Showing posts with label michael woodford. Show all posts
Showing posts with label michael woodford. Show all posts
Sunday, January 8, 2012
Wednesday, March 16, 2011
Don't Panic! III - The Japanese Ministry of Reconstruction
As I have noted, the ongoing media hype over the possible damage done to the Japanese and world economy is overdone and simply wrong.
Once the situation on the ground has stabilised the Japanese will pump billions into rebuilding the infrastructure, which in itself will give the moribund construction industry a much needed boost.
Chief Cabinet secretary Yukio Edano has already announced that Japan will establish a Ministry of Reconstruction.
It is estimated that Japan will take around five years to reconstruct the shattered infrastructure, a level of reconstruction not seen since the end of World war II.
Preliminary estimates, which will be revised, put the cost of reconstruction at around $180BN.
Whilst the shorters currently have the "upper hand", the medium and long term prospects for the markets are favourable. Do not panic, and do not get suckered in by the media hyperbole of crashing markets and nuclear "meltdowns".
Once the situation on the ground has stabilised the Japanese will pump billions into rebuilding the infrastructure, which in itself will give the moribund construction industry a much needed boost.
Chief Cabinet secretary Yukio Edano has already announced that Japan will establish a Ministry of Reconstruction.
It is estimated that Japan will take around five years to reconstruct the shattered infrastructure, a level of reconstruction not seen since the end of World war II.
Preliminary estimates, which will be revised, put the cost of reconstruction at around $180BN.
Whilst the shorters currently have the "upper hand", the medium and long term prospects for the markets are favourable. Do not panic, and do not get suckered in by the media hyperbole of crashing markets and nuclear "meltdowns".
Tuesday, March 15, 2011
Don't Panic! II
Yesterday I noted the following wrt the crisis in Japan:
"Whilst in the short term there will be a negative impact on the economy.. the medium term prospects are far rosier."
Unsurprisingly, as the situation on the ground in Japan continues to develop (especially wrt the nuclear reactor), there has been a downturn in the markets. The Nikkei shed 1000 points, and the FTSE is currently down by approximately 3%.
As long as the current situation remains volatile and unclear there will be some significant fluctuations in the markets as investors take fright, and shorters make a killing.
However, once the situation has stabilised I stand by the point that I made yesterday that the "..medium term prospects are far rosier..":
"The stimulation package announced by the central bank, and general economic boost provided by capital refurbishment projects will in fact do the Japanese economy (and world economy) a power of good."
Do not panic, and do not get suckered in by the media hyperbole of crashing markets and nuclear "meltdowns".
"Whilst in the short term there will be a negative impact on the economy.. the medium term prospects are far rosier."
Unsurprisingly, as the situation on the ground in Japan continues to develop (especially wrt the nuclear reactor), there has been a downturn in the markets. The Nikkei shed 1000 points, and the FTSE is currently down by approximately 3%.
As long as the current situation remains volatile and unclear there will be some significant fluctuations in the markets as investors take fright, and shorters make a killing.
However, once the situation has stabilised I stand by the point that I made yesterday that the "..medium term prospects are far rosier..":
"The stimulation package announced by the central bank, and general economic boost provided by capital refurbishment projects will in fact do the Japanese economy (and world economy) a power of good."
Do not panic, and do not get suckered in by the media hyperbole of crashing markets and nuclear "meltdowns".
Monday, March 14, 2011
Don't Panic!
Aside from focusing on the loss of human life and humanitarian issues relating to the ongoing crisis in Japan, many media organisations are also hyping the potential economic downside of this disaster.
Whilst in the short term there will be a negative impact on the economy, the medium term prospects are far rosier. The stimulation package announced by the central bank, and general economic boost provided by capital refurbishment projects will in fact do the Japanese economy (and world economy) a power of good.
Whilst in the short term there will be a negative impact on the economy, the medium term prospects are far rosier. The stimulation package announced by the central bank, and general economic boost provided by capital refurbishment projects will in fact do the Japanese economy (and world economy) a power of good.
Wednesday, October 6, 2010
Currency Wars
Dominique Strauss-Kahn, the head of the IMF, has warned that cuts in interest rates and quantitative easing (as recently announced by the central bank of Japan) could upset the global economy recovery and trigger "currency wars".
The Japanese central bank is reverting to a "zero interest rate" policy (which it abandoned in 2006).
Given that both the US and UK have cut rates and instituted quantitative easing, Mr Strauss-Kahn's comments seem a little "behind the curve".
The Japanese central bank is reverting to a "zero interest rate" policy (which it abandoned in 2006).
Given that both the US and UK have cut rates and instituted quantitative easing, Mr Strauss-Kahn's comments seem a little "behind the curve".
Monday, August 16, 2010
China Rising
China has now overtaken Japan as the world's second largest economy, as per data relating to Q2 2010.
Japan's GDP for that period was $1.288 trillion, whilst China's was $1.337 trillion.
According to Goldman Sachs, China will overtake the USA as the world's largest economy by 2027.
Japan's GDP for that period was $1.288 trillion, whilst China's was $1.337 trillion.
According to Goldman Sachs, China will overtake the USA as the world's largest economy by 2027.
Friday, March 6, 2009
Where No Man Has Gone Before
The Bank of England had a "Star Trek" moment yesterday, as it lowered interest rates to 0.5% (the lowest in the UK's history) and committed to pump in £75BN into the UK economy over the next 3 months via quantitative easing (printing money).
Quantitative easing has never been attempted in the UK, when the Japanese tried it in the 1990's it had little success.
As to whether these policy measures will work is anyone's guess, we are entering uncharted territory and going where no man (UK central banker) has gone before.
Quantitative easing has never been attempted in the UK, when the Japanese tried it in the 1990's it had little success.
As to whether these policy measures will work is anyone's guess, we are entering uncharted territory and going where no man (UK central banker) has gone before.
Tuesday, September 23, 2008
The Dead Cat Bounce II
Lats week I wrote about the rebound in shares, in response to the US bailout of the financial system, being a "dead cat bounce".
It would seem that I was right.
Shares in London and Asia have fallen sharply, as doubts grow about whether the $700BN bailout will work. At the time of writing:
-The FTSE is down 2%
-The CAC down over 1%
-The MSCI index of Asia-Pacific shares (excluding Japan) down 2%
-The Dow down over 3%
The package proposed by Henry Paulson, US Treasury Secretary, is expected to face opposition from members of Congress about how to pay for the plan.
Additionally, other American industries outside Wall Street have begun to ask for similar assistance; eg bans on short-selling have been requested by car and real estate companies.
Senator Richard Shelby, the leading Republican on the Senate Committee on Banking, Housing and Urban Affairs, said in a statement yesterday that the proposal was "neither workable nor comprehensive".
"I am concerned that the Treasury's proposal is neither workable nor comprehensive, despite its enormous price tag. In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted, and may actually cause the Government to revert to an inadequate strategy of ad hoc bailouts.
Given that markets have recently taken confidence in the prospect of government involvement, I believe Congress must immediately undertake a comprehensive, public examination of the problem and alternative solutions rather than swiftly pass the current plan with minimal changes or discussion. We owe the American taxpayer no less."
That is all very well, but the issue is one of confidence. A lengthy review will sap the confidence and destroy the financial system before any "cure" is discovered.
I noted last week:
"The actions taken may well soften the blow from the fallout of the sub prime crisis. However, the market cannot be bucked. There is a massive repricing of risk being undertaken which will negatively impact the share prices of financial institutions and, by definition, their willingness and ability to take on risk.
No matter what governments do this repricing will happen and the effects will be felt by everyone, from the CEOs of the leading banks to the ordinary man in the street seeking credit to buy a car or home.
The market will not be bucked. The surge in share prices is in effect a dead cat bounce, not a long term rally."
The bailout will not stop shares falling, but it will stop the world wide financial system from collapsing by giving it a much needed boost of confidence.
Testing times require bold measures.
Now is not the time for dithering and navel gazing.
It would seem that I was right.
Shares in London and Asia have fallen sharply, as doubts grow about whether the $700BN bailout will work. At the time of writing:
-The FTSE is down 2%
-The CAC down over 1%
-The MSCI index of Asia-Pacific shares (excluding Japan) down 2%
-The Dow down over 3%
The package proposed by Henry Paulson, US Treasury Secretary, is expected to face opposition from members of Congress about how to pay for the plan.
Additionally, other American industries outside Wall Street have begun to ask for similar assistance; eg bans on short-selling have been requested by car and real estate companies.
Senator Richard Shelby, the leading Republican on the Senate Committee on Banking, Housing and Urban Affairs, said in a statement yesterday that the proposal was "neither workable nor comprehensive".
"I am concerned that the Treasury's proposal is neither workable nor comprehensive, despite its enormous price tag. In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted, and may actually cause the Government to revert to an inadequate strategy of ad hoc bailouts.
Given that markets have recently taken confidence in the prospect of government involvement, I believe Congress must immediately undertake a comprehensive, public examination of the problem and alternative solutions rather than swiftly pass the current plan with minimal changes or discussion. We owe the American taxpayer no less."
That is all very well, but the issue is one of confidence. A lengthy review will sap the confidence and destroy the financial system before any "cure" is discovered.
I noted last week:
"The actions taken may well soften the blow from the fallout of the sub prime crisis. However, the market cannot be bucked. There is a massive repricing of risk being undertaken which will negatively impact the share prices of financial institutions and, by definition, their willingness and ability to take on risk.
No matter what governments do this repricing will happen and the effects will be felt by everyone, from the CEOs of the leading banks to the ordinary man in the street seeking credit to buy a car or home.
The market will not be bucked. The surge in share prices is in effect a dead cat bounce, not a long term rally."
The bailout will not stop shares falling, but it will stop the world wide financial system from collapsing by giving it a much needed boost of confidence.
Testing times require bold measures.
Now is not the time for dithering and navel gazing.
Thursday, September 18, 2008
Emergency Aid
The world's leading central banks, including the Bank of England, have joined forces and injected approximately £100BN into the world's financial system.
The action is US funded, whereby the US Federal Reserve is lending the Bank of England, the European Central Bank (ECB), the Swiss National Bank and the central banks of Canada and Japan the money to pump into their financial systems.
The question is, given that the US government allowed Lehman Brothers to go to the wall on Monday, will this restore confidence into the system?
The action is US funded, whereby the US Federal Reserve is lending the Bank of England, the European Central Bank (ECB), the Swiss National Bank and the central banks of Canada and Japan the money to pump into their financial systems.
The question is, given that the US government allowed Lehman Brothers to go to the wall on Monday, will this restore confidence into the system?
Saturday, August 18, 2007
The Credit Crunch
The ongoing, so called, "credit crunch" may well have repercussions in areas not immediately apparent.
Much of the borrowing used by people/companies for their investments in the bundled debt products that have been over valued, has been financed using cheap borrowed Yen.
This is known as the Yen Carry Trade. Now that the debts are unravelling, so too is the Yen Carry Trade; this has consequences for the Yen itself, as companies liquidate their positions and pay back their Yen borrowings.
The cost of borrowing Yen is rising, as such those trades and investments that were once financially viable are no longer viable.
One area where there has been heavy use of Yen borrowings, both by companies and Japanese housewives, is that of currency speculation in the Turkish Lira. It is very likely that, if the crunch continues, the Turkish Lira will collapse as speculators pull out.
This in turn will severely damage the profits of the Japanese housewives, thus negatively impacting the Japanese economy.
The lesson here is, don't invest what you can't afford to lose.
Much of the borrowing used by people/companies for their investments in the bundled debt products that have been over valued, has been financed using cheap borrowed Yen.
This is known as the Yen Carry Trade. Now that the debts are unravelling, so too is the Yen Carry Trade; this has consequences for the Yen itself, as companies liquidate their positions and pay back their Yen borrowings.
The cost of borrowing Yen is rising, as such those trades and investments that were once financially viable are no longer viable.
One area where there has been heavy use of Yen borrowings, both by companies and Japanese housewives, is that of currency speculation in the Turkish Lira. It is very likely that, if the crunch continues, the Turkish Lira will collapse as speculators pull out.
This in turn will severely damage the profits of the Japanese housewives, thus negatively impacting the Japanese economy.
The lesson here is, don't invest what you can't afford to lose.
