Claus Vistesen

The Performance of Japanese Companies: A Growing Connection with External Demand

Hi guys,

Thanks for the comments.

On this MadHedge ...

"During my career, I watched GDP growth rates fall from a white hot 10% in the sixties, to 4% in the seventies and eighties, to 1% in the nineties and the early 21st century. Are we flat lining at 0% in the teens? That leaves fertile ground only for stock pickers who are willing to do the local spade work to find one hit wonders like Toyota and Fast Retail."

I wholeheartedly agree and really what we need to think about is the macroeconomic dynamics that will emerge if we get to situation in which trend growth is negative. As you note, buying the market is NOT the right thing to do which makes you wonder. How much to standard run of the mill models suggest to invest in Japan if you want to buy global beta? And what will happen once we tweak this model to allot a share to Japan of 0%?

@dw57:

Your intuition on China is right in my opinion which is also why everybody who hails the coming of China and an appreciating RMB should think long and hard about the demographic projections of China. I have seen a lot of both sell/buy side analysts make the connection between Japan and China lately ... so the discourse IS emerging.

Claus

Australian Monetary Policy: Too Much of a Good Thing

Thanks for the comments guys ...

@ Dave: While this may be true it will take someone else to skyrocket if the USD has to enter a free fall and it is here I see the difficulties not so much because I cannot see that the USD has to fall, but because the Euro for instance cannot take it alone. As for the AUD? Well, we will see once parity is breached ...

@ Bob: Exactly, I agree ... this is needs to be treated on a case by case basis since some economies may be able to "handle" it better than others. Investors would be wise to make this discrimination very clear when they place their bets.

Claus

Is Germany Dependent on Exports to Grow?

Here is the link to Edward's analysis;

globaleconomydoesmatte...

Daniel Gross on Mellowing Japan

Hi Guys,

"They put a lot of effort into creating human like robots. I think they want to solve their problems with robots, not immigrants."

Yes Tom, this is very interesting. I mean, this narrative started a couple of years ago as a joke but has now emerged as a real alternative. In principle I can see it work, but only in a very strange world. I mean, it is all well and good to have robots caring for the elderly, but in terms of social cohesion it is difficult to imagine I think. That of course will depend on the nature of the robots.

@Mad Hedge Fund

I completely agree with your analysis on the US and even though I am still undecided on the course I believe the US will take I am quite confident that she will rebound faster than Japan did (or didn't). However, I still believe deleveraging to be a fact for the future and specifally that the US will become less of a provider of excess demand to the global system than before.

Jeez, imagine the US running and aggregate surplus on the external books. THAT would constitute a serious drainage of global demand.

Claus

Head Start on Japanese Elections: What About the Economy?

Basically, it is all likely to be rearranging deck chairs on the Titanic. However I do think that a change in discourse on the fertility issue would be a most welcome change ... yet, this is very unlikely in the current situation.

Thanks for the visualization of the problem through Toyota and this, mind you, is supposed to be one of the best companies they have.

Nobody wants to be a perpetual prophet of doom, but Japan is in a bind and unless people and her politicians wake up to why this is; well ... then it is going to be a lot of the same.

Claus

Head Start on Japanese Elections: What About the Economy?

Hi,

Thanks for your comment on my articles.

"Whoever wins, there's not much they can do about it."

Well, if this isn't comment of the week I don't know. I completely agree; it is all very depressing this.

Chile's Emerging Economy: Better than the Rest?

Hi Dissenter,

Thanks for comment; I am glad you liked it.

Claus

Germany's Peer Steinbrueck: Too Smug?

"Don't you think it is a bit smug criticizing another currency that clearly works when your own clearly doesn't and is about to precipitate another global crisis from which you own economy will emerge a burnt cinder? "

Erm, I am not sure I understand this Dave. As far I can read from the above, I do not say anything about the performance of the Danish economy which clearly is not stellar at the moment.

"is about to precipitate another global crisis"

You know something about the Danish Krona that I don't?

Reviewing the Latest Data from Japan

@ User 399644 ...

Cheers, I appreciate it. Try this one by my friend Edward;

seekingalpha.com/artic...

Claus

Reviewing the Latest Data from Japan

Just a small note to readers ...

I use Bulgaria as an example of a place where growth has been abysmal, or almost as abysmal as Japan. This is nonsense, at the moment, of course as one commenter points out to me. To add injury to insult, I meant to write Hungary and one can only speculate why Bulgaria came out on the screen.

With the this little correction out of the way. Fire away.

Claus

Japanese Housewives: Back in the Game?

Hi Dybydx,

Definitely ... this gambling not investing, but I still think there is an undercurrent here since in an environment where investors expect volatility to be low and risky assets to fly, the carry trade is almost a no brainer. Of course, at this particular point in time, Miss Watanabe may have stepped up just as the green shoots are ebbing out.

Claus

Communication at the ECB: Lost at Sea?

"tell me more of the "principle of falsification." this interests me"

Well, this is how it goes ... (in my opinion). I am arguing that some economies will be perpetually stuck in deflation on the back of this which means that global monetary policy won't go back to "normal". These economies would be (in the first instance);

Japan
Spain
Key economies in Eastern Europe
(possibly) Germany

Basically, I think that we may be fighting (the prospect of) deflation for much longer than we are currently willing to admit and that more countries will now be dependent on exports to achieve growth. This can easily be falsified I think since if we get domestically induced inflation in the economies above (i.e. demand pull inflation) and strong domestic demand growth I will be wrong. Of course, headline inflation will live a life of its own and stagflation is not off the table yet.

Claus

Perspectives on Carry Trading

Hi Dave,

Thanks for the comment.

Interesting point, but I am not sure I agree. At least, I would think that whatever relative return the US would be able to offer investment (be it financed from domestic savings or foreign) it would be competitive to the one we can offer e.g. in Europe not to mention Japan for that matter. Wouldn't you agree?

"Even much of the stimulus money is going to end up in other economies"

Yes, well I think this is the dirty secret here and oh boy will there be debate, mud throwing etc on this altar we move forward, not to mention of course protectionism.

Claus

This Weekend's EU Summit Lacked Proper Teeth

Hi Mad(...),

You are bang on with most of your points; especially this.

"Germany has the smallest loan exposure, but has the most to lose, with 25% of its exports headed east."

The thing is, you have no idea of how many people did not see this coming because they simply did not bother to look at the real exposure Germany has to the CEE in terms of exports. Actually I would think that the 25% you mention understate the actual exposure since on the margin the growth in German exports have been primarily driven by growth in the CEE (well I would imagine, I don't know).

"It looks like the headlines in Europe are about to get uncharacteristically sensational."

Well, let us hope that the sensations will be in terms of historical measures taken to avert the crisis rather than the sensations you are implicitly referring to. I mean, I have not lost hope here. In particular, I would emphasise the measures to let the currency board economies into the Eurozone.

Yet, I agree wholeheartedly with the SA editor's re-write of my headline ... it lacked teeth. Let us hope it will have more bite next time they meet.

Claus

The Global Economy: Is Deflation the Next Macro Story?

Hi Guys,

Thanks for the comments, not nearly as harsh as I had expected :) since this was after all a bumper piece and I know that SA readers don't take too kindly to these kind of things. I am glad that you took your time to read through it (or some of it, or just the conclusion). Anyway ...

"The deflation scenario has been in track for some time and given the size of the world housing markets it is the prime mover."

This is true Whidbey, but what I try to draw attention to is the fact that some economies may simply get stuck due to the particular severity of this downturn.

"For The Big Freeze is the path"

Quite and I would then submit that some countries may simply never thaw!

@ Ihunt

Excellent points ... I guess we can agree that we agree then.

"As well as the 1st to come back will be emerging mkts."

I do think this is one of the main points in the sense that whatever recovery we will see it is going to be assymmetric. Little by little I would also expect money to flow steadily back towards the yield offered by high growth markets. In fact, this would be the biggest threat to the US if we imagined that the Fed would have to raise rates to defend the USD. However, if the the ultimate push from this is deflationary it may not come to that.

"On the other hand, I think the US $ will fall. We just keep printing dollars. Europe will be Forced to do some similar package or watch Rome burn, as well as the Euro. The Real Blood is just now showing up on the Real Streets. As this happens, Asia, South America, Central America, Middle East, will be shoved up against the wall or kill the System. Much like the Ugliest Global Financial Crisis has played out very quickly, it is possible to go hyperinflation just as quickly. Then, full on deflation as consumers can not pay for anything on the cash adjusted basis."

A scary scenario, but it may be likely. The feedback effects from whatever policy (inflationist or calvinist) can definitely turn out to be quite volatile.

@Real Broker

Very interesting comment. There is definitely a sense of re-coupling in action here. At least, I personally find it quite amusing that people were speaking of the Euro as the new global powertrain only one year ago as Bernanke started to cut rates. Now of course, we are all a lot smarter as it is clear that Europe will now have to clean up its own mess.

"You can only monetize debt for so long until it becomes mathematically and even theorectically impossible to make good on your promises."

True, very true and I would not downplay the US situation for one minute. This is not small chips (or whatever) and the US economy will not command the same position in the global economy after this.

@ YR Dog

"An interesting question is that if deflation is coming, what will happen to gold. It's hard to look to the Depression for answers there when the countries were abandoning the gold standard and US citizens were forbidden to own gold from 1933. Will gold be a safe haven independent from deflation or will its value fall like everything else? "

I think many people are asking themselves this question. Clearly, many Austrian punters would just love to see the fall of the global fiat reign and the return to a solid tangible standard. However, that would also imply, I think, a kind of coordination that just is not possible at this point.

"The interesting thing to watch is will foreigners continue to buy Treasuries at 0.0% ??? They seem to be a hard sell right now. A rate increase any time soon would really seize up markets. "

Ah yes, this small point. Well, I do think it is quite obvious that the foreign purchases of agencies and treasuries are not necessarily for the real yield they offer. So there must another reason ... now, collectively we would label this system Bretton Woods II although I am unsure that this is still the right thing to call it. Ultimately however, the fact that foreigners have been so eager to finance the US is also a counterproduct of their endogenous growth path and strategy.


Claus