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Optobear

Economic Impact Starting Tomorrow

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I know there are separate threads on all these (although some have degenerated into WW2 history), seems useful to try to pick out the likely economic impacts. I know it seems rather callous to look at the economic impact of a major humanitarian disaster, but things are going to be different.

The key question is what happens now economically ? My thoughts...

1) Japanese government now have to spend vast amounts of money on recovery

2) Expenditure acts to jump start Japanese economy,

3) Extra expenditure has major benefits elsewhere (esp. German engineering companies)

4) Lots of Yen gets repatriated as Japanese savers have to spend to recover -

5) Yen carry trade unwinds so much less money available in West for mortgages.

6) Increased distrust of nuclear driving demand for coal and oil

7) Major pick-up in demand for steel and other building staples

8) Oil prices further icnrease from middle-east unrest.

9) Some insurance companies in major trouble (particularly marine)

10) Shortages of some key components that are made in Japan - bits of specialist electronics, etc.

11) China, Taiwan and Korea get major boost as Japanese competition reduces in sectors where Japanese capacity damaged.

12) Yen falls, Euro rises, dollar rises, sterling rises (oil currency effect)

13) Saudi unrest appears to being contained, not clear how sustainable though.

14) Other middle eastern countries see unrest and that reduces oil output

15) BRICS countries do well out of increased demand for raw materials and oil.

16) Shipping volumes pick-up considerably.

17) Automotive in Japan picks-up, but also Japanese exports drop

Looking at that overall, it seems that this will see rises in most stock-markets, will see increases in fuel prices, from a UK perspective, sterling will appreciate (helping to reduce inflation), funding available for mortgages will drop further. Key question is around interest rates, and I think UK rates are actually just a mirror of US and European rates, and so the carry of funds back to Japan will mean that Europe and and US will mean they will need to raise their rates, and we'll follow suit.

Okay, lots of thoughts and speculation there, what do you all think?

Optobear

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I know there are separate threads on all these (although some have degenerated into WW2 history), seems useful to try to pick out the likely economic impacts. I know it seems rather callous to look at the economic impact of a major humanitarian disaster, but things are going to be different.

The key question is what happens now economically ? My thoughts...

1) Japanese government now have to spend vast amounts of money on recovery

2) Expenditure acts to jump start Japanese economy,

3) Extra expenditure has major benefits elsewhere (esp. German engineering companies)

4) Lots of Yen gets repatriated as Japanese savers have to spend to recover -

5) Yen carry trade unwinds so much less money available in West for mortgages.

6) Increased distrust of nuclear driving demand for coal and oil

7) Major pick-up in demand for steel and other building staples

8) Oil prices further icnrease from middle-east unrest.

9) Some insurance companies in major trouble (particularly marine)

10) Shortages of some key components that are made in Japan - bits of specialist electronics, etc.

11) China, Taiwan and Korea get major boost as Japanese competition reduces in sectors where Japanese capacity damaged.

12) Yen falls, Euro rises, dollar rises, sterling rises (oil currency effect)

13) Saudi unrest appears to being contained, not clear how sustainable though.

14) Other middle eastern countries see unrest and that reduces oil output

15) BRICS countries do well out of increased demand for raw materials and oil.

16) Shipping volumes pick-up considerably.

17) Automotive in Japan picks-up, but also Japanese exports drop

Looking at that overall, it seems that this will see rises in most stock-markets, will see increases in fuel prices, from a UK perspective, sterling will appreciate (helping to reduce inflation), funding available for mortgages will drop further. Key question is around interest rates, and I think UK rates are actually just a mirror of US and European rates, and so the carry of funds back to Japan will mean that Europe and and US will mean they will need to raise their rates, and we'll follow suit.

Okay, lots of thoughts and speculation there, what do you all think?

Optobear

A lot of uncertainty in many areas.

Markets don't like uncertainty.

I expect a huge sell-off tomorrow.

Beyond that - ????

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A lot of uncertainty in many areas.

Markets don't like uncertainty.

I expect a huge sell-off tomorrow.

Beyond that - ????

Ask anyone who has called a black day for the markets, where they rally when you you would think they should plunge. They are using the markets to improve public sentiment rather than allowing them to trade on actual market sentiment. They are essentially using the markets as an economic tool given ZIRP was never going to work on it's own, It is to combat the pushing string problem.

Having said that they will allow a sell off going forward because it will bring commodities and food price inflation down justifying ZIP going forward. While central bank have control we will have period of inflation followed by deliberate periods of deflation until the imbalances are worked out over decades. If they lose control that is when we will get our extreme inflationary events.

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Added to which, the economic impact of a serious nuclear disaster that spreads radioactive crud all over northern Japan, the Korean peninsula, eastern Russia and China (in a worst case scenario, could Beijing and Shanghai be affected?) would be interesting to speculate on, to put it mildly. The exclusion zone around Chernobyl was bad enough, but because Russia is vast and sparsely populated it was possible to evacuate and resettle people. But if a significant proportion of the landmass of one of the most densely populated islands on the planet is rendered uninhabitable...

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I don't know, I thought the Yen would go down on Friday but it went up 1.3%.

Looking back to the Great Kanto Earthquake my guess is that Japan will see a boom followed by a crash.(as happened then)

http://en.wikipedia.org/wiki/1923_Great_Kant%C5%8D_earthquake

I can't see any positives for the UK in this.

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Yes I was trying to think through the implications for interest rates - not just in Japan. If repatriation occurs, you would think that rates would rise in the West but it could trigger earlier adoption of qe3 instead to maintain demand for Treasuries.

After Kobe, the Japanese increased liquidity, pressed down on rates and stimulated spending. The interesting thing here is the much larger fiscal debt. It is more likely that that they will have to offset re-building against expenditure and/or taxes elsewhere. They could resort to qe too.

But I think the most interestig potential consequence is the end of the 'bridges to nowhere' type of spending. Where things were done just for the sake of it despite the fact they would never make sense or a return. Now there exist many worthwhile projects and that if there is a shortage of finance, they would still make sense if an interest yield were due.

The repatriation could be huge. Presumably a lot of Japanese insurance companies have investments in the West.

There seem to be two interest rates at the moment for government - the first is the coupon yield on recent bonds (is that the right term? I mean the rate quoted per annum for the gilt issue to get it away successfully - around 4%), and the base rate (the rate that allows the government to pass money to the banks without the sheeple realising =0.5%). The real rate that the UK needs to pay is already at 4%, so if money starts to leave the UK the government will find itself paying 5% or more, and that will become the real interest rate on mortgages too.

You make a good point about the bridge to nowhere, the Japanese government have been trying to reinflate for a decade or more, but with no impact, this event will allow them to borrow to spend on reconstruction, and that will mean a fully employed Japanese work force for 5 years or more...

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I think not much will happen.

Compared to the havoc wrecked by Brown,Bush, Obama, Greenspan, Bernanke, Paulson, this is a mere tremor.

OTOH Bernanke will undoubtably use it as concrete proof more QE is needed. Why this is so, no one will ask.

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We might see traders sitting on big positions lose their shirts on Monday.

Remember: Nick Leeson, Barings Bank Failure, Kobe Earthquake.

JP_KBRCT0311_SB.jpg

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We may or may not have a panic on Monday and the beginning of the week.

There was some pretty dire economic news out of the US last week prior to the tragedy in Japan. As a result many commentators - there was a good article on zerohedge amongst others - were stating that this was basically a green card for Bernanke to go ahead with QE3.

I am now assuming that QE3 is a given and that the markets will move up substantially in the coming months before the end of QE2 and any official annoucement of QE3.

I still am worried about a sudden 10% drop in the global markets - perhaps the Japanese tragedy will be the excuse to have this 10% correction - as my area, tech stocks, look vastly over-priced.

But with the coming of QE3 the current giddy height of tech stocks might look nothing in a few months time to where they are then.

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I know there are separate threads on all these (although some have degenerated into WW2 history), seems useful to try to pick out the likely economic impacts. I know it seems rather callous to look at the economic impact of a major humanitarian disaster, but things are going to be different.

The key question is what happens now economically ? My thoughts...

1) Japanese government now have to spend vast amounts of money on recovery

2) Expenditure acts to jump start Japanese economy,

3) Extra expenditure has major benefits elsewhere (esp. German engineering companies)

4) Lots of Yen gets repatriated as Japanese savers have to spend to recover -

5) Yen carry trade unwinds so much less money available in West for mortgages.

6) Increased distrust of nuclear driving demand for coal and oil

7) Major pick-up in demand for steel and other building staples

8) Oil prices further icnrease from middle-east unrest.

9) Some insurance companies in major trouble (particularly marine)

10) Shortages of some key components that are made in Japan - bits of specialist electronics, etc.

11) China, Taiwan and Korea get major boost as Japanese competition reduces in sectors where Japanese capacity damaged.

12) Yen falls, Euro rises, dollar rises, sterling rises (oil currency effect)

13) Saudi unrest appears to being contained, not clear how sustainable though.

14) Other middle eastern countries see unrest and that reduces oil output

15) BRICS countries do well out of increased demand for raw materials and oil.

16) Shipping volumes pick-up considerably.

17) Automotive in Japan picks-up, but also Japanese exports drop

Looking at that overall, it seems that this will see rises in most stock-markets, will see increases in fuel prices, from a UK perspective, sterling will appreciate (helping to reduce inflation), funding available for mortgages will drop further. Key question is around interest rates, and I think UK rates are actually just a mirror of US and European rates, and so the carry of funds back to Japan will mean that Europe and and US will mean they will need to raise their rates, and we'll follow suit.

Okay, lots of thoughts and speculation there, what do you all think?

Optobear

Higher food prices - the Japanese have lost a lot of farmland and have a lot of internal refugees and will be looking to buy large quantities of food.

Higher commodity prices - they will be looking to rebuild infrastructure.

There could be a drop in prices of certain assets as Japanese insurance companies look to liquidate them to pay obligations.

Will the Japanese govt sell its US Treasuries to fund reconstruction? If so, could be a drop in the dollar.

Maybe a backlash of market opinion against nuclear power leading to a sell off of nuclear stocks.

Could be an ideal excuse to introduce more QE since the authorities can sell it as 'providing adequate liquidity in this time of global crisis'.

No doubt the central banks and the big boys on Wall Street will be coordinating carefully to maximise the banksters profits from all of this.

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Pre the Japanese disaster I was convinced the risk curve was against anyone who invested in shares/commodities at the current time - meaning that I believed that there was a much greater risk of them falling considerably than rising.

This changes my view on this.

If you believe in the Plunge Protection Team in the US Fed/Morgan's Giant Squid rigging the markets then it would make sense for them to collapse the markets this week - they have sucked in tens of billions of retail investors in the past 3 months.

Organise a 10% drop in markets now, have lots of pretend panic in the media and then a few days later Bernanke steps foward and announces QE3 due to the threat to the global recovery caused by the Japanese quake... or some similar words that he manages to say with a straight face...

After which, the markets will soar... but so will commodities... and that will bring inflation... but they will just ignore that as only 'the little people' - i.e. billions of us - will be hurt by it.

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The loss of a large number of reactors (six have lost cooling) is going to have a serious effect on Japan's output. Rolling 3-6 hour power cuts will hammer manufacturing nationwide. The Japs will be very adverse to keep open the remaining reactors and this could possibly push the economy over the edge, they are only just keeping their heads above water repaying their existing debt.

Oil prices will spike due to the increased demand and that will put even more pressure on Japan.

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The loss of a large number of reactors (six have lost cooling) is going to have a serious effect on Japan's output. Rolling 3-6 hour power cuts will hammer manufacturing nationwide. The Japs will be very adverse to keep open the remaining reactors and this could possibly push the economy over the edge, they are only just keeping their heads above water repaying their existing debt.

Oil prices will spike due to the increased demand and that will put even more pressure on Japan.

Economist type on the BBC just now saying that Japan will need to increase supply of liquid gas which will push it up.

We are coming out of the major gas demand period now but this is going to be a long-term thing so next winter expect to see big increases in gas prices - if not before.

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Very difficult to predict the immediate reaction. Longer term it rather depends on how much faith you put in the broken window parable beloved of the Austrian economists (ie will the productive boost generated by the repairs to Japan outweigh the lost wealth due to the tsunami smashing up Japan as nature's naughty boy). I have always been a bit sceptical of this tale particularly as our economy based on built in obsolesence requires the windows to be broken on a regular basis. It really depends on how much gets rebuilt in Japan and if that process actually boosts the wealth creating capability of the world economy. What is definitely not going to help is there is already a global economic and monetary crisis caused by excessive debt and a dysfunctional financial system. Add in the structural problems with the pressure on natural resources and the ageing populations in Japan and elsewhere in the developed world and things start to look a bit grim. The earthquake may give the central banks an excuse for a bit more bubble blowing but all the evidence from the dot com bust through 2008 until today is that each stimulus package requires more money pumping and the boost lasts for a shorter and shorter time before the wheels start to come off.

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Very difficult to predict the immediate reaction. Longer term it rather depends on how much faith you put in the broken window parable beloved of the Austrian economists (ie will the productive boost generated by the repairs to Japan outweigh the lost wealth due to the tsunami smashing up Japan as nature's naughty boy). I have always been a bit sceptical of this tale particularly as our economy based on built in obsolesence requires the windows to be broken on a regular basis. It really depends on how much gets rebuilt in Japan and if that process actually boosts the wealth creating capability of the world economy. What is definitely not going to help is there is already a global economic and monetary crisis caused by excessive debt and a dysfunctional financial system. Add in the structural problems with the pressure on natural resources and the ageing populations in Japan and elsewhere in the developed world and things start to look a bit grim. The earthquake may give the central banks an excuse for a bit more bubble blowing but all the evidence from the dot com bust through 2008 until today is that each stimulus package requires more money pumping and the boost lasts for a shorter and shorter time before the wheels start to come off.

Austrians DO NOT subscribe to the broken window theory.

Destruction is loss.

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For a start I reckon there is zero possibility of nuclear meltdown, some of the media want ratings more than anything else and so it keeps being brought up.

Yeah - its a slow news day.

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I just got up so have no idea what their reporting now (if they've changed their tune), just what I've been thinking over the last couple of days.

Don't know where you've been but there has been a partial meltdown the other day.

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Don't know where you've been but there has been a partial meltdown the other day.

I don't believe there has yet, Just hydrogen and oxygen combining in an explosion, I believe they are now using sea water to cool the reactors as they are 40 years old and were due to be shut down (the sea water causes corosion).

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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