Once upon a time, the world's biggest government pension fund, Japan's $1.1 trillion Government Pension Investment Fund, or GPIF, was apolitical, and merely focused on preserving the people's wealth.
Then everything changed, and with the reckless abandon of a junkie on a crack cocaine binge, aka Abenomics, the GPIF management was kicked out, and its entire mandate was flipped from preserving wealth, to gambling on #Ref! P/E stocks, in hopes of recreating the wealth effect of the super-rich (the only problem: Japan has reached its breaking point and the higher the USDJPY, and thus the Nikkei rises, the more the BOJ directly destroys its economy with an already record number of bankruptcies due to the plunging Yen getting recorder).
Worst of all, the GPIF became nothing short of the latest political pawn in what is now the the first failed Keynesian state, Japan.
Here is why this is bad. As the WSJ reports, "Japan’s $1.1 trillion government pension fund is betting that a long-term recovery and rising corporate profits will push Tokyo stock prices higher, helping the fund increase returns for the nation’s retirees."
Mr. Abe has pushed for the fund to become a more aggressive and sophisticated investor. The fund decided in October to shift its portfolio to seek higher returns, slashing its target allocation to domestic bonds almost in half while nearly doubling that of domestic and foreign equities.
Mr. Mitani said the fund is still in the process of carrying out the changes and has a long way to go. Just under 50% of its total portfolio was in domestic bonds at the end of September, compared with its new target of 35%.
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Expectations that Mr. Abe’s policies will succeed have already helped double Japan’s benchmark stock index since late 2012. Further gains would no doubt benefit GPIF’s ¥23.9 trillion ($202 billion) domestic stock portfolio.
Actually, no.
What has doubled Japan's stock index is the collapse in the Yen. In Dollar terms the Nikkei is down for the year. Which means the only beneficiaries are those uber-rich ten or so percent who were long the Nikkei and hedged for a collapse in the Yen. For everyone else, such as the 90% of Japanese (including record number of retirement-age population) who do not participate in the market, Abenomics has so far been an absoutely epic and undisputed debacle, as confirmed not only by the soaring inflation of most products and services coupled with collapsing real wages now down for a record 16 consecutive months, but also by a misery index that is at generational highs.
Sadly, it has gotten so bad that with the BOJ at least on paper limited as to what it can buy sizewise (because the recent expansion to its QE has already been factored in by the market), means that the GPIF is now being used as a patsy that may or may not be buying more stocks in the market, just to keep the algo frontrunners at bay:
Mr. Mitani said the fund is still in the process of carrying out the changes and has a long way to go. Just under 50% of its total portfolio was in domestic bonds at the end of September, compared with its new target of 35%.
He declined to say whether it had already bought more stocks and foreign bonds. “I leave it up to you to imagine that,” he said.
Of course he will: after all the GPIF has more than filled its legal quotes of stock purchases by now. However, what he won't leave to your imagination is what happens when this latest experiment in central planning fails:
“I have no doubt that the economy is in a recovery trend if you look at the long run,” GPIF President Takahiro Mitani said in an interview Friday.
Actually, no, it isn't, unless you call a quadruple-dip recession a "recovery".
Unfortunately, for Japan, and its tens of millions of pensioners, the only news here is simple: the entire country is now held hostage by Japan's last-gasp attempt to prove Monetarist and Keynesian policies work. Because, said otherwise, "Abenomics better work, or else all your pensions are toast."
What happens when Abenomics inevitably fails, we leave to the civil war historians of the latter part of the 21st century.