursday to help a leaky pass defense, one that has proven vulnerable to the deep ball.

But despite being shoehorned right into the lineup, the future Hall of Famer couldn't keep that Achilles' heel from being exposed over and over in a 37-14 loss to the Bills.

Call me old-fashioned, but where are the modern-day Grantland Rices? (Or is the plural "Grantlands Rice"? I don't know.)

But I digress.

The definition of the term Hail Mary as it pertains to football, provided here by Wikipedia, does a sterling job of setting the stage for this week's topic:

A Hail Mary pass or Hail Mary route is a very long forward pass in American football, made in desperation with only a small chance of success, especially at or near the end of a half.

Ah...

Yes, the Hail Mary is used in desperation, near the end of a contest when there is only a small chance of success...

When Abenomics was unveiled in Japan upon the re-election of Shinzo Abe as prime minister in late 2012, it is safe to say that, having been mired in a 20-year deflationary spiral and with debt totaling 240% of GDP, Japan was nearing an endgame of sorts.

For two decades the country had watched the yen strengthen and endemic deflation thwart any and all attempts to generate even moderate inflation, as repeated bouts of quantitative easing failed to administer the desired antidote to Japan's ever-increasing debtload.

Realizing just how late in the game he found himself, Abe promised to change all this, but in order to do so he needed to pursue a high-risk strategy with a low probability of success.

The press (ever hungry for a new, catchy portmanteau word) dubbed it "Abenomics."

Personally, I prefer to call it "Avenomics": the economics of the hopeless.

To continue reading this article from Things That Make You Go Hmmm… – a free weekly newsletter by Grant Williams, a highly respected financial expert and current portfolio and strategy advisor at Vulpes Investment Management in Singapore – please click here.

Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC and InvestorsInsight Publishing, Inc. ("InvestorsInsight") may or may not have investments in any funds cited above.

Disclaimer PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

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