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5 "Tells" that the Stock Markets Are About to Reverse

Asian Economic Crisis of 2009

Economics / Asian Economies Dec 27, 2008 - 04:21 AM GMT

By: Mike_Shedlock

Economics Best Financial Markets Analysis ArticleAsia Economic Crisis: Spotlight on Japan, China, Korea, Vietnam. Decoupling, an idea that never made any sense, is talking another beating. Bad news is coming from multiple places in Asia, with Japan and China leading the way. Let's take a look starting with Japan's Recession Deepens as Factory Output Plummets .


Japan's recession deepened in November as companies cut production at the fastest pace in 55 years and rising unemployment prompted households to pare spending.

Factory output plunged 8.1 percent from October, the Trade Ministry said today in Tokyo, more than the 6.8 percent estimated by economists. The jobless rate climbed to 3.9 percent from 3.7 percent. Household spending slid 0.5 percent, a ninth drop.

Simultaneous recessions in the U.S. and Europe have weakened demand for Japan's exports, prompting companies from Toyota Motor Corp. to Sony Corp. to idle plants and fire workers. The Bank of Japan has little room to spur the economy after cutting interest rates close to zero last week, and Prime Minister Taro Aso has yet to implement two stimulus packages.

“Data clearly indicate the problem for Japan is deflation, not inflation,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo.

Bank of Japan Considers Extraordinary Steps

With export demand plunging and the Yen soaring, the BOJ May Consider ‘Extraordinary Steps,' Kamezaki Says

“The Bank of Japan is committed to doing its utmost to contribute to stabilizing financial markets,” Kamezaki, 65, [policy board member] said today at a business meeting in Takamatsu, western Japan. “Extraordinary times demand extraordinary steps.”

Central bank officials are examining the feasibility of buying a wider range of securities, including corporate bonds and stocks, and the policy board will make a decision based on their findings, Kamezaki said at today's press conference.

Japan PM announces record budget

The Prime minister of Japan, Taro Aso announces record budget .

Taro Aso, Japan's prime minister, tried to put a rocket under the stricken economy on Wednesday, announcing the country's biggest ever annual budget, as fear mounts that Japan faces a long recession.

The budget for the fiscal year starting next April, along with two other extra budgets for the current year, will finance Aso's Y12,000bn in fiscal stimulus programmes, which amounts to more than 2 per cent of Japan's gross domestic product.

Ministers said the stimulus was as large as or even larger than steps adopted in other major economies. But it also meant Japan's primary budget deficit will nearly triple, making Tokyo's target of a surplus in two years almost impossible.

”Japan cannot avoid the tsunami of the world recession, but it can try to find a way out,” Mr Aso told a news conference, in which he illustrated the government's stimulus plans with a diagram of a three-stage rocket.

”The world economy is in a once-in-a-hundred-years recession. We need extraordinary measures to deal with an extraordinary situation,” he said.

Japan's Extraordinary Measures Have Blown Up Already.

Extraordinary measures are a way of life for Japan. From currency intervention to building bridges to nowhere, Japan has taken extraordinary measures for decades. In that timeframe, Japan went from being the largest creditor nation to a nation deep in debt.

As of November 17th 2008, BusinessMirror notes " Japan's public debt that exceeds 180 percent of the GDP, limiting the government's ability to stimulate growth ".

It takes pretty extraordinary measures to achieve public debt of 180% of GDP, and although that feat did not produce anything worthwhile, Aso wants to try it again. Keynesian clowns should take note, but they don't.

China Needs More Policies to Spur Consumption

Peoples Bank of China's Zhou Says China Needs Policies to Spur Consumption .

China needs to devise more policies to boost consumption among the nation's 1.3 billion people to counter the impact of falling exports on economic growth, central bank Governor Zhou Xiaochuan said.

“Although the government has pledged to boost consumption to sustain growth, we still face difficulties in identifying which areas and which measures we should take to spur spending,” Zhou told a conference in Beijing today. Economic policies have failed to rebalance growth away from trade and investment, with the share of consumption in gross domestic product falling to less than 50 percent from 60 percent a decade ago, he said.

Premier Wen Jiabao may unveil a second stimulus package as early as next month aimed at spurring consumer spending as the economy is set for its slowest growth in two decades. The government has already increased subsidies for farmers to buy household electronics, cut taxes on property and is preparing policies to revive slumping car sales in the world's second- biggest auto market.

China's household consumption rate “is among the lowest in Asia as households still hold large precautionary saving balances,” said Ben Simpfendorfer, a Hong Kong-based economist with Royal Bank of Scotland. He estimates household consumption growth slowed to 5 percent in 2008 after rising at double that pace the previous year.

The U.S. economy faces the opposite problem, Zhou said today, with consumption too high and the savings rate too low. The policies now being pursued by the Bush administration to revive growth by boosting consumption aren't the solution to the country's long-term structural economic problem, he said.

Consumer spending represents more than two-thirds of the U.S. economy while household consumption's share of China's gross domestic product slumped to slightly more than 35 percent last year from 45 percent a decade ago, according to Chinese government data.

“This shows there is huge potential to boost consumer credit and encourage people to buy homes and cars,” Yi said.

No Savings Glut

Statements from Yi, Zhou, and Ben Simpfendorfer promote the silly idea there is some sort of savings glut in China. There isn't. Please see Global Savings Glut Exposed and Bernanke Blames Saving Glut For Housing Bubble for counter arguments.

“ This shows there is huge potential to boost consumer credit and encourage people to buy homes and cars,” Yi said . Does anyone learn? Credit bubbles caused the great depression, and the great recession that we are in. One might think that someone in authority would learn something from this. But they never do. China wants to follow the US to ruin.

Besides from a simple Austrian economic standpoint it it not possible to have too much savings. It is possible however to have too much debt and that is where the US is right now.

China Currency Reserves Drop For First Time In 5 Years

Market New is reporting China Currency Reserves Post First Fall Since 2003

China's foreign-exchange reserves dropped for the first time in five years as a result of the global financial crisis, Market News International reported, citing Cai Qiusheng, head of the investment management bureau under the State Administration of Foreign Exchange.

The current figure must be lower than the peak of about $1.9 trillion, Cai told a trade forum in Beijing over the weekend, the English-language wire service said. He didn't specify which period he was referring to or give a figure.

China's foreign exchange reserves $1.9 trillion at the end of September, according to Bloomberg date.

Please see Strange Case of Falling International Reserves Explored for more on reserves.

Korean Economy Faces Contraction

South Korea president Lee Lee Myung Bak Warns Korean Economy May Shrink in First Half

South Korea's economy may shrink in the first and second quarters of next year, affected by a global economic slowdown, President Lee Myung Bak said today.

“The world economy is difficult and South Korea is heavily dependent on the external side,” Lee said at a meeting at the presidential house in Seoul today, according to his office Web site. “Even though we may post positive annual growth, we're in danger of negative growth in the first and second quarters.”

“Negative growth is unavoidable,” said Chun Chong Woo, senior economist at SC First Bank Korea Ltd. “We're bound to be affected by the global slump, and the government will have to think of more aggressive policies to help spur the economy.”

The Bank of Korea has cut its key rate by 2.25 percentage points since October, the most aggressive easing since it first set a benchmark in 1999. The bank most recently cut the benchmark rate by 1 percentage point to a record low 3 percent on Dec. 11.

South Korea is also pumping funds into banks, cutting taxes and boosting public spending to limit the fallout from the global credit crisis, which sent the Korean won down more than 28 percent and the stock index tumbling 41 percent this year.

“We see the first and second quarters to be the bottom,” Lee said. “There's hardly any country posting economic growth from the fourth quarter to the first quarter. “There is an end to this agony,” he said. “It won't last 10 or 20 years.”

An End To Agony, When?

Where do people get the idea this is all going to be over in a couple quarters? Somehow Bak makes the magic leap of faith the recession will be over soon just because it will not last 10 years. I suggest it lasts another year or longer. Even when the recover comes it will be anemic as the US consumer is tapped out and will be devastated by the stock market and housing carnage. Frugality will be the new reality for quite some time.

Vietnam's Weak Dong Policy

Struggling to boost exports, Vietnam Devalues The Dong .

Vietnam's central bank devalued the dong by 3 percent to help exporters after the Southeast Asian economy expanded at the slowest pace in nine years and the trade deficit widened.

“The devaluation is necessary as the government is trying to increase exports,” said Do Ngoc Quynh, chairman of the Vietnam Bond Forum in Hanoi and head of currency and debt trading at Bank for Investment & Development of Vietnam, the nation's second-biggest lender by assets. “Other currencies in the region have considerably declined against the dollar, but the dong hasn't dropped that much.”

“The Vietnamese dong is facing downward pressure due to the current-account deficit,” said Yuichi Izumi, an economist at Nomura Securities Co. in Tokyo. “The State Bank wants to guide the dong lower to support the export sector.”

Slower gains in consumer prices may have also provided more room for the central bank to weaken the dong. Inflation cooled for a fourth month in December to the slowest pace in nine months, with consumer prices rising 19.9 percent from a year earlier, the government said today. The rate touched 28.3 percent in August, the highest since at least 1992.

Fiscal insanity is everywhere you look. Inflation is running at 19% yet Vietnam wants a weaker dong. And with serious downward pressure, it's wrong to be long the dong.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2008 Mike Shedlock, All Rights Reserved

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