Our Second Biggest Market Slumps, “Fundamentally On A Downward Slope”

30 Dec

Started out, just drinkin’ beer
I didn’t know how or why
Or what I was doin’ there
Just a couple more
Made me feel a little better
Believe me when I tell you
It was nothin’ to do with the letter

Sometimes I wonder
What all these chemicals
Are doin’ to my brain
Doesn’t worry me enough
To stop me from doin’ it agai-ai-ain
Wipin’ out brain cells
By the millions but I don’t care
It doesn’t worry me
Even though
I ain’t got a lot to spare-are-are

– The Nips Are Getting Bigger, Mental As Anything

If Treasurer Swan had enough grey matter to comprehend what is happening in the global economy Ponzi, then he’d probably be turning to the drink by now.

Because Japan’s economy is getting smaller.

From Bloomberg:

Japan’s rebound from the March earthquake and tsunami sputtered in November as production and retail sales tumbled, deepening the nation’s return to the deflation that first took hold a decade ago.

Industrial output slumped 2.6 percent from October, more than all the forecasts in a Bloomberg News survey of 29 economists, a government report showed today in Tokyo. Retail sales slid 2.1 percent…

“Fundamentally, Japan’s economy is on a downward slope,” said Yoshimasa Maruyama, chief economist at Itochu Corp. “Exports are falling and negatively impacting Japan’s economy due to the global slowdown.”

“Industrial production is unlikely to recover to” levels seen before the 2008 global financial crisis, Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd., said before today’s reports.

Other data also suggest Japan’s recovery may be stalling. Exports fell for the second straight month in November from a year earlier and capital spending in the third quarter dropped 9.8 percent.

Japan is our second biggest export market.

According to DFAT, as of October 2011 … before the November slump reported by Bloomberg … our exports to Japan were worth 62% of our exports to China:

The world’s third largest economy is also the most debt-laden nation on the planet:

Click to enlarge

Back in June we brought you the warning that our biggest economic danger could be hiding in plain sight.

It’s worth recapping:

Buy a farm house in the middle of nowhere, pick up a gun or two, prepare for hyperinflation and brace for a catastrophic bankruptcy. Thirty minutes with hedge-fund manager J. Kyle Bass has you wanting to do all of the above.

The head of Dallas-based Hayman Advisors LP isn’t thinking about Greece or even Spain but Japan, the world’s third-biggest economy. He says his bet against Japanese government bonds is even “more compelling” than his gamble to sell short U.S. subprime-mortgage debt, which earned him $500 million in 2007.

Shorting Japan has been a losing proposition in recent years. But the earthquake, tsunami and nuclear crisis altered the outlook for a nation whose debt is more than double the size of the economy. Bass says a collapse is inevitable, making Japan’s 10-year bonds — they yield 1.3 percent, among the lowest in the world — a natural for a bear investor.

His argument is this: Japan now spends half of its central- government revenue on servicing debt. This task won’t get any easier as the country’s population ages and shrinks — provided rates stay the same. What’s more, the price tag for the earthquake and its effects will far exceed Japan’s initial $300 billion estimate, pushing the country over the edge. In Bass’s view, the biggest asset bubble ever is hiding in plain sight.

Feel like a drink?

It’s almost NYE after all.

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7 Responses to “Our Second Biggest Market Slumps, “Fundamentally On A Downward Slope””

  1. John Comnenus December 30, 2011 at 12:31 am #

    Yes and most analysts expect Australia’s economy to be hit hard by the slowdown in China and Japan. Unfortunately the Government and the world’s greatest treasurer spent all that money and is now on an austerity drive when it might need some ready cash to deal with the trouble ahead. What a pity they blew it all on pink batts and school halls.

    Most analysts are predicting a sharp decline in the value of the AUD as commodity prices fall. That means inflation will be rising with all that debt out there and no end in sight of the government’s reckless borrowing. That says higher interest rates are likely.

    Every time significant Keynesian stimulus is used you end up with higher unemployment (check), higher inflation (check) and higher interest rates (almost certain). The only people who don’t learn from this repeated experience are JAFA’s, economists and government bureaucrats.

  2. Jazza December 30, 2011 at 9:11 am #

    I like reading here, but Christ, you are SCARING me witless, now-

    -I see OUR future writ large in all these doom and bust posts –and I know they have more truth in them than the laughable Climate Change apocalyptic mutterings from Flim Flam Man or Goreblimeyrich that the press serves up, or the Aussie Bolshevik Collective churns out

    • John Comnenus December 30, 2011 at 9:31 am #

      Jazza if you want real scary, read Wall St insiders zero hedge blog http://www.zerohedge.com/

      Then you will no longer wonder why some have asked whether tinned food, precious metals and small calibre guns and ammo are the safest investment in the coming crisis.

      The take out message is that Europe is finished and can’t recover. We should fix our skills shortages now. See there is an opportunity in every crisis. Always an upside in an otherwise miserable picture.

    • The Blissful Ignoramus December 30, 2011 at 10:44 am #

      Jazza, I’d happily publish lots of “everything’s fine” posts, if I believed that were true. Consider all the “doom and bust” posts as merely a tiny attempt at counterbalancing the decades of Oz lamestream media “she’ll be right mate” perception management.

      And be of good cheer! Human history long demonstrates that things must go badly pear-shaped … in the short term … for there to be any real chance of fundamental change for the better … in the longer term 😉

  3. AB January 3, 2012 at 7:53 pm #

    Doesn’t the last graph on this page show that Australia has relatively low government debt? I’m worried about Australian debt, but far more worried about our private debt (which is about 150% of GDP) than our government debt (around 25-30%).

    Has Barnaby spoken out about private debt? (Not trolling – I’m always looking to see if any politicians have the courage to talk about the real elephant in our room. Unfortunately very few seem to do so.)

    • The Blissful Ignoramus January 3, 2012 at 8:04 pm #

      He’s not spoken about private debt anywhere near as often as we both would prefer, AB. Although as this example shows, he’s at least aware of the danger that this blog has argued for a long time in pointing to the vulnerability of our banking system; that is, as you’ll find in that link (and others posted here over the past 2 years), he’s clearly aware of the fact that private debt problems end up being transferred to the public balance sheet (a la Ireland, et al). So whilst I agree completely with your highlighting the private debt danger, and it is true that “comparatively” public debt in Australia is low, the obvious conclusion I draw is that a fall/collapse in the debt-saturated housing market here will result in a banking sector crisis and (thanks to govt guarantees) a transfer of private sector debts onto the public balance sheet. Our “comparative” public debt level won’t look so flash then … and IMO it’s just a question of when.

      EDIT: For mine, I view that argument that Oz public debt is “comparatively low” as akin to someone arguing “By comparison to all those down there, we’re just fine” from a higher deck on the Titanic.

      EDIT 2: Here’s another example where Barnaby demonstrates his awareness of the private sector debt contribution to the ongoing GFC, incl. via transference to the sovereign balance sheet.

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