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Goldman Warns Of 6.5% Japanese GDP Collapse, Worst Since Lehman

Tyler Durden's picture


Back in early 2013 we warned in article after article, that as a result of Abenomics, Japan is facing an economic disaster of epic proportions.

We recapitulated this topic most recently in June, when our forecasts were proven correct, and we summarized the legacy of Abenomics as follows: Japan's Greatest "Misery" In 33 Years. Of course, starting in 2012, throughout 2013 and into 2014, the mainstream media, like a dutiful little cheerleader has been encouraging the devastation with the argumentum ad populum (and ad baculum, and ad ignorantiam) "what other option does Japan have."

Well, one option was simply not to engage in economic suicide. But then again it was never about the economy: it was all about the BOJ's monetary stimulus that would allow the US stock market several more months of fungible bliss as Japanese reserves found their way into the US stock market at a time when the epic illiquidity in the US Treasury bond market (as we grew tired of explaining in 2013) forced the Fed to begin tapering in December (and conclude in October, or a few months before it is forced to launch yet another QE episode).

This likely explains why just like the media, Goldman, which would do anything to revel in yet another year of soaring bonuses, was a fervent supported of Abenomics, knowing well what the impact of $75 billion in Japanese liquidity would have on the S&P500, and thus Goldman's bonus pool, all the while explaining away the ongoing catastrophe of the economy with the magical "J-Curve": you see, Japan's miraculous export-boom driven recovery was always just around the corner... after all the J-curve is never wrong.

Except this time.

And now that Japan has served its purpose, with the Nikkei225 well below its January 1 level and unlikely to repeat last year's performance (in fact it will be lucky not to plunge by 10-20% by year end as the momentum chasers have long gone, just as the cartoonish government dumps the people's pensions into 30x P/E stocks and destroys what little peace of mind Japan's future retirees may have), Goldman has finally turned the corner and is now saying what we warned would happen in Japan well over a year ago.

From Goldman's Naohiko Baba:

Japan Focus of the Week: June wages disappoint; watch for BOJ’s economic assessment 


Slowdown in June wages, special wages disappoint


June total cash wages rose 0.4% yoy, decelerating slightly from May (+0.6%). Basic wages turned to a small growth, but overtime wages decelerated.  Special wage, reflecting summer bonuses disappointed with only a small +0.3% increase.


Real disposable income drops sharply again in June / large negative GDP growth unavoidable for Q2


Based on the Household Survey, Q1 real spending rose 4.6% qoq on rush demand before the tax hike, but the Q2 pullback was higher at -9.4% qoq. One explanation was decline in real disposable income, which declined -8.0% yoy in June and -6% yoy on average for Q2. The difficult income environment is reflecting in consumer behavior.


June production declines far steeper than expected


Production decreased 3.3% mom in June (May: +0.7%), a far steeper decline than the market consensus (-1.2%) and the production outlook (-0.7%). Producer shipments were also down 1.9% mom in June, and this resulted in a sharp rise in inventories (of +1.9%).

Just as Abenomics is preparing to hit its 2-year anniversary, Japan's economy is on the verge of recession. And here is Goldman's punchline, one whose arrival we warned was only a matter of time.

The greater-than-expected weakness in the consumption snapback signals significant downside risk to our forecast of 4.6% decline for Q2 real GDP (sequential annualized). While we expect lower imports, higher inventories, and other factors to support GDP to some extent, we see negative real GDP growth of around -6.5% as likely, based on the data currently available.

Considering in Q1, Japan's GDP grew by a front-loaded 6.7%, the nearly 13% plunge to a -6.5% annualized contraction would be the biggest sequential GDP drop in Japan's history. As we showed two weeks ago:


In short: Japan's Keynesian lunacy is about to result in the worst economic collapse since the Lehman bankruptcy. Congratulations tenured ivory tower economists: your "theories" have just crushed another country.

As for Abe, he still has time to develop another mysterious case of diarrhea and to take his second and final leave from politics, leaving some other unlucky soul to pick up the pieces from his disastrous policies.

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Sat, 08/02/2014 - 21:38 | 5039210 ekm1
ekm1's picture

I am quite surprised that Goldman is converging with my forecast, pleasantly surprised.


Again my estimations of GDP (ALL NEGATIVE):


USA, -4%


EU, -6%


JAPAN, -5%

CHINA, -8%


WORLD, -5%


Sat, 08/02/2014 - 21:47 | 5039217 strannick
strannick's picture

Could always exchange some of that feverishly minted yen, for freshly mined gold.

Since mining takes a lot longer than minting, seems pretty obvious choice, but as former Fed Chair Arthur Burns told us, "the last duty of a Central Banker is to tell the truth". J.C. Junker seconded this central bank truism (falseism?) when he said, "when it gets serious you lie".


Sat, 08/02/2014 - 21:48 | 5039236 ekm1
ekm1's picture

no objection to anything said

Sat, 08/02/2014 - 22:05 | 5039272 ZerOhead
ZerOhead's picture

Did Goldman just throw Japan under the bus?

Watched it climb up that chair...  stick a noose around it's neck... and now it is going to kick that chair away and almost certainly cash in big time. They probably have a 100 man team figuring out how to ride that forthcoming wave of falling dominoes for the love of fun and profit...

Sat, 08/02/2014 - 22:05 | 5039277 ekm1
ekm1's picture

GS is untouchable.

Now think. If Japan is negative, then all world is negative. And it's all due to world trade collapse and all due to USA Quantitative Easing


Bullets coming soon if margin on the system is not called by Yellen

Sat, 08/02/2014 - 22:13 | 5039296 ZerOhead
ZerOhead's picture

She is going to have to net out that quadrillion dollar derivatives market fiasco before it explodes in her face and we have Fall 2008X10 all over again...

Sat, 08/02/2014 - 22:15 | 5039305 ekm1
ekm1's picture

The government will sacrifice many other sacrificial lambs on GS's altar.

Sat, 08/02/2014 - 22:42 | 5039388 robertocarlos
robertocarlos's picture

Well called ekm. I knew all the banks were insolvent in 08 and still are insolvent but I didn't think the deflationary depression was getting started so soon. Anyways I backed Maki on here years ago with the deflation call. What do I win?

Sat, 08/02/2014 - 22:47 | 5039398 ekm1
ekm1's picture

canadian maple syrup

Sat, 08/02/2014 - 22:56 | 5039418 robertocarlos
robertocarlos's picture


Sat, 08/02/2014 - 23:09 | 5039461 kliguy38
kliguy38's picture

a butterfly across the world........just took a GIANT SHIT

Sun, 08/03/2014 - 01:14 | 5039637 Tall Tom
Tall Tom's picture

It has not yet crystalized. They are between a rock and a hard placee.


If the US decides to save the Dollar then it cannot even pay the Service on the Debt, much more the Debt.. Deflation saves the Dollar but destroys the Government's Credit, thus credibility. That is not Politically palatable.


If the USA decides to pay its bills it must inflate. Of course the Currency, the US Dollar, will have to be sacrificed.


It will be Politically expedient for them to inflate, to hyperinflate.


Deflation first precedes a hyperinflation and Deflation then follows a hyperinflation.


How many retirees will be screaming for blood when they lose their pensions and retirement?  They are the voters and the politicians will act to appease them.


They will hyperinflate. That is the politically expedient action to take.


Janet Yellen has not yet to begin to print. (WB7...Cast her as John Paul Jones on the sinking Bonhomme Richard...)

Sun, 08/03/2014 - 02:25 | 5039699 GernB
GernB's picture

Your assuming the Fed has enough control to inflate. Recent history suggests the only thing they have the power to do is create asset bibles.

Sun, 08/03/2014 - 11:42 | 5040302 saveandsound
saveandsound's picture

Watch Japan closely.

Heck, no need to watch closely, just take a glimpse every once in a while. The Yen is the first currency to become worthless. I'm thrilled to see how the BOJ is going to stop the process once it started.

Sun, 08/03/2014 - 11:42 | 5039871 oudinot
oudinot's picture

I don't believe the US will hyperinflate.  They will start a major war, write off debts owed to their enemies.



Sun, 08/03/2014 - 12:48 | 5040524 lunaticfringe
lunaticfringe's picture

There is no alternative. Perhaps they will call for war and we will tell them to go fuck themselves like Obama's Syria war.

Sun, 08/03/2014 - 12:46 | 5040515 lunaticfringe
lunaticfringe's picture

Tall Tom you are absolutely correct. The easiest path through this swamp that they have created- which I might add has plenty of historic precedence- is a hyper inflationary episode. That is the only possible outcome. Calling "when" is a game for fools.

Sun, 08/03/2014 - 01:36 | 5039658 401K of Dooom
401K of Dooom's picture

Hmmmm, sounds and smells like Mothra to me.

Sat, 08/02/2014 - 23:11 | 5039464 DoChenRollingBearing
DoChenRollingBearing's picture

Cut your prices for some of your bearings Japan, and we'll take a lot of them off your hands.  Cash-in-advance even...

Sun, 08/03/2014 - 01:11 | 5039633 disabledvet
disabledvet's picture

Careful what you wish for.

Commodity prices have completely collapsed in the USA and the yen has been quite weak for some time. If that bearing production gets "in sourced" the final product ("the widget with bearings") could be of truly stupendous value.

This economic distress is not news in Japan either. What is amazing actually is how well they have persevered through the biggest man made catastrophe (Fukushima) since...and I am quoting the Emperor here..."World War II."

Not an expert at all on the nation or the citizenry...hard to tell how they will respond here. So far there has been a lot of war noise though.

Sat, 08/02/2014 - 23:33 | 5039429 ZerOhead
ZerOhead's picture

Neither deflation nor credit contraction can work over the long term in a Ponzi.

Sat, 08/02/2014 - 23:49 | 5039536 max2205
max2205's picture

It's all Japanese to me....

Japan will be the 51st state

Sun, 08/03/2014 - 11:15 | 5040209 moneybots
moneybots's picture

"Neither deflation nor credit contraction can work over the long term in a Ponzi."


In the long term, all Ponzi's fail.

Sat, 08/02/2014 - 22:07 | 5039282 Yen Cross
Yen Cross's picture

 ZeroOhead , The global bond market is throwing the Squid under the buss.

    The paper changers are getting scared!

Sat, 08/02/2014 - 22:22 | 5039312 ZerOhead
ZerOhead's picture

So your smelling calamari?

Sat, 08/02/2014 - 22:30 | 5039334 Yen Cross
Yen Cross's picture

I'm smellin "puffer fish" calamari.

 The 100.70/50 area is well telegraphed. I'm looking under "parity" before the Kyle Bass destruction plan.

   I like Kyle, and I'll OWN Argentina!

Sat, 08/02/2014 - 22:42 | 5039389 HardlyZero
HardlyZero's picture


Sat, 08/02/2014 - 23:46 | 5039529 remain calm
remain calm's picture

Kyle gets this one right bigtime!!!

Sun, 08/03/2014 - 01:22 | 5039644 disabledvet
disabledvet's picture

Again...I would be very wary. There is almost nothing that cannot be made in Japan...so if that yen starts to weaken considerably there is a lot of US raw material ready to "rev up the Japanese growth engine."

Also I might add they already have massive production facilities here in the USA...so they don't have a problem raising dollars (unlike say friggin Veneuela which in the name of economic lunacy sold off Sunoco just in time for the USA to become the world's largest seller of refined product.)

Interestingly the Chinese are following Japan's lead and paying top dollar for US based assets (pigs in Virginia.) these are top of the line manufacturing and food processing businesses.

Some of these businesses are based in Texas ironically enough.

About the only industry that remains safe in my view remains Boeing. Be interesting to see once General Electric finally is broken up if Boeing buys the aircraft division. Those turbine engines can power a lot more than an airplane.

Sat, 08/09/2014 - 15:32 | 5070533 fonzannoon
fonzannoon's picture

this is a nothing burger as long as that 10yr jgb keeps rallyin. show me their 10yr bustin through 2% on it's way to 3% and i get interested.

Sat, 08/02/2014 - 22:33 | 5039351 Leonardo Fibonacci2
Leonardo Fibonacci2's picture

GS is from the tribe. Zionists get the best service at GS, the rest of us are just muppets.

Sun, 08/03/2014 - 10:54 | 5040159 starman
starman's picture

Should I be worried about my rather large accout at Union Bank what is actually Bank of Mitsubishi?


Sun, 08/03/2014 - 11:18 | 5040215 Greenskeeper_Carl
Greenskeeper_Carl's picture

you should be worried about having a large ammount of money in any insolvent bank in any of the massively indebted western nations. there are bail-in plans in place everywhere, not a question of if, but when

Sun, 08/03/2014 - 11:45 | 5040311 oudinot
oudinot's picture

You should be worried to have large amounts of cash in any bank whatsoever.

That includes equity stock in the broker's name, bonds in the broker's name, paper gold, deposit boxes, mutual funds and ETF's

Sun, 08/03/2014 - 20:27 | 5042095 starman
starman's picture

thanks chaps don't quite know where to put my $$$$$$?! maybe I just go buy a exotic car? Savings on wheels? When the bail ins begin everything will drop in value anyway. 

Sun, 08/03/2014 - 14:31 | 5040905 doctor10
doctor10's picture

Disposable income worldwide is being swallowed up by the derivatives monster-as planned.

Sat, 08/02/2014 - 21:39 | 5039216 MalteseFalcon
MalteseFalcon's picture


Japan GDP to drop to medieval levels soon due to Fukushima.



Sun, 08/03/2014 - 01:36 | 5039662 401K of Dooom
401K of Dooom's picture

The Tokugawa Shogunate due to return by popular demand!

Sat, 08/02/2014 - 21:44 | 5039225 foodstampbarry
foodstampbarry's picture

Stop being rayciss Goldman and get some hopium.

Sat, 08/02/2014 - 21:49 | 5039241 Yen Cross
Yen Cross's picture

 My strategy is to buy usd/jpy just under "parity"  aka " spatial inversion"... 

  Yeahh.. you wonder why I'm sharing?  

Sun, 08/03/2014 - 04:41 | 5039776 Terminus C
Terminus C's picture

Japan to the mother fuckin' moon. Goldman calls collapse... Goin to the moon.


Sat, 08/02/2014 - 21:52 | 5039253 i_call_you_my_base
i_call_you_my_base's picture

Economists will say that the fact that it didn't work is evidence that it wasn't big enough. More stimulus is required.

Sat, 08/02/2014 - 22:33 | 5039345 erg
erg's picture

Memories of Krugman. That has a nice ring to it as in past tense.

What would his epitaph be?

Sat, 08/02/2014 - 22:55 | 5039415 HardlyZero
HardlyZero's picture


The Krugman pontificated during the Bernanke regime many months ago.

During the final fiat era.



Sun, 08/03/2014 - 13:06 | 5040593 I Write Code
I Write Code's picture

"If only they'd listened to me"

Sun, 08/03/2014 - 04:08 | 5039753 nightshiftsucks
nightshiftsucks's picture

Yeah it's a fucking "fecal speed ball " . How you doing  Bro ?

Sat, 08/02/2014 - 21:56 | 5039261 suteibu
suteibu's picture

Goldman is not going deep enough.  The government is already telling the people that they are going to have to raise the consumption tax higher.  Because the IMF.

Sat, 08/02/2014 - 21:57 | 5039265 ekm1
ekm1's picture

Nobody cares about IMF.

The decline is inevitable due to collapse of world trade due to US Quantitative Easing


The decline applies to all the world, not just japan.

Sat, 08/02/2014 - 22:01 | 5039269 suteibu
suteibu's picture

In Japan, all supposed authority matters, especially when the government can use it to sell the public.

Japan must hike sales taxes again to conquer debt: IMF


Japan PM tells Brazil 'Abenomics' working, time to do more business


Sat, 08/02/2014 - 22:04 | 5039275 Yen Cross
Yen Cross's picture

 ekm It's nice to have you back! Those Air -Conditioning Ducts, were getting clogged.

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