The effect of Japan's neutralised economy.

[Aaron Sice]

I'm deeply concerned not only for the Japanese people, but for the flow-on effect worldwide.

As our second largest trading partner now has a frozen/stalled/neutralised economy, this will have effects here across everything - shares, lending, property etc.

While there are many economic positives to be found in disaster capitalism - supply of materials, supply of food, supply of gas etc - the negatives can't be ignored.

We should also be careful to avoid being insensitive to the Japanese customs around grieving - businesses should wait a while before trying to secure any kind of deal. Aussies seem to care very little about foreign customs and less-so when it comes with opportunity. Patience and respect is the key here.

The softening of the ASX200 outlines the nervousness in the marketplace. The sheer decimation of uranium stocks over the last few days has been unwarranted - but outlines the fear in the marketplace that is now compounding at a near-exponential rate.

Re-insurance is a nightmare - i think worldwide insurance premiums are going to be going up - if they can be underwritten at all.

The price of oil is likely to rise to a near-term $135bbl. Whether it satys there or not is too hard to guesstimate at this satge.

I recently missed a talk outlining the economy as a whole - but a friend who managed to make it, filled me in. Essentially the point regarding property was if China do well and maintain a healthy amount of growth (what's healthy for China? 4%?), Australia will do well. If they falter, Australia will be the first to hurt.

Well, China's fine, but Japan ain't.

At best, I think we can hope for zero to lightly negative figures and a freeze on official IRs. At worst, I see a freefall in IRs (50bp+) and a corresponding loss of sentiment and another leg down across most sectors.

However, I think a realistic scenario is another slight leg down and a no interest rate movement at all. The real effect of the demand for aussie product will move inflation up but the softening effect of sentiment and measured figures will dampen this effect from the RBA's POV.

In other words, Stagflation.

Interestingly, I think there will be profit taking with bullion as well. Not a crash - far from it, but profit taking none-the-less.

These are just musings of an uneducated mind and are open to debate, but I do believe this could be another wet blanket on any hope of a recovery in property prices just yet.

 

[pickle pickle]

Japan's economy was already not growing before the earthquake.

Once the rebuilding phase starts, this should increase the demand for Australia's minerals, (only potentially uranium exports being negativly effected, which makes up less than 1% of total value of our minerals that we export).

 

[Ausprop]

it's yet another spanner in the works that will make forecasting even more difficult. good luck trying to pick the direction of IRs amongst all this. cost of living inflation, oil thru the roof, disasters, chinas growth, US QE, PIGS, qld floods - this could go anywhere

good time to have taken possession of a new lexus. then again, will the Yen have to drop? borrowings of 200% of GDP... yikes, not a good starting position

 

[Aaron Sice]

borrowings of 200% of GDP... yikes, not a good starting position

....yet they can stil make $500bil loans to the IMF....?

 

[hobo-jo]

I don't think we will see profit taking on bullion while the threat from a nuclear disaster is still high (e.g. wouldn't expect to see below US$1380 Gold). It seems the Japanese see things similarly with premiums on bars increasing:

Gold bars were quoted at a premium of $1/oz to the spot London prices in Tokyo, up from zero last week and a discount of 50c two weeks ago.

http://www.miningweekly.com/article/gold-up-1-on-japan-quake-tokyo-premiums-jump-2011-03-14

We also have things heating up in the ME with Saudi troops moving into Bahrain, ZH often sensationalises, but interesting nonetheless:
http://www.zerohedge.com/article/re...on-bpd-gwahar-oil-field-60-miles-away-bahrain


Another interesting point is that Japan has been one of the major foreign buyers of US Treasuries... they bought $80b worth over 2010 (http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt), what happens if they stop buying to concetrate on their own problems?

At the moment there are problems everywhere, it's like a house of cards:

US relying on China/Japan to continue buying treasuries
Australia relying on Japan/China growth/demand for resources
China/Japan relying on reasonable energy costs to grow
Energy prices relying on tensions in Middle East/North Africa to settle
ME/NA relying on food costs to stabilise fall (one of the reasons, not likely to occur with US QE ongoing)

Of course the above is oversimplifying things, but it reads like a true ponzi scheme. The Middle East problems have shown how quickly things can domino and spiral out of control (imagine if you'd told someone in mid 2010 the problems we are facing now, how many would have believed it? Not many I would expect).

My view on how shaky the global situation is gets me called a doom and gloomer or a member of the flat earth brigade, but it doesn't take a genius to work out there are some serious risks.

 

[hobo-jo]

Just checked the Japanese stock market and it's been hammered today.

NIKKEI 225 down around 6.5% for the day. Down around 12-13% from Friday...

 

[Aaron Sice]

At the moment there are problems everywhere, it's like a house of cards:

US relying on China/Japan to continue buying treasuries
Australia relying on Japan/China growth/demand for resources
China/Japan relying on reasonable energy costs to grow
Energy prices relying on tensions in Middle East/North Africa to settle
ME/NA relying on food costs to stabilise fall (one of the reasons, not likely to occur with US QE ongoing)

Of course the above is oversimplifying things, but it reads like a true ponzi scheme. The Middle East problems have shown how quickly things can domino and spiral out of control (imagine if you'd told someone in mid 2010 the problems we are facing now, how many would have believed it? Not many I would expect).
.

a ponzi scheme is it - glad you said it first but it appears that entire house of cards requires more and more to be pumped in.

when the top cashes out it'll fall over. i'd want a clear an unencumered title when that happens.

 

[Token Funder]

it's yet another spanner in the works that will make forecasting even more difficult. good luck trying to pick the direction of IRs amongst all this. cost of living inflation, oil thru the roof, disasters, chinas growth, US QE, PIGS, qld floods - this could go anywhere

good time to have taken possession of a new lexus. then again, will the Yen have to drop? borrowings of 200% of GDP... yikes, not a good starting position

Yep. I was expecting another 50bp this year but the unfolding tragedy in Japan makes me think nothing until 2012.

On the other hand......

 

[Intrinsic_Value]

90 day bank bill futures are now factoring in a 80% probability of a 25 basis point rate cut within 6 months. Allot can happen in 24 hours.

 

[Ausprop]

90 day bank bill futures are now factoring in a 80% probability of a 25 basis point rate cut within 6 months. Allot can happen in 24 hours.

interesting....

 

[bluestorm]

90 day bank bill futures are now factoring in a 80% probability of a 25 basis point rate cut within 6 months. Allot can happen in 24 hours.

This should only tell you how unreliable looking at the 90 day bank bill futures is in predicting future rate rises. I've yet to see the futures call the rates rises or falls correctly.
Rates will rise.

Also, as Ausprop stated, Japan is just another factor to add to the list of world situations, which I believe will see property fall in 2011/2012.

Anyway, Bluestorm is back temporarily gloating about calling a sub 4700 All Ords this month (one way or another). Who's Super took a hit. Mine's gone up 1.5% after changing to conservative 2 weeks ago.

 

[Aaron Sice]

Who's Super took a hit. Mine's gone up 1.5% after changing to conservative 2 weeks ago.

well i went conservative 4 years ago when i sold up for huge profit....what's your point?

 

[Ausprop]

we need to be careful not to point the finger at every market place and accuse it of being a ponzi scheme. I admit it's a cool allegation tho

 

[Mooze]

The 18 month old child (currently known as "the market") is at it again. Anyone else notice that Riyadh had sent in troops to Bahrain today and Gadaffi took the opportunity to strafe a few civilians?

Nikei down over 9% today. Watching reuters this arvo and the ticks on the dollar going down down down. A fall of over a cent in a day.

Consumer sentiment figures out of the US - worst in a while after a positive trend. (pre Sendai Shaker)

Housing lending out today down a few more percentage points (again - and that's Aus stat)

And no matter what - Aussies just aren't spending as much. Household savings rate is up, and the latest occurences are only going to drive it higher.

There's been a shift in thinking since the GFC and also a lot of media blow up about non spending over christmas. Would love to be able to get hold of a website visits graph from barefoot investor - reckon there would have been a bit of a spike lately.

Gas exports from Australia to Japan should be a nice picture though.

 

[bluestorm]

Of course the above is oversimplifying things, but it reads like a true ponzi scheme. The Middle East problems have shown how quickly things can domino and spiral out of control (imagine if you'd told someone in mid 2010 the problems we are facing now, how many would have believed it? Not many I would expect)

Some have planned for it!!, but were called D&G on here
Whether it was PIIGS, the US, China slowing, or now the Middle East, and Japan, there was always going to be a trigger for the next downward leg to more problems in 2011/2012.
An earthquake and sunami 5yrs ago would have little impact of the markets. Now the world economies are so fragile, and on the edge as it is, that anything spooks the markets. Anyone who didn't see problems in 2011/2012 is a fool.

Property just lags behind, but will eventually be down 30% by the end of 2012. Enjoy the ride.

Anyway, going back off the forum now. Nothing to learn from the property spruikers here.

 

[intrigued]

Bluestorm is back gloating about up 1.5% after changing to conservative 2 weeks ago.

Boy plunger

 

[sash]

Well.....I am of the view that IR rates are heading down!

With Japan's economy trouble due to a natural disaster and tensions in the Middle East....this is going to knock at least 1% off the Australian economy which was also affect by Floods and Cyclones. Thankfully this will only be short term.

The good news is Japan will need even more resources from Australia and rebuilding will stimulate the Qld economy on particular.

2011 will not be as good for the OZ economy....but suspect 2012 and 2013 should be very good if not stellar.

I for one is going to be buying more property rapidly as I suspect the Japanese economy is going to grow very fast....faster than the last 20 years...similar to the 80s when they were dominant.

 

[hobo-jo]

I for one is going to be buying more property rapidly as I suspect the Japanese economy is going to grow very fast....faster than the last 20 years...similar to the 80s when they were dominant.

From what I've read they have an aging, shrinking population with no decent policies in place or being considered to try and reverse this. Their government has a huge debt burden... What will drive the growth (apart from a short spurt to cleanup the earthquake damage)?

 

[Deltaberry]

What makes you think they'll grow like in the early 80s with a GDP per capita on par with the likes of UK and France, and with an aging population?

To grow as rapidly as the 80s, while facing a declining population, would mean their GDP per capita would become some astronomical figure... perhaps if the struck black gold like Qatar.

 

[sash]

Japan did not have any major infrastructure investments during the 90s and 00s.

Japan grew rapidly just after WWII.....primarily due to a huge investment programme.

Would be interesting to see if history repeats.

Though I agree the lower population growth will slow things down.

Time will tell.

From what I've read they have an aging, shrinking population with no decent policies in place or being considered to try and reverse this. Their government has a huge debt burden... What will drive the growth (apart from a short spurt to cleanup the earthquake damage)?

What makes you think they'll grow like in the early 80s with a GDP per capita on par with the likes of UK and France, and with an aging population?

To grow as rapidly as the 80s, while facing a declining population, would mean their GDP per capita would become some astronomical figure... perhaps if the struck black gold like Qatar.