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Tuesday, February 12, 2008


american mortgages to infect japan

the telegraph:

Americans and Europeans have so far confessed to $130bn of the estimated $400bn to $500bn of wealth that has vanished into the sub-prime hole. Somebody, somewhere, must be sitting on a vast nexus of undisclosed losses. We may find out soon enough whether the hold-outs are in Japan. The banks have to come clean under the country's strict new audit codes by the end of the tax year in March.

"We think this is where the next big problem is going to pop up," said Hans Redeker, currency chief at BNP Paribas.

"We know from Bank of Japan's lending survey that the banks are already tightening hard, so something is brewing. Right now, we are in the lull before the second storm in global markets, and Asia is going to be the source of the nasty surprises," he said.

just as interesting:

What we know is that Japan's economy - still the second biggest in the world by far - has fallen over a cliff since October. ... Japan's machine orders dropped 2.8 per cent in November and a further 3.2 per cent in December. January housing starts fell to the lowest in 40 years, down 18 per cent on the year. Tokyo property was off 22 per cent. ...

"Recession is a clear and present danger in Japan," said Tetsufumi Yamakawa, chief Japan economist for Goldman Sachs. "The leading indicators are deteriorating very sharply. Inventory is piling up at a rapid pace. There are clear signs of deceleration in exports of steel and semi-conductors to China," he said.

... Hong Liang, Beijing economist for Goldman Sachs, is not much more hopeful about China's prospects this year. "The combination of a US slowdown and monetary tightening in China is never welcome, but the accumulated problems have to be resolved this year," she said.

Inflation at 6.9 per cent is getting out of hand. The root cause of overheating is the weak yuan. The central bank has piled up $1,500bn of foreign reserves trying to stop it rising. The longer this goes on, the more inflationary it becomes. So Beijing has begun to step up the pace of revaluation, letting the yuan rise at an annual rate of 20 per cent in January. There will be casualties. Large chunks of China's manufacturing export industry have wafer-thin margins. A rising yuan tips them into the red.

China's mercantilist drive for export share is a double-edged strategy. The trade surplus has risen at $80bn a year, increasing tenfold since 2002 while the economy has merely doubled. The result is that China is as dependent on the US economy as Mexico.

i'm already suspicious of china, but it sounds more and more like what is transpiring is a significant global slowdown -- one which is following wall street's toxic mortgage-backed securities around the world.

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