The Nikkei and Topix are marginally in positive territory as of this writing (the Nikkei up a bare five points) retracing earlier gains. The proximate cause appears to be a downbeat revised GDP report. Stocks initially appeared to shrug off the bad news, taking momentum from the Euro/US rally, but upon reflection, have (for the moment) taken a more sober view.
This news is far from unexpected, despite the market reaction. Japan is a bifurcated economy, with a flagging domestic sector and heretofore robust exports. Japan in turn outsources a considerable amount of its exports to China, so the results reflect the plunge in China, which in turn is a function of a plunge in international trade.
From the Financial Times:
Japan’s gross domestic product contracted much more rapidly in the third quarter than initially thought…
Revised gross domestic product data released on Tuesday showed a quarter-on-quarter fall of 0.5 per cent for the three months to September, compared with a preliminary estimate issued last month of a 0.1 per cent decline.
On an annualised basis, the third quarter contraction – which put Japan officially into recession – is now estimated at 1.8 per cent, rather than 0.4 per cent as previously….
Analysts also expect further bad news from the Bank of Japan’s Tankan survey of sentiment among manufacturers, which will be released next week.
Analysts surveyed by the Bloomberg and Dow Jones news agencies have predicted that the survey would show the worst deterioration in sentiment in more than 30 years.
Companies are also facing difficulties raising funds through the capital markets, prompting the most rapid rise in bank lending since records became available in 1992.
A representative of the National Federation of Small Business Associations said this week that companies appeared to be rushing to secure funds out of concern latecomers would find it difficult to borrow. ”Many companies are borrowing now because they see no prospect for sales in the new year,” he said.
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This is a blip. We have had a storm of horrible news for 3 months. If Toyota revenues are down 35%, of course Japan is down 2%. What we can’t see is what happens next. If the government bails out the big 3, then we can expect nationalization of the airlines, farms etc. If that happens, and government is holding the bag for the ‘bad economy’, they will need to protect it (Smoot Hawley 2) and pay for it (69% marginal tax rates). Then we will see how bad it can get.
They bailed out the banks without control. They really should do at least as much for the auto co’s. That’s what I feel right now at least. (But some way has to be found to eliminate many of the legacy costs, or the companies will never be competitive.)
This crisis is the banks’ fault. By no stretch of the imagination is it the auto companies’ fault.
Still waiting for that elusive number that states the losses for those over-the-counter derivatives. The principle could be a fix price but the interest on the non-existent payoffs is compounding daily. If it has no interest attached then the bailing out money will have compounding interest daily attached to it. A lose lose situation sending the world into depression.
Artichoke: be careful what you wish for. The US Autos’ plight (and, any future scenario) is inextricably bound up in the US healthcare morass AND US energy policy (I know-there isn’t one currently). Failure to address each of these will result in disaster. This rescue won’t be just about building ‘K’ cars (see Chrysler, Lee Iacocca, early ’80’s). Success means grasping ALL the poisoned chalices of the US economy!
CrocodileChuck
Croc,
We do not have to solve all the problems of energy and healthcare to reduce costs at automakers.
People lately are getting fired all the time, losing their healthcare coverage. Nobody says that we must solve all their problems. Hard-hearted I am, because I want (eventually) a solution for everyone; we all have problems these days.
By the way I think we should forget all the “green” stuff for a while and just build cars that people like. That probably means more SUVs. Whatever people want to buy, that is what GM, Ford and Chrysler should be able to build.
OTC derivatives: I have seen a number of $50 trillion associated with Credit Default Swaps.
That’s over $160,000 for every single man, woman and child US citizen.
There is no way we can handle THAT burden. Default, one way or another, is the only option.
That’s just CDS. There’s MBS investments that will never see the light of day. Gawd only knows what other investment vehicles were/are dreamt into existence. More like 1000 trillion worth (yes, I know what it converts to).
Plenty of gas guzzlers stockpiled on the docks already. Not enough people have the cash to buy and banks are not lending or the terms not attainable.
The Government will be doing the spending for us with our money we don’t have but that they create.
We the people are in the exotic loans business, investment and banking business, then insurance business, then home loans, soon to be in auto manufacturing…….it’s getting difficult to keep track anymore.