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Is Japan the Black Swan?

Discussion in 'International Markets' started by Uncle Festivus, Jun 4, 2013.

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  1. Uncle Festivus

    Uncle Festivus

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    For all the problems with the rest of the world, will Japan be the Black Swan event that tips the world into recession again?

    John Mauldins' Thoughts From The Frontline article

    http://www.mauldineconomics.com/images/uploads/pdf/20130601_TFTF.pdf

    Getting close to a 20% correction in the Nikkei and interest rates are rising.....Abenomics out of control.

    It costs the Japanese government 24% of its revenues just to pay the interest on its debt at current rates. According to my friend Grant Williams (author of Things That Make You Go Hmmm...), if rates rise to just 2.2%, then it will take 80% of revenues to pay the interest.
     
  2. RamonR

    RamonR

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    Thanks for the link. Have subscribed as looks like good newsletter
     
  3. Knobby22

    Knobby22 Mmmmmm 2nd breakfast

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    I can't see Japan being the black swan. First we are aware of it, secondly they have had industrial problems due to power shortages which they are getting in control of now. I am confident that over the next two years, things will improve for Japan.

    We are in a precarious situation where a black swan event could tip us over, but by definition, we don't know what or where it will come from.
     
  4. Uncle Festivus

    Uncle Festivus

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    We are aware that they have 'problems' but the Black Swan event is categorised as

    "unexpected events of large magnitude and consequence" & "extreme outliers"

    The mainstream do not envisage Japan to declare bankruptcy but when it does will it be unexpected? Just wondering if this is the BSE that will finally end the central bankers QE experiment as each is forced to QE more?
     
  5. Trembling Hand

    Trembling Hand Can be found on the bid

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    Why would they go broke? They owe the money to domestic funds in Yen? :confused:
     
  6. McLovin

    McLovin

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    Interest rates go up, taxes go up. If they want to make the debt disappear then a shiny new death tax would help fix that; "But all my deceased relative's wealth was invested in JGBs?" "That's OK you can pay your death duties with them".:D
     
  7. Knobby22

    Knobby22 Mmmmmm 2nd breakfast

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    I agree with McLovin.

    Also the currency war argument shows cultural bias. The US is subjecting Japan to currency printing forcing up the Yen. Japan reduces it (by printing) and suddenly its a currency war?
    He also argues at cross purposes saying deflation is bad (which it isn't to the ordinary person) and the people in Japan won't stoke it yet suddenly we will get runaway inflation.
    If interest rates are forced to go up a bit as he is saying, its not a disaster, its just fact. And that would help the retired citizens to spend more as they would get more cash.

    He argues exports are down and so the country is stuffed but lowering the Yen will raise exports and combined with getting the power stations back on line (the tsunami has caused the short term downturn) the economy can be expected to improve.

    Nope can't see it.
     
  8. skc

    skc Goldmember

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    When the economy is in deflation mode, businesses stop making investments and reduce their activities. As the prices they get would continue to decline. This means massive job losses which will lead to a downward spiral.

    The ordinary person may enjoy cheaper goods and services, he/she would have no job and no income to pay for them.
     
  9. Trembling Hand

    Trembling Hand Can be found on the bid

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    The problem I see is that they have it ar$e about. It seems like this is their logic,

    Economic growth comes with inflation.

    Therefore,

    If we create inflation we get Economic growth. :cautious:

    That does seem like a dangerous game.
     
  10. CanOz

    CanOz Home runs feel good, but base hits pay bills!

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    You know its really amazing that all the members here keep trying to pick the worst economy amongst the biggest players...because if you think about it, they're all bad:eek:, everyone of them. Its like that saying though, "the best horse at the glue factory"...i.e. the US.

    The other thing about all of this is that it has been engineered this way. That makes me think that they (the central banks and the Fed) want it this way:cautious:.

    So there must be some logic there somewhere...perhaps having a great debt free economy is not possible due to globalization and therefore to stop your currency appreciating beyond a practicality, you take on more debt to make your balance sheet look less attractive and be less susceptible to a major default by avoiding holding another major countries debt...

    I don't know, but i find it hard to believe all this mess was not made on purpose...maybe i haven't articulated this very well, but perhaps someone else might get what I'm saying?

    It just seems so strange that there is not one good economy amongst the major develop countries of the world, and its all getting worse!

    So its fine to be a bear though the biggest bull market in this century, because all the fundamentals are crap, but the reality is somebody is making money as certain asset classes appreciate....While the bears stand by and say "this won't last long" and "I told you so"...

    Y'all can either play along or age slowly and be spectators while you dig a hole and fill it with canned food. To me its a better time to be a technical trader than a fundamental investor and certainly not a good time to be an armchair economist / macro investor with a truck load of gold.

    CanOz
     
  11. waza1960

    waza1960

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    Careful Can don't stir the Gold bugs up you know they're sensitive:rolleyes:
     
  12. CanOz

    CanOz Home runs feel good, but base hits pay bills!

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    Yeah, i know...i let that one slip...
     
  13. FlyingFox

    FlyingFox

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    Isn't that the game all governments and central banks have been playing for a long time? GDP growth (not adjusted) = inflation plus productivity growth plus population . Since productivity and population growth are going down hill, inflation it is.

    NGDPT and NGDPLT are just other ways of saying the same thing, in cases where there isn't demand growth i.e in deflationary scenarios, the except that you can actually justify higher inflation than the current 2-3 % targets.
     
  14. white_goodman

    white_goodman BOC

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    Abenomics is trying to RAISE interest rates NOMINALLY, but look at REAL rates... higher long term bond yields indicate inflation expectations and growth expectations, this is the aim..

    US long term bond yields went UP (ie bond prices down) with QE

    japan-reborn_1.png

    thats the whole point... interest rates arent a stance of policy.. no-one thinks a country/Cbank with high inflation and high nominal rates are running tight policy..

    after 2 decades of delfation at the door, the inflationary policy is a blessing, if you're really worried about runaway inflation in Japan you're an idiot.. Macro is great for counterfactuals.. Many people note the Yen weakening as great for Jap exports, yes this is true, but the ratio of imports/exports has shown that the Japanese consumer is benefiting most with better growth/wage prospects, outweighing the loss in PP from the exchange rate. There is no inflationary concerns in Japan, Abenomics is not going to turn into a black swan.. the money print = inflation = crisis meme is played out and wrong and is the refuge of tin hats everywhere
     
  15. Trembling Hand

    Trembling Hand Can be found on the bid

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    Yeah i agree, After all I would love some inflation in Japan. Would be great for my little pad I have there but Japan's problems are more than what Abenomics is targeting.
     
  16. white_goodman

    white_goodman BOC

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    this is true, structural and demographic:

    http://marketmonetarist.com/tag/abenomics/

    MP lifting wage and growth expectations cant hurt
     
  17. Uncle Festivus

    Uncle Festivus

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    No inflationary concerns??

    Japan increased wheat prices to flour millers by almost 10 percent, raising costs for companies including Nisshin Seifun Group Inc. (2002) and Nippon Flour Mills Co. (2001) as a weaker yen made grain imports more expensive.

    On Wednesday, Nisshin Foods, a unit of Nisshin Seifun Group Inc., also said it will raise the prices of 10 home-use pasta sauce items by 9 to 11 percent, starting with July 1 shipments, due to rises in imported meat and tomato paste prices following the sudden weakening of the yen.

    Food makers are feeling the effects of the economic policies of Prime Minister Shinzo Abe, though not in a good way, as the weaker yen drives up prices of wheat, cooking oil and other imported raw materials.

    This side effect of Abenomics has been especially troublesome for the food industry.


    Like TH said, they've got it *rse up & back to front - making things more expensive is a good thing????
     
  18. white_goodman

    white_goodman BOC

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    disaster imminent!

    abenomics-must-not-work.png

    the ratio of imports relative to exports has RISEN! thus the better growth/output expectations from the policy has more then offset the decline in Yen..

    if u want to make individual baskets of goods u can come up with any CPI you want.. look at the headline number and tell me we are in trouble with inflation. Am i to infer that the deflationary period was the economic optimal in your estimation?

    the high interest rate argument = high govt debt burden is also bunk, look at REAL rates
     
  19. white_goodman

    white_goodman BOC

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    how goes that nightmare debt burden under deflation policy? what happen to velocity of money in MV=PY under a deflationary environment? what happens to velocity when inflationary and growth expectations come back? what does this indicate for their domestic economy? how effective was the unending fiscal stimulus policy in reigniting the economy?

    these are all things you have to think about, their is no nirvana, but a policy of more of the same seems a little odd considering how successful Abenomics has been to date, regardless of money illusion
     
  20. Uncle Festivus

    Uncle Festivus

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    That's not showing up in the numbers then?

    Japan_Balance.gif

    Japan trade deficit widened in April to 880 billion yen as the boost to exporters from a weaker yen was overshadowed by rising imports prices.
     
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