Japan Headed Into Recession -- Carry Trade Cancelled

[Belfast Boy]

which are the 3 of top 5 economies going into recession? US, Japan + ???

... silly question ... the 3rd top economy is obviously the Republic of Ireland

I'll get me coat.

[AvidFan]

oh, OK

glad thats cleared up then

I finally get your avatar d23. Been affected by it much?

[Realistbear]

Yes I agree with mosty of what you have said. Apart from the fact that I am a bear. A realistic bear. Not a desperate bear.

The fact is that banks are still lending vast amounts of money to people, and fixed rate mortgages are coming down.

Until money gets more expensive prices will stagnate, not crash.

If you believe in the "Lereahean proposition" I would say you are a very strong bull.

The cost of housing is what counts now. Pure unaffordability. Even at 4% fixed most people cannot afford the average priced homewwithout going subprime or some other form of "creative" financing (IO, SI, 10X income etc.). The question is whether such creativity in financing is going to be around for much longer. As you say the banks are still lending vast amojnts indiscriminately to anyone who can put signature to paper and the banks still have access to unlimted subprime funding which will continue as long as the banks are blind to risk. This is the very essense of a miracle market--unlimited HPI fuelled by unlimited credit.

The repossession data points to a great deal of stress building in the market. RICS and the CML have commented on this recently and their prognosis is nowhere near as bullish as a "soft landing" (the Lereahean Proposition).

[Guest wrongmove]

If (if) China are about to see their first Q of slowing growth and that is followed by another quarter that is technically a "recession."

No it isn't!! China is growing at over 10%.

RB, repeat after me: "Falling inflation DOES NOT mean falling prices"

A recession is two Qs of negative growth, i.e. shrinkage.

Two Qs of reducing growth is not a recession, especially when that growth is still double-digit.

For goodness sake, it doesn't get much more basic than this!

[ae589]

If you believe in the "Lereahean proposition" I would say you are a very strong bull.

But you'd say someone was a property bull if they thought the new range of VauDe tents were good value.

[Realistbear]

No it isn't!! China is growing at over 10%.

RB, repeat after me: "Falling inflation DOES NOT mean falling prices"

A recession is two Qs of negative growth, i.e. shrinkage.

Two Qs of reducing growth is not a recession, especially when that growth is still double-digit.

For goodness sake, it doesn't get much more basic than this!

yes, right, 2 q's of negative-not slowing, growth. All that is evident from today's perspective is a trend pointing toward negative "growth." Because it hasn't occured yet is not evidence that it will not occur.

[Methinkshe]

Hey, RB, you seem to have a longer and broader view than most, a view with which I concur, btw. What happens in China when the $ goes into freefall (which isn't exactly unlikely) and the Chinese are left holding great chunks of the US's debt?

[Guest d23]

yes, right, 2 q's of negative-not slowing, growth. All that is evident from today's perspective is a trend pointing toward negative "growth." Because it hasn't occured yet is not evidence that it will not occur.

you seem to suffer from a severe case of premature proclamation RB (no shame in that tho, it happens to a lot of men as they get older )

china's GDP last year grew 10.7%

first 6 months of this year it recorded 11.5% growth YoY

doesn't seem that recessionary to me

[Guest wrongmove]

Hey, RB, you seem to have a longer and broader view than most, a view with which I concur, btw. What happens in China when the $ goes into freefall (which isn't exactly unlikely) and the Chinese are left holding great chunks of the US's debt?

This should be interesting - Methinkshe, RB is actually a dollar bull - I wait with baited breath......

[Guest wrongmove]

you seem to suffer from a severe case of premature proclamation RB (no shame in that tho, it happens to a lot of men as they get older )

china's GDP last year grew 10.7%

first 6 months of this year it recorded 11.5% growth YoY

doesn't seem that recessionary to me

Well, it explains a lot. If RB can call a recession when growth is at 10%, he can probably call a crash when HPI is, well, about 10%..........

[Methinkshe]

This should be interesting - Methinkshe, RB is actually a dollar bull - I wait with baited breath......

Oops! That was careless of me! I plead newbie status. Never mind, perhaps he'll explain why he's a dollar bull.

[Realistbear]

Hey, RB, you seem to have a longer and broader view than most, a view with which I concur, btw. What happens in China when the $ goes into freefall (which isn't exactly unlikely) and the Chinese are left holding great chunks of the US's debt?

The $ is already down 30-40% against the Euro and the pound. It is still the world's largest economy with a HPI problem far less serious than we have in the UK (also Ireland and Spain). Our indebtedness is vastly higher than the US with an external debt of 10 trillion compared a much smaller per capita 11.8 trillion owed by the US (World Bank Data). Our private debt level is also considerably higher per capita and the debt ratio has recently been quoted as somewhere around 1.69 compared with the US at 1.43. Our debts are higher because we owe more on our houses where the average price is about double that of the US where earnings are higher after taxes.

Bottom line: IF the $ is in trouble the pound and Euro are in bigger trouble. I can see the cycle coming around again with the US going into recession first but coming out stronger than the Eurozone (Germany excluded). The almighty "Purpleback"-the Yen--is more of less down by the same amount as the $ in relation to the pound and the Euro. Ditto for the Yuan. Thus it could be argued that whereas the big three (Yen, $ and Yuan) are fair value in relation to each other, the European currencies appear to be highly overvalued. The carry trade is keeping the pound high but this will only last as long as HPI continues as a crashing housing market will precipitate a severe recession and devaluation of sterling. On that score we don't have long to go before the world wakes up and sees that the UK is following Ireland, Spain, France, US, Latvia etc etc. down. Our miracle is based on debt--nothing more.

The Chinese are a vasssal state economically. They cannot survive without the UK and US buying their tat. The Japs won't buy it and the Indians are making their own. I am sure we have all noticed that it is not just the US who buy a lot of Chinese tat? The Chinese must therefore keep their currency in line or they go under. The debt they hold is payment for their tat--if it is not worth much it is because it reflects the value placed on Chinese goods. They are being exploited as much now as they were in the 19th Century but they think otherwise as all they can see are the big houses, Bentleys etc. But it will be fleeting. The "mandate of heaven" will shift and another Mao or such like will rise again and on it goes....

Bottom line: the same old bankers still hold the cards. While Tiger economies come and go they will always be there. And no, I am not into Illuminati stuff, I just see the financial institutions of the Western Wolrd holding the power to manipulate and control what happens in the economies of the world. A valueless dollar and an almighty Kopec may be a neolib's dream but it isn't going to happen. As old Don Carlo Gambino said "It's just business, don't take it personal or nuttin."

Bottom line: China will have its place in the sun for a few years and when the world tires of its tat it will slip back behind its walls and carry on as it has for thousands of years, minding its own business and restricting barbarians from its gates. In the meantime, the western "moneychangers" will continue with business as usual and manipulating the rest.

Edited September 4, 2007 by Realistbear

[Realistbear]

Well, it explains a lot. If RB can call a recession when growth is at 10%, he can probably call a crash when HPI is, well, about 10%..........

d23 and Wrongmove back together again at last!

The last of the diehard bulls.

Just let go and let it happen, it will be better for all of us when the miracle is over, you know its makes sense.

[Methinkshe]

The $ is already down 30-40% against the Euro and the pound. It is still the world's largest economy with a HPI problem far less serious than we have in the UK (also Ireland and Spain). Our indebtedness is vastly higher than the US with an external debt of 10 trillion compared a much smaller per capita 11.8 trillion owed by the US (World Bank Data). Our private debt level is also considerably higher per capita and the debt ratio has recently been quoted as somewhere around 1.69 compared with the US at 1.43. Our debts are higher because we owe more on our houses where the average price is about double that of the US where earnings are higher after taxes.

Bottom line: IF the $ is in trouble the pound and Euro are in bigger trouble. I can see the cycle coming around again with the US going into recession first but coming out stronger than the Eurozone (Germany excluded). The almighty "Purpleback"-the Yen--is more of less down by the same amount as the $ in relation to the pound and the Euro. Ditto for the Yuan. Thus it could be argued that whereas the big three (Yen, $ and Yuan) are fair value in relation to each other, the European currencies appear to be highly overvalued. The carry trade is keeping the pound high but this will only last as long as HPI continues as a crashing housing market will precipitate a severe recession and devaluation of sterling. On that score we don't have long to go before the world wakes up and sees that the UK is following Ireland, Spain, France, US, Latvia etc etc. down. Our miracle is based on debt--nothing more.

The Chinese are a vasssal state economically. They cannot survive without the UK and US buying their tat. The Japs won't buy it and the Indians are making their own. I am sure we have all noticed that it is not just the US who buy a lot of Chinese tat? The Chinese must therefore keep their currency in line or they go under. The debt they hold is payment for their tat--if it is not worth much it is because it reflects the value placed on Chinese goods. They are being exploited as much now as they were in the 19th Century but they think otherwise as all they can see are the big houses, Bentleys etc. But it will be fleeting. The "mandate of heaven" will shift and another Mao or such like will rise again and on it goes....

Bottom line: the same old bankers still hold the cards. While Tiger economies come and go they will always be there. And no, I am not into Illuminati stuff, I just see the financial institutions of the Western Wolrd holding the power to manipulate and control what happens in the economies of the world. A valueless dollar and an almighty Kopec may be a neolib's dream but it isn't going to happen. As old Don Carlo Gambino said "It's just business, don't take it personal or nuttin."

Bottom line: China will have its place in the sun for a few years and when the world tires of its tat it will slip back behind its walls and carry on as it has for thousands of years, minding its own business and restricting barbarians from its gates. In the meantime, the western "moneychangers" will continue with business as usual and manipulating the rest.

I'm not convinced that the US$ doesn't have a lot further to fall, although I agree with you that it will take all the major currencies with it (see my post here - #600.)

Could China end up holding a substantial quantity of US$ denominated debt worth little more than 15 cents on the $? And if so, where does that leave China? That's what I am trying to reason through. The only tentative conclusion that I have been able to arrive at is that it will take a global resolution to return to a gold standard to reliquify a bankrupt world.

[Realistbear]

I'm not convinced that the US$ doesn't have a lot further to fall, although I agree with you that it will take all the major currencies with it (see my post here - #600.)

Could China end up holding a substantial quantity of US$ denominated debt worth little more than 15 cents on the $? And if so, where does that leave China? That's what I am trying to reason through. The only tentative conclusion that I have been able to arrive at is that it will take a global resolution to return to a gold standard to reliquify a bankrupt world.

The thing I do not understand about the "gold standard" is how it can work in a world vaslty different to the 1960's and before. If your currency is based on the amount of gold you hold then the amount of money in circulation would not be enough to pay for all those houses and imported tat. Hang on......................

How much known gold bullion exists in the world?

Wiki says:

At the end of 2001, it was estimated that all the gold ever mined totaled 145,000 tonnes [18], which would form a cube with 19.58 meter edges. Global gold mine production is between 2,500 to 3,000 tonnes per year, which would mean that about 155,000 tonnes of gold would have been mined as of 2006, with a

total value of $3.2 trillion at June 2006 prices

.

$3.2 trillion or even 6.4 trillion is hardly enough to cover all of the money in the world if everyone did try to back their "fiat" paper with a "fiat" metal. Returning to the gold standard would seem to me to be impossible until they refine the partcole accelerators a little more and manufacture AU in bulk.

The artificial production of gold is the age-old dream of the alchemists. It is possible in particle accelerators or nuclear reactors. Since there is only one stable gold isotope, Au-197, nuclear reactions must create this isotope in order to produce usable gold.*

Give science a few more years and a more stable particle accelerator and it will probably be cheaper to "create" gold than mine it.

_________________________

* http://en.wikipedia.org/wiki/Gold_synthesis

[Methinkshe]

The thing I do not understand about the "gold standard" is how it can work in a world vaslty different to the 1960's and before. If your currency is based on the amount of gold you hold then the amount of money in circulation would not be enough to pay for all those houses and imported tat. Hang on......................

How much known gold bullion exists in the world?

Wiki says:

At the end of 2001, it was estimated that all the gold ever mined totaled 145,000 tonnes [18], which would form a cube with 19.58 meter edges. Global gold mine production is between 2,500 to 3,000 tonnes per year, which would mean that about 155,000 tonnes of gold would have been mined as of 2006, with a

total value of $3.2 trillion at June 2006 prices

.

$3.2 trillion or even 6.4 trillion is hardly enough to cover all of the money in the world if everyone did try to back their "fiat" paper with a "fiat" metal. Returning to the gold standard would seem to me to be impossible until they refine the partcole accelerators a little more and manufacture AU in bulk.

The artificial production of gold is the age-old dream of the alchemists. It is possible in particle accelerators or nuclear reactors. Since there is only one stable gold isotope, Au-197, nuclear reactions must create this isotope in order to produce usable gold.*

Give science a few more years and a more stable particle accelerator and it will probably be cheaper to "create" gold than mine it.

_________________________

* http://en.wikipedia.org/wiki/Gold_synthesis

Quantities are irrelevant - gold will find a price. The point is that a gold standard underpins the promise that is still to be found on any banknote - I promise to pay the bearer..etc etc. When confidence and trust have been blown apart, as far as I can tell, it will take something more than trust to underpin a promissary note. Historically, gold is the obvious standard. Not saying that it couldn't be anything else, but gold inspires long-term confidence in a way that, say, tulip bulbs do not.

[expatowner]

No it isn't!! China is growing at over 10%.

RB, repeat after me: "Falling inflation DOES NOT mean falling prices"

A recession is two Qs of negative growth, i.e. shrinkage.

Two Qs of reducing growth is not a recession, especially when that growth is still double-digit.

For goodness sake, it doesn't get much more basic than this!

Hee hee hee

[R K]

Quantities are irrelevant - gold will find a price.

In what?

[Realistbear]

Hee hee hee

Repeat after me.....................

Neithers are busy today we thought you had all gone the way of the bulls?

[expatowner]

Spotting trends is the key to predicting the future--perhaps the best one there is. For example, Dr. Bubb suggests that the trend in building stocks is an accurate bellwether or lead indicator of what is likely to happen to house prices in the future. It is no point (or fun) "predicting" the future after the event as by that time you have lost your money or failed to make any.

Yes RB, trends are very important.

http://www.housepricecrash.co.uk/forum/ind...mp;#entry745905

Edited September 4, 2007 by expatowner

[Realistbear]

you seem to suffer from a severe case of premature proclamation RB (no shame in that tho, it happens to a lot of men as they get older )

china's GDP last year grew 10.7%

first 6 months of this year it recorded 11.5% growth YoY

doesn't seem that recessionary to me

QUOTE:

"China is displaying early warning signs of a cyclical peak, with imports turning down from April to June."

The article suggests a trend, not an accomplished fact. The words "early warning signs" mean that there are indications that things are chnaging in China for the worse. You miss the point about trends. For example, in a HPC the change in the market begins slowly at first. Almost imperceptibly. It begins with MoM slowing. Then MoM negative and pretty soon YoY negatives.

The article I quoted, which you and RM appear to have misunderstood is not saying China is in recession. No no. It is saying there are signs of a downward trend. Like a HPC, a recession can begin very slowly at first. Almost imperceptibly. It begins with Mom slowing, then the first quarter of negative. If the next quarter goes negative you have a technical recession. You need to understand that recessions do not begin with 2 quarters of negative. You can only call a rfecession once it has happened. But who needs to know the obvious? Remember, they begin slowly, almost imperceptibly... Embrace the trend--its your best friend as it can tell you what is likely to happen next.

I am sure you understand it as I believe you are a history teacher? Just feeling a bit neirtherish/trollish thats all. And that's okay as it is good to make the point over and over again for the benefit of new HPCers.

Once again, how do HPC and recessions start? Slowly in the beginning......................

BTW--why do IR alone do nothing to slow HPI in a miracle economy where credit is cxheap and easy?

Edited September 4, 2007 by Realistbear

[Realistbear]

Well, it explains a lot. If RB can call a recession when growth is at 10%, he can probably call a crash when HPI is, well, about 10%..........

"China is displaying early warning signs of a cyclical peak, with imports turning down from April to June

."

You misunderstood the article which is not saying anyone is in a recession. They are saying that there are indicators that point toward recession (especially Japan and the US with early signs in relation to China). You and your neither friend d23 can't seem to grasp the basics about changes in market direction. A recession is called after 2 Qs in a row of slowing as, in reality, there is no such thing as negative "growth" as growth implies, well, growth. You need a negative for a recession--or slowing past the last high point.

You need to learn about trends. A recession has a starting point which is not a recession. Just like a HPC. It doesn't happen when the first indicies show negative as that is just the start of a trend. These things begin slowly, almost imperceptibly. You get the first indications when MoM shows slowing, or a reversal in the growth trend. The next step in the trend is actual MoM falls. If the MoM falls continue long enough you get your first YoY drops. It is easy to understand in reality although I can see how the conceptual side could be difficult if you are a "hindsight" type of investor.

Just think in terms of steps with each step being either up, down or flat. When the steps turn negative you head down and when they are positive you head up. As you visualise the economy in this way it may be easier for you and d23 to see the big picture.

Edited September 4, 2007 by Realistbear

[Guest d23]

QUOTE:

"China is displaying early warning signs of a cyclical peak, with imports turning down from April to June."

The article suggests a trend, not an accomplished fact. The words "early warning signs" mean that there are indications that things are chnaging in China for the worse. You miss the point about trends. For example, in a HPC the change in the market begins slowly at first. Almost imperceptibly. It begins with MoM slowing. Then MoM negative and pretty soon YoY negatives.

The article I quoted, which you and RM appear to have misunderstood is not saying China is in recession. No no. It is saying there are signs of a downward trend. Like a HPC, a recession can begin very slowly at first. Almost imperceptibly. It begins with Mom slowing, then the first quarter of negative. If the next quarter goes negative you have a technical recession. You need to understand that recessions do not begin with 2 quarters of negative. You can only call a rfecession once it has happened. But who needs to know the obvious? Remember, they begin slowly, almost imperceptibly... Embrace the trend--its your best friend as it can tell you what is likely to happen next. Once again, how do HPC and recessions start? Slowly in the beginning......................

BTW--why do IR alone do nothing to slow HPI in a miracle economy where credit is cxheap and easy?

The last HPC didn't start slowly, imperceptibly blah blah blah; according to the front page graph prices peaked in June 89 and fell by 8% or 9% within 6 months; this after around 7% HPI the previous 12 months

but i suppose it's different this time? You have said we've been crashing in the UK for years now, throughout periods of 10% YoY HPI. Imperceptible seems a slight understatement.

If we have a correction next year (as I have also predicted) according to you it will have been imminent or underway for over 3 years now; thats why I think you've been premature in your calling of the crash. I had the same problem myself a few years ago but stopped deluding myself and am now waiting patiently for the inevitable without shooting my load (as it were) too soon. You should try it some time.

I am sure you understand it as I believe you are a history teacher? Just feeling a bit neirtherish/trollish thats all.

thats 5 times now you've asked me if I'm a history teacher, and each time I've told you I'm not , but I now know for a fact you are / have been a lay minister at a church in the midlands so I can imagine rewriting history comes easy to you.

And I've lost count of the times you've called me a troll to the point where it barely registers

Edited September 4, 2007 by d23

[starsign]

"China is displaying early warning signs of a cyclical peak, with imports turning down from April to June

."

You misunderstood the article which is not saying anyone is in a recession. They are saying that there are indicators that point toward recession (especially Japan and the US with early signs in relation to China). You and your neither friend d23 can't seem to grasp the basics about changes in market direction. A recession is called after 2 Qs in a row of slowing as, in reality, there is no such thing as negative "growth" as growth implies, well, growth. You need a negative for a recession--or slowing past the last high point.

Actually RB, I think it is you who doesn't understand the article. Your interpretation was, "With 3 of the world's top 5 economies going into recession"...so somehow you concluded that China was going into recession.

Slowing past the high point = a slowing rate of growth. It is still growth. The economy is still larger despite the rate of growth slowing, let alone that this slowing growth is from >10% growth. Just because the rate of growth slowed does not meet that it will go -ve. The rate of growth could halve each quarter for the next 10 years, the economy will always be larger than previous and it will never be in recession.

[Realistbear]

The last HPC didn't start slowly, imperceptibly blah blah blah; according to the front page graph prices peaked in June 89 and fell by 8% or 9% within 6 months; this after around 7% HPI the previous 12 months

but i suppose it's different this time? You have said we've been crashing in the UK for years now, throughout periods of 10% YoY HPI. Imperceptible seems a slight understatement.

If we have a correction next year (as I have also predicted) according to you it will have been imminent or underway for over 3 years now; thats why I think you've been premature in your calling of the crash. I had the same problem myself a few years ago but stopped deluding myself and am now waiting patiently for the inevitable without shooting my load (as it were) too soon. You should try it some time.

thats 5 times now you've asked me if I'm a history teacher, and each time I've told you I'm not , but I now know for a fact you are / have been a lay minister at a church in the west midlands so I can imagine rewriting history comes easy to you.

And I've lost count of the times you've called me a troll to the point where it barely registers

The best way to learn is through spaced repetition. You seem to miss the point so many times that it is sometimes best to use the same tactic to illustrate the point.

I called the start of the turn to the downside by the 2nd Q of 2007. The beginnings of Great Crash 2 was in a land far far away. It was spawned in San Diego County which has become the sub-prime meltdown epicentre. It would have taken us down with them in 2005 but for Gordon's IR cut. Gordon bought himself a year, perhaps 2 in some areas.

The market last crashed in 1989 and it lasted until 1996 when the next bubble began to develop. We are now into negative territotry for some regions in the UK but as the VIs are adept at obscuring the data we have no idea by how much. The only reliable data we have is the reposession stats, new builder stocks (Dr. Bubb's favouride lead indicator), supply and anecdotal evidence of actual sales. Snake had some good data but IIRC this was removed for some reason?

Your error is in thinking that a crash is a present event and that early signs are not an indication that it is actually happening. Like your neither friend Wrongmove you like to evaluate from hindsight which is easier as you have history to quite. But in the real world of the marketplace people are interested in knowing what is happening now and how that is likely to affect the future. Crashes begin slowly, almost imperceptibly. If you recognise that you can sell your BTL portfolio or whatever else you own and avoid losing money. So simple and yet you seem to try to make it so hard for yourself.

I think your comments are a desperate attempt to discredit bear threads as you seem to go off on tangents (which defines trollish activity) that have no bearing on the thread itself. Why do you do this if it isn't to troll a thread? What is it that motivates you? You must be someone with a lot to lose in a HPC? This is why I think you are a BTLer or an overgeared OO who is in denial about the crash (albeit beginning slowly, almost imperceptibly). I still think you are a History teacher somewhere in central UK somewhere as I seem to remember you stating something about being a teacher several months back. But that is off topic isn't it?

Some tough questions for you to ponder.