Japan goes all-in on Keynesianism
Also: insider activity at PetroBakken, and another positive update for Bankers Petroleum
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at email@example.com
by Max Fawcett
For years, Japan has been a cautionary tale when it came to macroeconomic policy and the proper interventions of a central bank. Excess reserves of caution and restraint turned the country’s cyclical recession into a secular decline, and the country became stuck in a decade-long liquidity trap. But now, with an aggressive new governor of the Bank of Japan in place in the form of Haruhiko Kuroda and an equally bold Prime Minister (who was dumped from office but returned late last year) in Shinzo Abe, the country has embarked on a decidedly brave attempt to shock the Japanese economy back into coherence.
As Washington Post economics editor Neil Irwin points out in a story today, it’s an effort well worth watching here in North America. “There are a series of open questions that have haunted those who argue for a more aggressive Keynesian prescription of easy money and fiscal stimulus in the United States and Europe,” he writes. “I’ll limit it to the two most important: Can a central bank always create higher inflation in a depressed economy, or will lots of money-printing just affect asset prices and the international value of the currency without affecting the real economy? And can public debt levels reach a ‘tipping point’ in a large country that has its own central bank and considerable domestic demand for its bonds, which would in turn make fiscal stimulus risky when there is already high debt relative to GDP?”
So far, at least, the Japanese experiment – one that is underscored by Prime Minister Abe’s declaration that he’s willing to do “whatever it takes” to get inflation up to two per cent (it has averaged -0.3 per cent since 2000) – appears to be working. The country’s stock market is on a remarkable run, its currency is dropping precisely as planned and it appears that inflation is, indeed, inching upward. It’s not a strategy without its potential downside, Irwin says. “On one hand, the efforts to return inflation could be too successful, increasing borrowing costs for the Japanese government and, in the process, making its huge debt of twice GDP exceptionally hard to maintain. On the other hand, the Bank of Japan’s easing could again prove to be not up to the task.”
But, he says, if it does work, it could provide a model that Keynesians in other stagnating western economies could point to as proof that it’s time to give their ideas a try – and not a half-arsed one, either. And it has some high-profile fans rooting for it, including Nobel Laureate and Columbia University economics professor Joe Stiglitz .
Closer to home, Ted Dixon, the CEO of INK Research (which covers insider activity at publicly traded companies) noted some unusually bullish activity at PetroBakken (TSE:PBN). “In March, CEO John David Wright bought 20,616 shares between $9.33 and $9.54,” Dixon writes in today’s Globe and Mail. “Then on April 2, another officer bought 10,000 shares at $8.70.”
And FirstEnergy’s Darren Engels pounded the table – once again – on behalf of Bankers Petroleum (TSE:BNK). The company, he said in a recent update, had its credit facility increased and extended, with no payments required until May of 2017. That extension and increase eliminated a January 2014 debt repayment of US$60 million, which was, he says, a “significant overhang on the stock.”
Its production also increased in 1Q13 to 16,916 bb/d, a five per cent increase of 4Q12 production and the 11th consecutive positive monthly operational update. “Bankers is trading at unbelievably inexpensive valuation metrics, including an enterprise value of $3.12/bbl on 2P reserves,” he writes. “Given that Bankers is trading at such tremendous value, we are increasing our ranking to Top Pick (previously Outperform).”