Markt-Daten Blog » 2008 » April

US isn’t like Japan 10 years ago.

People say the US isn’t like Japan 10 years ago. I agree. Actually
it’s WORSE! We have long believed that when the US bubble finally burst, there would be key lessons
that could be learnt from Japan’s experience a decade ago…with the US now entering its second
recession since the stock-market bubble burst and with a pronounced credit crunch unfolding (just like
Japan had), clients are more willing to listen to our gloomy story…

Many seek comfort that the Fed is well aware of the mistakes Japan made a decade ago and they have at
the helm an expert on the Great Depression. But that does not mean they can muffle the huge sucking
sound as debt excesses unwind…

Where the US is in a much worse state than Japan a decade ago is in its consumer finances. When Japan
went into its Ice Age in 1990, the household savings ratio stood at a lofty 15%. Hence as income declined,
consumers were able to run down savings to maintain living standards. In contrast, the US consumer is a spent force. So as US employment now slumps (flexible economy and all that), the US saving ratio is more likely to rise, causing a far deeper slump in GDP than we saw in Japan a decade ago…
But we also note that actually in Japan, despite real estate slumping from 1991 onwards, banks were not perceived to be a problem…until the second recession in their own Ice Age began to unfold just like the
US now… http://www.sgresearch.socgen.com

Ring-Fence the Bad Assets –

Re-Arranging the Deck Chairs on the Titanic?

Yesterday I expressed my opinion on the lack of economic substance of allowing financial institutions to value the assets on their books at historical cost or whatever they so desire (Mark It as You Choose, but Is Enough Cash Coming In?). Today, yet another “costless” solution to the bad-asset problem is being put forth in the Financial Times – quarantine the bad apples from the good (Wall St banks seek to ring-fence bad assets). Simply isolating the bad assets does not make them “good.” Selling the isolated bad assets in an arms-length transaction to some other private entity presumably results in a loss for the seller. If not, why are they considered bad assets? Selling the isolated bad assets to some government entity at some price above an arms-length transaction shifts the loss from the selling institution to the taxpayers. When will the modern-day alchemists face up to the fact that they have lead, not gold, on their balance sheets, take their losses and move on? Jobless Claims – If One Week Does Not a Trend Make, How about 4 Weeks? Initial jobless claims soared upward by 38 thousand in the week ended March 29. Maybe the moveable feast of Easter played havoc with the seasonal adjustment factor. Maybe a strike in the auto-equipment sector biased upward new unemployment claims. So, lets look at 4-week moving averages of not-seasonally-adjusted initial claims and compare them with year-ago data. Chart 1 shows that the year-over-year rate of increase in initial jobless claims is picking up speed – hitting 19.5% in the four weeks ended March 29. Obviously, the latest observation is affected by the surge in the latest one-week tally. But if we rewind the tape a little, we still see double digit year-over-year percentage increases in the 4 weeks ended March 15 (13.13%) and March 22 (14.35%). A similar rising pattern has been established for continuing unemployment claims (see Chart 2). Chart 3 shows that the unemployment rate among those covered by out-of-work insurance has stair-stepped its way up from 1.9% to 2.2%. In the words of Alfred Kahn, President Carter’s Council of Economic Advisers chairman – the economy has entered a “banana.” Chart 1 Chart 2 Chart 3
Paul L. Kasriel, Director of Economic Research The Northern Trust Company Economic Research Department Positive Economic Commentary “The economics of what is, rather than what you might like it to be.”

MZM growth for the week ended April 3 hit a record 37.7%

The annualized four-week average of MZM growth for the week ended April 3 hit a record 37.7%
according to the St. Louis Fed.

http://research.stlouisfed.org/publications/usfd/page5.pdf

US isn’t like Japan 10 years ago.

Ring-Fence the Bad Assets –

MZM growth for the week ended April 3 hit a record 37.7%

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