Ryu Mei (An Entrepreneur Blog)

Japan Recession!!!!

I am curious because Japan hasn’t been doing very much economically since the bubble burst many many years ago and now we are in a recession. Again, this is very interesting because it almost feels like a recession recession! What makes it different this time is the fact that YEN has strengthened so much that it has practically reduce all export earnings by more than 10%.

Toyota got hit doubly hard with Strong Yen and Low Auto Sales. Most likely the rating agency like S&P or Moodys is going to downgrade Toyota rating very soon and Toyota share value will drop like stone. But at the same time I can see that Toyota will be the only car company in the future with no potential rival in sight. Moreover, GM is in such deep deep trouble that I doubt they will even survive to compete globally anymore. So, I would put a note-to-self “Buy Toyota".

Cash is King! I do not believe that this is the right time to put my money on the equity market since, I said it before, this year and the 1st half of next year will be full of negative news and bad economic data that will release the big bad Bear again.

We have a “triple bottom” on all of the index charts, and if it breaks the 52 week low resistance, we will be seeing another bearish selling. But who knows, it could go up to DOW 10,000 mark again under the slowest holiday spending season. And that I considered as a christmas miracle!

US interest rate cut to 1% yesterday, and Japan stock market opened higher this morning. Japan may be expected to cut interest rate too. Funny BOJ already has an interest rate of 0.5%. How far can they go?

Another funny thing about this interest rate cut is that it was the easy credit (low interest rate) that started this whole credit crisis in the first place. And now we are lowering interest rate to help support the market and ease instability in the financial world.

Anyway, the cut has returned confidence to the Japanese investors and Yen weaken to 98-99 Yen for every US dollars. Kospi went up more than 12% in the morning amid the fact that Oil price goes up and consumer spending has dropped to record low.

FACTS:
1) US home lending rate is still too high;
2) Home prices has dropped from the Sep report recently but has not dropped enough to significantly decrease the massive inventory still in the market. So it only means that home prices are going to drop even further;
3) Companies are downsizing or M&A to save cost and to increase revenue, as a result jobs loss are inevitable, which in turn lead to more house value decrease, not to mention that consumer spending will freeze too.
4) According to billionaire G. Soros, 2/3 of all hedge fund will bankrupt. So does this mean that equity markets will drop further?
5) OPEC selfishly cut oil production by 1.5 million a day. Oil prices will increase, which only means that gasoline price going up too
6) Ted Spread, Libor rate etc have came down dramatically, but it seems to me that Banks are still wary about lending or else why are financial companies still begging government for support;
7) Earning report season is almost over, and most companiese lower guidance for the 4th quarter and 1st quarter of next year. So, this only means that equity market must continue to fall further. In my opinion, the next earning report will be horrenduous.
8) Pension funds. Apparently most news reporters and analysts failed to report the Baby Boomers’ pension funds. Companies like BAE systems, British airways have pension funds deficits equivalent to 10% of their market capitalization. So, when these Babay Boomers were to retire…… wow….. I cannot imagine what kind of trouble will start to brew.
8) Japanese Banks, who I thought have the best balance sheet in the world are requesting for support from the government. What is the deal here? UFJ Mitsubishi is requesting support too. But hey, they just invested billions of dollar in Morgan Stanley? Apparently Japanese Banks have not learned their lesson in 1990s.
9) Banks balance sheets! Have we seen enough of Banks’s balance sheet to safely declared the credit crisis is almost over, and the equity markets are at their bottom?
10) BRIC (BRAZIL, RUSSIA, INDIA and CHINA) are slowing down. Moreover, Russia had closed their markets several times to avoid panic selling. Recently they borrowed billions of dollar from China in exchange for oil. Russia, like the OPEC nations, may have depended on the high oil prices and is choking on $60-70 oil.

Wow….. these are just the summary of what I heard from Japanese news.

I am happy that DOW went up 900points 2 days ago and Nikkei went up 11% and another 9% today. This are all great, but hey, when you are already down so much, this rally does not mean anything to many of us investors anymore. It is no surprised that nobody in the wallstreet were cheering when DOW closed with over 900points, the 2nd highest rally points in history.

Yen at 93 for every 1US dollar. Last week it was around 101Yen, it is almost a close to 10% drop.

Maybe I should start changing the organic tea sales prices from next week.

There is much to worry about in this economic recession. And the Yen strengthening is the just the beginning.

Lots of Japanese investors lost their money overseas thru equity markets, and may lose even more with the Yen losing close to 10% of its value. It is a double whammy.

The reason why Yen strengthen is because of the credit crunch issue and the global recession. Whenever there is a recession globally, or locally, Yen tends to strengthen mainly due to investors selling and sending back investment money back to Japanese homeland Bank. With banks in Europe and US possibility of going bankrupt, there are lots of Japanese investors also getting giddy with all the negative news overseas.

Japan has a huge trade surplus with overseas, and usually the surplus dollars are kept overseas because there is no point banking the dollars in Japan with zero interest rate. So, when economic bomb hit the world, dollars are immediately exchanged into Yen and put into cash.

And that is why Yen is a defensive currency.

With carry trade, weak investment overseas, and weak dollar, I am not be surprised that Yen will go below 90 and stay around 85 till the whole panic thing is over.

Moreover, with the floods of Dollar injected into the market, it is common sense that Yen will strengthen even further.

………..This is just the beginning, folks….. lots more negative news from the Japanese financial market to come. Eg, deleveraging, inflation, manufacturing slow down, and finally large pension funds. We forgot about the baby boomers’ large pension funds! Companies like Sony, Toyota, Mitsubishi may find themselves in lots of trouble finding funds for all this pension funds that may expire pretty soon.

Ah….. at this time, I think the best way is to drink my cup of organic green tea and take an afternoon nap…..!!!!

I have been hearing news from the Japanese media that Japanese Banks are fundamentally sound and the recent purchased of 21% stake in Morgan Stanley proves that.

Yes, the Japanese bank are strong, and the 90s lesson really taught the Japanese bankers the reality of easy money. But the core of the problem is not the problems of the balance sheet, the debt, credit rating, CDS, blahblah….financial jargons that are filling up the headlines, rather it is the reluctance of global financial institutions to lend. The 3month Libor rate is around 4%, ted spread is high and the credit completely freezes up. Without credits, bank assets loans, toxic loans, small business loans etc etc are all choked up. Whether institution is financially sound or not does not hold any fundamental value anymore.

Even with the UFJ Mitsubishi deal finally closed, Morgan Stanley’s share value sky rocketed over 80% but later fell over 16% yesterday. Even with the Fed making offers to buy equities in big bank, the stock market still tanked. Recently, the US, Japan, Europe, Asian, Australia, New Zealand governments are making coordinated markets efforts to help the market. In my opinion they are only helping the market from falling sharply.

Earnings season has just started, and the DOW market tanked 700 points yesterday. The Japanese market just opened right now while I am writing this blog…..

Later, we will be having economic data like Job, Home sales, GDP etc etc, and all these negative economic data will bring the market further down.. Not to mention that EU economic data will be negative also, and then US economic data will also be negative. And later it will be Asia, Arabs nations turn………. it is like a merry-go-round, or I should say disaster-go-round.

Global recession? Oil rich countries did not expect price below $80! China and India export figures went down! Consumer Confidence are record low! Japanese auto sales are down! Strong dollar? Weak dollar? Which is it? Hyper Inflation?

When most experts declared this is the Market Bottom, I think NOT! There will be more things to come, and there will be more downward trend.

Damn, Cramer is right! We may be seeing Dow at 7500 pretty soon.

Oh by the way, there is no point talking about the Nikkei anymore since Japan market simply follows the US market whether or not the Japanese Financial Bank are fundamentally sound…..