Our Next Economic Plague: Japan Disease
by ilene - March 15th, 2010 2:35 pm
Our Next Economic Plague: Japan Disease
By Andy Xie, courtesy of Clusterstock
From Caixin:
Japan’s nominal GDP fell 6 percent to 475 trillion yen last year, while its real GDP declined 5 percent. Meanwhile, nominal GDP in the United States decreased 1.3 percent to US $14.2 trillion and real GDP fell 2.4 percent.
If you travel across Japan and the United States, you get the impression that America is in much worse shape: Americans cannot stop screaming about their woes, while the Japanese face economic sufferings quietly. Maybe this is due to cultural differences. Regardless, Japan is in dire shape. Its nominal GDP is now lower than it was in 1992 when the nation’s property prices first began to decline.
Read the rest at Caixin –>
(What's this?)
(market folly, 2/25/10)
(Investment U, 2/8/10)
(The Iconoclast Investor, 3/12/10)
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Feldstein: Worry About the Dollar, Not the Euro: Keep an Eye on Sterling
by ilene - March 11th, 2010 9:03 pm
Feldstein: Worry About the Dollar, Not the Euro: Keep an Eye on Sterling
Courtesy of JESSE’S CAFÉ AMÉRICAIN
Here is Marty Feldstein’s view of the economic fundamentals in the euro and dollar portion of the forex markets.
Fundamentals mean little in the short term for trading purposes, at least in my own judgement. However, it does look as though the euro/dollar cross is a bit overdone. If that is correct, then it is likely that this correction in the precious metals should be almost done as well. But we will have to see what happens. The markets are shallow and edgy, almost wobbly. In a liquidation everything gets sold on the short term. Selling and buying on the margins makes price, no matter what size the market. Such it is with most auction markets disconnected from rational valuation.
On the fundamentals, however, Feldstein makes some good points. The problem with Europe is that it is sitting on the fence with its union, and the Greek debt crisis merely highlights their weakness which are largely structural. What is the EU likely to become.
As for the US, its day is fading, and it is in the grip of financial interests that will wring the last drop of vitality out of it given their way.
There are several roads to losing weight. One is to engage in healthy exercise and a good diet. The other way is starvation either through deprivation or disease. In both instances one ‘loses weight.’ The modern day Liquidationists favor starvation, for the other guys, not themselves. The modern day Keynesianians seem to wish to indulge in overeating with a change in diet to be left for another day.
The American economic system cries out for meaningful reform. Deficit spending without reform is futile, the road to addiction. But no government led structural repair efforts is the sure road to stagnation and a zombie-like existence such as has been seen in Japan, or even worse, a third world status and regional fragmentation.
My own bellwether is the UK. I believe quite strongly that Britain will reach its crisis before the US. And it may provide a proper warning, but all things considered, it may be too late. While there are many good signs in the financial reform regime from regulators aghast at the mindless venality that has brought the country to the brink of ruin, there is still the matter of the current political leadership, and its…
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The mindset will not change; a depressionary relapse may be coming
by ilene - March 10th, 2010 10:49 pm
The mindset will not change; a depressionary relapse may be coming
Courtesy of Edward Harrison at Credit Writedowns
When former Morgan Stanley chief Asian economist Andy Xie comments on the United States, he focuses on a bailout nation keen on perpetuating a bubble economy predicated on malinvestment and overconsumption. In this he sees parallels with Japan and its long malaise.
Japan has experienced two decades of economic stagnation since the collapse of the infamous bubble it suffered in the 1980s. The most popular explanations are that Tokyo wasn’t aggressive enough in stimulating the economy after the bubble burst, or that it withdrew its stimulus too early – or both. This line of thinking is popular among elite economists in the US, where it is rarely challenged. But few Japanese analysts buy it…
The argument to "stimulate until prosperity returns" is popular because it doesn’t hurt anyone in the short term. When a central bank prints money, its nasty consequence — inflation — takes time to show up. When a government spends borrowed money, repayment is in the future. Nobody feels the pain now. Indeed, when debt is sufficiently long-dated, nobody alive need feel the pain. So analysts who advocate stimulus are popular with politicians because it sounds like a free lunch. Japan’s tale is just a nice story that seems to support the argument…
Japan has run up the national debt equal to 200% of GDP — the greatest Keynesian stimulus program in history — all in the name of stimulating the economy back to health. It has failed miserably. Japan’s nominal GDP is about the same as when the stimulus began. Those who advocated the policy blame Japan’s failure on either the stimulus being too small or not being sustained for long enough – that is, the dosage, not the medicine itself, was at fault.
The bankruptcy of Japan Airlines is a sobering reminder of what is still wrong with Japan. It stayed with unprofitable routes for years without its creditors or shareholders being able to do anything about it. And by making credit cheap and easy, the stimulus prolonged the airline’s business model — actually, an anti-business model — for a long time. Zombie companies that have first claims to resources have trapped the Japanese economy in stagnation for decades. The lack of shareholder rights has given the moribund companies the luxury of being able to disregard capital efficiency. The government stimulus has prolonged this inept…
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Which Way Wednesday - World of Worries Weighs on Wall Street
by Phil - March 10th, 2010 7:33 am
7 W’s in the title - that has to be some kind of alliterative record!
What could we possibly be worried about with the market making new highs? Well, I’m a little concerned that Shanghai housing prices fell 10% in a week. That’s the kind of behavior that may make you think they may have a bit of a bubble that’s popping. Of course they held up well compared to Shenzhen, where prices dropped 14% in the first week of March. That was matched by a 14% decline in iron ore shipments from Australia as China’s demand fell from 11M tons in January to 8.7M tons in February. So, if you were wondering how much China’s $600Bn stimulus spending was affecting their economy - 14% is the effect of them simply slowing it down a little.
Japanese Machinery Orders fell 3.7% in January and Producer Prices fell a deflationary 1.5% in the World’s second-largest economy (for now). “The gap between supply and demand in the domestic economy has yet to shrink,” said Morita at Barclays Capital. “It’ll be very difficult for companies to pass on those costs. That’s not good for their profits.” The Baltic Dry Index is topping out just over our 3,200 target, signaling a possible end to the great commodity run of 2010. Devan Kaloo, head of Aberdeen’s Global Emerging Markets is predicting that emerging markets (we are long EDZ, now $47) may fall as much as 15% this year. “The markets will see a correction this year,” Kaloo, whose Aberdeen Emerging Markets Institutional Fund has beaten 93 percent of competitors in 2010, said in an interview in New York. “People get over-optimistic and expect too much out of earnings and global growth.”
Sure, I know I’ve been saying this for a while but it sounds so much more official when a guy in charge of $22Bn says it! China’s 4 trillion yuan ($586 billion) stimulus package, coupled with record bank lending in 2009, helped the benchmark Shanghai Composite Index rally 80 percent last year. The gauge has dropped 6.4 percent in 2010. “From a stock-picking perspective, we can find better opportunities” than China, Kaloo said. “The government pumped money into the financial system, but soon they’ll run out of money,” which will hurt the earnings of Chinese companies.
Amazingly, much of the tech growth we’re seeing in Asia is resulting from a mad rush to produce 3-D TVs in time for the holidays - something I believe may be one of the biggest marketing catastrophes of our time. At the moment,…
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Black Swans And The Collapse Of Empires Swimming In Debt
by ilene - March 5th, 2010 4:08 pm
Elaine Supkis passionately takes on Dr. Niall Ferguson. Her words in Niall’s LA Times excerpt are red. - Ilene
Black Swans And The Collapse Of Empires Swimming In Debt
Courtesy of Elaine Supkis at Culture of Life News
It is rather curious how people refuse to see obvious things. This is why so many things are ‘unexpected’ or a ’surprise’. People who do see obvious things are called ‘cynics’. Cynics are the exact opposite of banking gnomes and their ilk. Cynics disparage wealth and power in order to see reality and truth. Often, cynics go around telling people, ‘You are doomed’ which makes them party poopers. But then, often, they are right.
Cynic – Wikipedia, the free encyclopedia
The Cynics (Greek: Κυνικο?, Latin: Cynici) were an influential group of philosophers from the ancient school of Cynicism. Their philosophy was that the purpose of life was to live a life of Virtue in agreement with Nature. This meant rejecting all conventional desires for wealth, power, health, and fame, and by living a life free from all possessions. As reasoning creatures, people could gain happiness by rigorous training and by living in a way which was natural for humans. They believed that the world belonged equally to everyone, and that suffering was caused by false judgments of what was valuable and by the worthless customs and conventions which surrounded society. Many of these thoughts were later absorbed into Stoicism.
The first philosopher to outline these themes was Antisthenes, who had been a pupil of Socrates in the late 5th century BCE. He was followed by Diogenes of Sinope, who lived in a tub on the streets of Athens. He took Cynicism to its logical extremes, and came to be seen as the archetypal Cynic philosopher. He was followed by Crates of Thebes who gave away a large fortune so he could live a life of Cynic poverty in Athens. Cynicism spread with the rise of Imperial Rome in the 1st century, and Cynics could be found begging and preaching throughout the cities of the Empire. It finally disappeared in the late 5th century, although many of its ascetic and rhetorical ideas were adopted by early Christians.
The Cave of Wealth and Death is the habitation of all religions. All religions preach sharing, love and a rejection of material goods while at the exact same time, are greedy, self-centered, destructive and filled with intense hatred. This is inescapable due to the fact that all things in this Cave of Wealth and Death are exact opposites at the same time. The essence here is the totality of the contradictions.
The…
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Senator Calls For Ban On Japanese Car Imports
by ilene - March 3rd, 2010 12:43 pm
Our contributing author Mike Whitney gets support for his Toyota opinion from Clusterstock’s Joe. (See also Mike’s The War on Toyota.) - Ilene
Senator Calls For Ban On Japanese Car Imports
Courtesy of Joe Weisenthal at Clusterstock/Business Insider
As if the Japanese didn’t already suspect that our new found zealoutry about car safety wasn’t just protectionism in disguise, now it’s been made perfectly clear.
Nebraska Senator Mike Johanns (R) says the US should look into banning Japanese car imports until all the safety issues have been worked out.
Johanns, who as USA Today notes used to be the Agriculture Secretary during the beef import ban, likened such a move to restricting tainted meat from foreign countries.
But says Johanns: "I’m as free-trade as anybody here."
Yeah, sure.
(What's this?)
(market folly, 2/25/10)
(Investment U, 12/18/09)
(THE PRAGMATIC CAPITALIST, 1/6/10)
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The War on Toyota
by ilene - February 26th, 2010 12:49 pm
Let’s take a look from a different perspective, in defense of Toyota - is it all politics? Or mostly. Mike Whitney suggests a blood in the water situation. - Ilene
The War on Toyota
Courtesy of MIKE WHITNEY, writing at CounterPunch
Does anyone really believe that Toyota is being pilloried in the media for a few highway fatalities?
Nonsense. If Congress is so worried about innocent people getting killed, then why haven’t they indicted US commander Stanley McChrystal for blowing up another 27 Afghan civilians on Sunday?
But this isn’t about bloodshed and it’s certainly not "safety regulations". It’s about politics–bare-knuckle Machiavellian politics. An attack on Toyota is an attack on Japan’s leading export. It is an act of war. Here’s a excerpt from the New York Times which explains what is really going on:
"The Japanese economy has emerged from its worst recession since World War II, but is still reeling. Japan must do more to lift its economy out of deflation and boost long-term growth, S.&P. said.
“The outlook change reflects our view that the Japanese government’s diminishing economic policy flexibility may lead to a downgrade unless measures can be taken to stem fiscal and deflationary pressures,” S.&P. said. “The policies of the new Democratic Party of Japan government point to a slower pace of fiscal consolidation than we had previously expected.”
President Barack Obama is expected to address similar worries in the Untied States on Wednesday, with a call for a freeze in spending on many domestic programs, a move he hopes will quell perceptions that government spending is out of control. Fiscal problems in Greece and Ireland have also helped put the spotlight on the issue of national debt." ("Japan’s High Debt Prompts Credit Rating Warning", HIROKO TABUCHI AND BETTINA WASSENER, NY Times)
Japan’s new liberal government is fighting deflation using the traditional methodology, by lowering interest rates and increasing fiscal stimulus. But that’s not what Washington wants. Neoliberal policymakers and their buddies in the right-wing think tanks want "fiscal consolidation" which means harsh austerity measures that will deepen the recession, increase unemployment, and trigger a wave of defaults and bankruptcies. This is how western corporatists and bank tycoons keep their thumb on the developing world and thrust their economies into perennial crisis. It’s the "shock doctrine" and it’s been the IMF’s modus operandi for over 20 years. Japan is being stuffed into a fiscal straight-jacket by supporters of the Washington consensus whose goal is…
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Japan - Past the Point of No Return
by Phil - February 24th, 2010 5:16 pm
Courtesy of Vitaliy N. Katsenelson:
Japan is suffering from growing expenditures and declining tax revenues. Their population is both aging and declining with a debt to GDP ratio of 197%, second in the world only to Zimbabwe!
The government has accumulated 637 TRILLION Yen in Bond debt at the same time as household savings has been falling from 12% in the late 1990’s to less than 2% today. These are frightening statistics and it begs the question - What happens when Japan can no longer finance their debt internally? Will they begin to compete with the US and Europe for investment capital?
How will that affect global bond rates and, most importantly - how do we make money off it? Have I mentioned I like TBT lately? I also like Vitaliy, who sends me tons of good stuff so I’m making up for not posting him more often by catching up a little:
- Vitaliy also has this overview on our steroid-enhanced economy.
- Yesterday he was on CNBC with Maria mispronouncing his name - discussing our range-bound outlook.
- Here’s Yahoo giving him more time on the same subject.
- Welcome to Another Lost Decade
- Q&A on Range-Bound Market with the FT
(What's this?)
(market folly, 2/25/10)
(Investment U, 12/18/09)
(THE PRAGMATIC CAPITALIST, 1/6/10)
Investing in Japan,
ProShares UltraShort 20+ Year Treasury,
Yahoo!
at Wikinvest
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Roubini Says The Problems of Greece and the Euro Area Are a Sign of Things to Come: Sovereign Risks To Spread to U.S., U.K., and Japan
by ilene - February 15th, 2010 7:01 pm
Roubini Says The Problems of Greece and the Euro Area Are a Sign of Things to Come: Sovereign Risks To Spread to U.S., U.K., and Japan
Courtesy of Shocked Investor
In a teleconference with investors, Nouriel Roubini, professor at the University of New York, says he sees a new wave of losses. He was adamant: "The problems of Greece and the euro area are a sign of things to come." This was reported today by Brazilian newspaper O Estado de Sao Paulo.
Perhaps on a media offensive lately, Roubini adds:
"There was a socialization of the losses of the financial system and housing market, and now there are huge budget deficits and public debt almost doubled, so we see sovereign risk serious not only in Greece but also in Portugal and Spain, and spreading in the future to the United States, Britain and Japan."
The article mentions that, as we know, Roubini is not alone. Kenneth Rogoff, Harvard professor and former chief economist of the International Monetary Fund (IMF) issued a warning as well stating that Greece is just the beginning of a second wave of bankruptcies. After the financial turmoil of 2008, now it is the excessive indebtedness of the governments of advanced countries that will undermine the economy. Rogoff examined 800 years of financial crisis to write his book, This Time is Different: Eight Centuries of Financial Folly
He concludes that the pattern is repeated throughout history: after banking crises like the one in the world in 2008, after Lehman Brothers, there is always a wave of sovereign debt crises. To save the financial systems, governments enter into debt. A few years later, there is a wave of crises and sovereign debt defaults. That is, after a crisis in the financial system, there comes a crisis of sovereign debt.
Niall Ferguson, writing in the Financial Times last week, swelled the chorus of pessimists. "It started in Athens. It is spreading to Lisbon and Madrid. But it would be a grave mistake to think that the crisis of sovereign debt under way will be confined to weaker economies in the euro area. This is more than just a Mediterranean problem. This is a fiscal crisis of the Western world."
Rogoff and Carmen in January published a study, Growth…
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Another Day, Another Bail-Out
by ilene - February 9th, 2010 8:35 pm
Another Day, Another Bail-Out
With a bail-out of Greece apparently imminent and everyone drawing parallels between the PIGS countries and the Wall Street firms that nearly cratered the global economy in 2008, this might be a good time to ask why each year seems to bring a new set of financial basket cases requiring taxpayer cash.
The answer, of course, is easy money. When governments create too much credit, borrowing gets easier at the margins and the less intelligent, moral, and wise end up borrowing far more than they would normally be able to. When they inevitably implode, the world gets another chance to behave rationally by letting them go, accepting the resulting short-term pain, and learning the relevant lessons. But beginning in the 1990s with the Mexican and Russian defaults and the self-destruction of Long Term Capital Management, the strong economies have chosen to avoid the pain and bail out the losers.
This lack of adult supervision produces two results:
First, the credit created by each new bail-out finds its way into other weak hands, further impairing their balance sheets and requiring more bail-outs. Now we’ve graduated from banks to governments, and apparently a borrower as inconsequential as Greece (with foreign debt of less than $400 billion) can bring down the entire global financial system.
Second, the balance sheets of the strong countries get progressively weaker. As the U.S. took on Fannie and Freddie’s trillions, so will Germany absorb Greece’s billions. And the new wave is just getting started. Greece is the worst case, but just barely. Portugal, Spain, California and Illinois all owe more than they can ever hope to pay, and will, by the current standard of everything being too big to fail, have to be bailed out in the coming year. Their debts won’t be wiped out, but will migrate to Germany, France, or Washington. At some point those countries’ rock-solid bond ratings, already fictitious, will start to drop, making future bail-outs both harder and more necessary.
So 2010 will be the year of sovereign bail-outs at the periphery, which is bad enough. But next year, once several trillion more dollars and euros have been loaded onto large country balance sheets, the bailout profile will ratchet up to the next level, with one of the superpowers finding it impossible to roll over its debt. Japan looks like the best first-domino bet at this point, but…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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