3 Charts From SocGen On Why The "Japanese Scenario" Means Investors Should "Be Afraid, Be Very Afraid"
Some observations from SocGen, which presents us with three charts explaining why those who believe in the Japanese scenario should "be afraid, be very afraid - If we accept the idea of a three-stage crisis (taking as our starting points 2000/01 + 2007/08 + 2011), we have probably reached a situation similar to Japan’s lost decade of the 1990s. A Japanese-style scenario for the US could gain traction, particularly if there is no real estate recovery in the US, high unemployment levels persist, and economic sentiment remains depressed. Such a configuration would suggest that, in June 2011, we exit a bear market rally, which was fuelled by restocking and QE2. Another 20% drop in the equity indices could then be observed in the coming months if this scenario were to materialise."
Chart 1 on where developed market debt is headed:
SocGen Commentary:
As the debt situation worsens, rates must remain low
The US debt trajectory through 2016 is very worrying, and explains the recent US rating downgrade from S&P from AAA to AA+. US debt bears little resemblance to the structure of German debt or even euro debt, even after the agreement reached in the US between Democrats and Republicans. Hence, we can affirm that the euro crisis is linked directly to the lack of a united front among European leaders rather than the debt situation itself as a whole. With progress (although laborious) being made on austerity plans, rates will probably remain very low for an exceptionally long period of time.
Conclusion 2: 10-year rates will remain low for major western countries
Chart 2
Commentary:
The threat of inflation vanishing in the short term
As expected (see Global Research Alert 2 May) the spectre of deflation has returned to the fore as western governments now focus on austerity measures as a means of restoring confidence. In the US, the property market remains the worrying part of the economy. Although still at 3.6% in the US and at 2.7% in Europe, inflation may drop in the coming months owing to the economic slowdown. Thus, with unemployment still at 9.1%, it seems illusory to expect inflation in the coming 12 months and hence there is no risk of bond yields climbing. The bond market suggests the real thing to worry about is deflation, again calling to mind Japan’s lost decade. This is clearly an extreme scenario but nevertheless a major threat for western economies.
And the chart kicker, which supports the lede paragraph is the following. It needs no elaboration.
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I like Chart # 1.
Once again the US is leading the rest of the world........into hell. :)
is there a way to disconnect?
Sure, depends how self-sufficient you.
Wabbits, get your wabbits, only 3 for 30, get your Wabbits Here!
A LOT OF CHARTS try to impress by putting up two different trends with different scales, to show their supposed similarity in shape.
CHART THREE is a SHOCKINGLY correlated data set using a single fixed value, of linear time in days. It's rare that a chart impresses me, even on the hedge, but that is quite a chart.
Thinking about it more, what i feel it should really be titled:
"Shape of a collapsing equity bubble, when supported by a rigged monetary system".
Bubble in, 0% interest and money printing to support unrepayable debt in, and you will get this graph out.
Yes, the correlation is impressive.
How likely is it that it continues to correlate? If we look to the right of the chart, Japan was the sole patient in a booming world economy.
The situation today is we are in a full blown global economic epidemic, with all of the major economies sick and with no prospect of getting better. At least Japan had healthy trade partners. Who are we going to trade our worthless Volts to? Answer: nobody
GLOBAL DEMAND DESTRUCTION will break that correlation and make Japan look like a walk in the park.
I like chart 1 too, but no sweet and sour soup with mine.
Can I then interest you in Chart # 3? That S&P peak looks a bit due for a gentle slide...
It is whst behind chart #3, that has me worried.
I have tried to read between the lines, but some banker keeps snorting them.
"no risk of rising bonds yields"
Pretty bold yet very supportive of rising gold prices especially with resulting negative real rates (including some disinflation).
I like this comment...
"As expected (see Global Research Alert 2 May) the spectre of deflation has returned to the fore as western governments now focus on austerity measures as a means of restoring confidence."
Who's confidence are they talking about?
Underwater home mortgage holders?
Equities holders?
PM holders?
TBTF banks?
The Fed and other central banks?
Those with large balances on revolving credit?
And is the conclusion made that the Fed is giving up on more overt QE... except ultra low interest rates and the usual swaps, PPT operations, covert bank hand outs, etc?
Yea hillarious! 'The FED is giving up on more QE, but continuing ZIRP, swaps, outright bond and stock price manipulation, free handouts to banks under the table'....but other than that yea no more QE.
Wouldn't know it today.... or Friday... or...
Gotta love the delusion.
'Japanese scenario' rosiest best case scenario.
Japan is a creditor nation so why even talk about "Japan scenarios" ?
Maybe because Japan's two lost decades is the absolute best scenario we could possibly hope for in the US?
Yes but even if all nations were creditor nations, and they are not, you still could not operate a world economy populated with nothing but Japans.
What's the Japanese interest with so much debt? Exactly. No armageddon. Boring world we live in.
http://www.finviz.com/futures_charts.ashx?t=NKD&p=w1
Correct, no armageddon, just death by a thousand cuts.
Right, everyone expecting a giant axe to come down and cut off everyones heads, when in reality we'll just be bled dry 1 mosquito at a time.
are you kind of retarted?
japanese pays over 50% of whole revenues on interest only..
they print 100% of revenues, if only %rate are up 1%, they wont be able service debt from rvenues
alx
But the Japanese export...we don´t...they work..we don´t...not much poverty in Japan..we have it big and getting bigger..the enttlement class....
I would only add that we have two "entitlement" classes. The one that you refer to and the other entitlement class. You know, the "I raped the American taxpayer so I am entitled to a HUGE bonus class". Easy to identify the former, less so for the latter.
The Japanese were and still are massive savers. The country financed their own debt with savings. Where did the US go to finance our debt? Now you get the picture! So with the Japanese printing to pay their debt load, does'nt really matter, since the increase in Yen mostly stays within the country. Not so with extra $'s that Ben has printed.
By that token, isn't our situation even better -- we have suckers available OUTSIDE who are willing to take up the debt! We are golden!
The U.S. will come to it's citizens to finance it's debt eventually. It will be through forced investment in this so called "Free Country". You will have some portion of your 401k, IRA. or other pension syphoned off for "The Good of the Country". No more dangerous words were ever spoken.
Washington, D.C., December 24, 2011, 4:55 pm: Congress introduces the "Protection of the Family, Homeland, and Puppydog Act."
5000 pages of legislation which no one has read. Page 4722 requires all 401Ks and IRAs to be invested in US Treasuries or incure a 10% tax penalty for each year the account is out of compliance.
Merry Christmas, Ho, Ho, Ho
Don't see the problem.
Oh you mean the 10 years of recession coming up? Well you have the same muppets in power that told the Japanese to behave the way they did... And clearly they are very smart, learning from their mistakes... No?
Exactly. We're repeating every one of their mistakes despite knowing that they fail. From zero interest rates to preserving zombie banks. The constant interference in natural markets is merely prolonging the dowturn.
In times past, the US learned from mistakes and made bold changes at reform. many of these institutions worked perfectly well, ie Glass Steagal, usury laws, stable money and a utility like regulation of banks. It was abandoning these policies that has lead us down this dark road.
But look at the upside -- we were able to sucker the rest of the world to support our lifestyle for over 40 years!!
dont worry, ben b. studied the depression. he says japanese didnt print enough. all is well.
The fundamentals of the US are far worse than Japan so while there are similarities in the charts, the reality is that the US has no savings.
MFL8240,@13:26,
< the reality is that the US has no savings. >
Sadly, neither do the japanese,25yrs ago they were saving at a 25% rate.
Now that the population is greying out, they are saving next to nada, as they are using every dime to live on.
Sound familial???LOL
You think this market is bad? Wait till the baby boomers start selling their stocks and bonds for pocket money. Wait till they dump their houses on the market. You haven't seen anything yet.
I left out the fact that markets have lost the faith of the public. There's a very real cost to manipulating prices so blatently. The Depression era mom and pop knew they were ripped off and never entered the markets again. Today's investors are a LOT more informed today than back then. They are no wiser, but they know they got screwed and they are not coming back.
As someone else already says "all your assets is belongs to us"
We are repeating the '29 depression, Prepare accordingly.
Indeed.
The majority won't realize it until they're living it.
The parallels are striking.
But the chart that matters far more than the equity one(s) is the unemployment/underemployment one(s). On that front, we're going to see dramatic spikes back up in both the (real) rates of unemployment and underemployment. After that happens, wages and benefits will fall dramatically (this process has already started to re-emerge, yet again, since Recovery Summer 2.0 last summer).
Put a chart of 1929 to 1932 in equity markets up and overlay it with 2007 to now.
1933 will repeat itself.
Twice bitten, once shy. Thrice bitten = never again.
Many claim that The Bernank won't allow this to happen. To those who don't realize he can't stop it, I wish them the best of luck. The Bernanke 'put' hasn't exactly done so well, and it's about to be discredited forever.
The Nikkei from 1989 to present is about to become a chart-o-rific metaphor for much more than equity market declines.
Sure looks like it if you look to all the old charts.
Most of the common people won't have a clue what will hit them.
It would behoove a lot of Americans to ask those older than 60 or so what they think.
I am relatively young, but I have very successful clients in their late 60s, 70s and even 80s, who all say the economy is in deeper trouble than at any other time during their lives.
Many of these people have seen hard times in their lives, and they have a feel for the deterioration they're seeing, as they've experienced it before.
These are not former desk jockeys. Most of these people started their own businesses and became both successful and financially secure, and while they have financial wealth, they are the type who hang on to their cars for a decade or so, and always will, because they know the true value of things, and what is and isn't worth investing heavily in.
Many of these people think this time is far worse, because unlike the slowdown in the 70/early 80s, whereby an energy crisis was short lived, and whereby interest rates spiked dramatically, people who lost their jobs were ultimately re-hired, at their former place of business, for the most part.
Now, their former place of business is shut down, padlocked, 'gone fishin'.
This is a structural change sweeping over the American & Global Economies (a realignment). This isn't the business cycle at work.
The American Economy has been struck by a 5 alarm fire, and The Bernank is showing up with a dollar store aquirt gun, while trying to convince the sheeple that he's packing some large tools.
Ben doesn't have the proper tools to 'fix' this, even assuming he wanted to (a big assumption, but I digress).
They don't MAKE TOOLS for this crisis.
I'm 'older than 60 or so' and have never seen anything near the current situation in the US.
My parents and grandparents suffered through the Great Depression and I saw the aftermath of it. The GD left a permanent fear in those who suffered through it. My mother still uses a saying... 'everything in the world thats good to eat'... meaning she lived on very little food for a very long time...and she really appreciates having good food and plenty of it...Starvation was an everyday occurence in the GD and many children died with their deaths being attributed to 'heart failure'.
I believe what we are seeing is a structual change and that most of us are going into a decline in living standards that will not be turned around. There are many reasons and we all know what they are...
We all know the steps to take ... get out of debt, get out of debt, get out of debt... and stay our of debt! There are no job guarantees in a depression.
I know of no other economic era in the US that will be as bad as what I expect to happen... With the possible exception of the aftermath of the Civil War when the largest equity class in the US (slaves) was wiped out with a decree and financial collapse ensued. Getting rid of slavery was absolutely the right move but if you want to read about total economic collapse, read about that period in the South.
The past 40 years of credit financed expansion is coming to an end.
For the moment, we don't have that over here in Europe. At max this is now already 2002 when the economy started to recover from the 2001 crash so we still have a way to go.
Let's not forget that 34% of our population works for the government and a lot of retired people have a pension that didn't suffer from the crash.
BUT!
At the end of 2012, most of the treasuries will be empty. And that means pension cuts, austerity and trimming down government jobs.
Again, this will all start to happen after the elections in june/july.
And those months will be black swan events on a daily basis.
So look to it like you've got still about 8 to 9 months of carefree preperation time before the big one.
......let me second that....prior bad economic periods at least had our factories, FAB lines, etc. still sitting on our shores and ready to re-hire when the economy improved. With our multi-nationals having moved most everything off shore, the only hiring we see is far lower paying jobs in the service sector, or flipping ground cow at McD's.
When I hear about "shovel ready" the first thought to cross my mind is they must need more grave diggers....
Yes, and during the great depression many families still had small farms, even if the father worked in a factory or service job. Those small farms have been turned into subdivisions...so the small farms are now gone, replaced by big ag.
At some point the American people will get off their butts and elect some real leaders... I suppose it won't happen till they get hungry...the people, not the pols...
The scariest part to me is that we are entering this debacle with the poorest leadership I have seen in my life time. The last two presidents have been worthless and many before them were almost as bad.
Pols have to stand up and wrest control of the US Economy back from Wall St before we can move forward.
60 here Snidley. Although not apart of the depression myself, my mother and father were. They beat it into my head and even today I still live by their words. After 2008 bloodbath, I honestly had this gut feeling we were again headed towards a depression and have read this site for two years and I am thankful for this site. Alot of times other sites I visit call you all gloom and doomers, and alot of times thiose same sites use some of your articles. I personally was tired of all the lies and made some darn good investments made my money back and then some and feel this is going to end terribly.
I feel for those of you in the cities. This might get ugly for you. I do not think the USA will collapse but I do think after the S&P downgrade austerity is coming to everyone. They are going to tax everything and try to confiscate everything else. I never trusted politicians or the MSM. They are there to feed the idiots, divide the country, do their best to keep the country divided, while they pilfer our pocketbooks. I have studied history and we are repeating the same steps to put us in one of the worst times in the USA's history. The politicians now have a scapegoat to rape us and their name will be S&P and we must save the country. All of it bullshit. But most of the population will believe that crap.
Hell people complain about losing their phone connections during the storm ! Wait until they have to actually fend for themselves or actually have to protect their families or property. These are dangerous times when you tell the masses their will no longer be entitled to the freebies anymore.
I'm so thankful my grandfather is still alive. At family gatherings since the late nineties he would say things like, "We're going to be a third world country someday." and "Years ago we had the gold standard. Now the only thing backing up our currency is confidence." Talk about a buzzkill. And though everyone appreciated his wisdom, mostly we disregarded his opinion - "Old doom and gloom grandpa."
Well guess what. He was right. When Bill Gross started dumping treasuries in February I got spooked. Real spooked. I called him to tell him as much and to tell him, I finally "got it." He changed the subject slightly and said that when he was growing up during the GD people grew potatoes right in their front yard. And for some reason that gives me some level of reassurance.
/end rambling
yes 1929 all over again, with bells on
I propose we cross collateralize US debt with Japan Debt pari passu and create one giant cmbs type instrument.
LOL, the FED pulled of The Sting...make everyone believe a huge money dump is about to come for months without actually delivering it, and just keeping that fake carrot dangled out in front of the dumb herd with pumping on vapors. All just to keep the 401K and pension brigades placated a bit longer.
And then watch when the big collapse comes, theyll all squeal like stuck pigs and beg to be saved again.
Bernank's favorite song 'Pimpin Is EASY'!
Now get back on those oars, whores, and ROW!
They have to... the only thing that can keep it alive is policy ambiguity... as soon as we're locked in one way or the other, then the game is over... everyone goes to one side of the trade (the obvious side) and the island tips over. At this juncture, the gauntlet has been thrown down... Expressly and publicly QE some more and the currency will be permanently discredited... don't and the bottom falls out...
It's a difficult tightrope and the ability to balance for the FED is getting vastly more difficult... all they're forcing people to do is hedge both ways... to not make a decision is to make a decision and they've already killed the currency... the only hedge for a contradictory measure is a guestimate on how long they'll be able to stay on the tight rope... but the currency is already dead. (tasked with picking between the two, it would seem like more and more are heading for first hedging against currency collapse before dealing with the question of how long the FED and collusion can keep the tight rope artist dangling above the barbed abyss).
Ding!!! We have a winner, and Machoman is he. Yes, the Fed is down to one bullet. It is going to wave its gun around, but it can't pull the trigger and it can't holster the gun. They want everyone from bringing this abortion to an end so they won't decide. It is merely playing for time while the Boyz buy cheap gold.
I like the way you think. It explains the run up in PM's, and that there is likely to be a long way to go yet.
Be very afraid... Todays not that day. I will be afraid next Tuesday. My mother in law is staying for one week. Grrrrr
You DO know, don't you, that women become like their mothers both in attitude and weight. Sux to be you.............................
Our Future
is it some kind of joke???
lokat 1st chart.. in 2011 yy US debt/gdo ratio is 100%, then
in 2016 it just over 110%..
US FEDEALGOV PRINTS +10% OF GDP..
so in 2016 ratio will be 150%..
even if we assume gdp growth in 5% ( totalyy bullshit), it will be bigger 110%
THOSE IDIOTS FROM BIG BANKS CANT TEL TRUE, THATS WHY ALL BANKS ARE FUCKED IN EUROPE
alx
Does anybody believe that Americans and Europeans will be buying government bonds like the Japanese do to keep the corps floating?
I SURE DON'T!!!
WHATEVER THE COMMERCIALS ON TV MAY SAY!!
right on - I posted the same opinion below
right on ;)
I don't think it will just stay low, it will go negative. And in that case Bernanke might be 100% right that deflation is the biggest risk of them all.
And because that would destroy it all, there's no other option than to keep printing.
But I do believe they'll try to sell it to the working class before they print.
Another reason why Americans won't buy the bonds is because Americans don't have the savings habbit the Japanese do and also the Japanese housing market is much stronger than the US housing market.
......yes, the Japanese have taken herding to an entirely unattainable level........our sheep are far less manageable.
I'll take one item from Chart "A" and one item from Chart "C" please. Skip the eggrolls.
"Investors" seem to really have a very short attention span! Until it's too late! And it almost is! :)))
Fuck Soc Gen
LOL! Yeah that bastion of intelligent due diligence.
"...A Japanese-style scenario for the US could gain traction..." it has already gained traction, babycakes - except for the top 2 decile folks and the fire firms....
marginal productivity of debt is now negative....gold is in backwardation despite what the filthy paper markets suggest - this means that the economy is in permanent and irreparable decline as long as these situations continue.....debt has become a virulent cancer....non-liquidated mal-investments are leukemia....putting citi and boa into receivership and breaking them up would be one of the best treatments available after liquidating the fed....
"10-year rates will remain low for major western countries"
This assumes continued high demand for sovereign debt - which at least in the US cannot be repaid - in fiat currencies that are undergoing continuous competitive devaluation.
I don't buy it.
The Fed can continuously purchase US debt to keep the rates low. The sad part is the risk-free rate being so completely shitty.
In the latest 'even my shoeshine boy is talkin about stocks, time to get out' episode, I just heard a DJ on a heavy metal radio station say 'Wow stawk markets lookin GOOD I think Im gonna buy me some stawks today'!
Get out now, RUN!
...did he recommend any in particular????
You must be 'bout 11 or 12 light years away from that radio station.
The bond market suggests the real thing to worry about is deflation, again calling to mind Japan’s lost decade. This is clearly an extreme scenario but nevertheless a major threat for western economies
ummm, thats the real thing to worry about? a lost decade? wow. phew. all that worrying over something really bad happening can be put to rest. guess i can go back to my regularly scheduled brain programming compliments of the govt, msm, etc.....
'Japan scenario lost decade'...yea you'd be so lucky to just see that!
Japanese debt is mostly held by Japanese, since we're not so lucky my bet is a date with one serious reality bite that'll galvanize these heady, gregarious bulls in fear they've never known. I sticking with a crash/recover/crash "rinse and repeat" thesis to the bottom, like S&P <600 - but what the hell do I know.
One thingm about Japan is the resistance to negative interest rates. It would be completely unexpected should they arise in Japan's cloistered banking sector out of the financial crisis.
The talking heads on LSM are now floating the idea of a Greek bankruptcy as a possible solution, and how bankruptcy actually helped the Russian and Indonesian markets a few years ago. They just provide 1 caveat...Greece doesn't have their own currency...to devalue. Hilarious...
They provide charts only and not bond / loan default amounts.
Where were these feckin morons when Greece DID have their currency and were defaulting/ devaluing every 2 or 3 years? Did you see the int rates Greece had to borrow at back then versus their pre crisis interest rates? Y'know when GS the Squid was papering over their Sovereign risk in order to be able to obtain the int swap deals??
I guess the ES will trance higher than 1200, but only if the fund managers panic and think that they are going to miss out on a move, and Bernake keeps his yapper shut. Same goes for Barry the Kenyan, but that wil only happen if the teleprompter braeks.
+1 for your name :)
Debt = money. No new (voluntary, private) debt = no new money flowing into economy. No new money = no new growth. No new growth = rising income tax rates on falling incomes just to stay even. Staying even = no way to maintain asset price levels. Asset price deflation = money supply deflation.
That is the future: Japanification. Never ending corporate bailouts, deflation, economic stagnation, higher taxes, etc. etc.
The Fed will have to play whack-a-mole – basically forever – to buy up the assets that are blowing up. Because we are trapped in a fiat system – its just a matter of time before ALL financial assets blow up and go to zero. mortgage debt – poof then mysterious save; quities, futures – poof then mysterious save; muni bonds poof then mysterious save - etc etc etc. But they will eventually run out of quarters - becuase the fantasy that they can collect "tax revenue" via the IRS will be revealed as an impossibility. yet anothe scam to support the lie created to buttress intellectual dishonesty masquarading as wishful thinking.
I don’t believe the hyperinflation fantasy. It will be hyper-evaporation. The money supply – in the actual economy – is obviously vaporizing – and everyone knows it. What sort of retard borrows money in the second inning of a deflationary depression?
DC needs to explain to people that they’ve been tricked fair and square – that there’s no more “Growth” (even the Fed is now admitting that). Anyone dependent upon “income” is in serious trouble. I hope everyone out there in the USA has saved at least a couple million $ in cash. Good luck –
LOL!, You are ignoring the only thing that matters. Energy. I don't believe any of the "flation" bullshit either simply because they are bullshit terms made up by an economic fucknut relying on models with no connection to reality. All that matter is that you have the purchasining power to aquire the things you need to survive or want in order to improve your quality of life. The more we detach our eCONomic models from the energy part of the equation and allow fraud to remain the status quo (no rule of law), then the further all things paper detach from all things physical. Deflation in things you don't need to survive, inflation in everything else. Hedge accordingly.
You would probably be sickened by the actual number of US citizens who have a net worth of $2 mil, let alone $2 mil in cash.
Our government has colluded with big business for over 30 years to move business wherever costs are the lowesty, leaving most of our blue collar labor force either unemployed or working for burger joints. If you think it's hard saving for retirement NOW, you haven't seen anything yet.
"What sort of retard borrows money in the second inning of a deflationary depression? "
...and, what sort of retard banker is going to loan in a deflationary depression?
...maybe that is what the Oblammer jawboning about a 'new' housing refi initative is about?
Gold will maintain value relative to all other assets. Deflation or inflation, gold and silver are the only life rafts.
If this type of deflation hits, it sounds like gold is going down. Cash would be king in this type of deflation.
Funny how SocGen is imploding yet now they are considered "experts" on market directon
learn from mistakes...best route. But you wouldn't know; your never make a mistake.
I would be wary of a chart generated by a big European bank whichs shows European debt/GDP actually declining in 2012. They could make these data points up on the premise that the austerity plans will work, but I think that's total bullshit.
"Japan's lost decade" is so Y2K. Shouldn't it "lost two decades"?
Yea how many decades will Japan be in their 'lost decade' for anyway. Not to mention us, with our markets at 10 years ago levels, and remove all the fake paper and manipulation in there and what would we be looking at? 1970's DOW?
Two down. Not to be outdone, Japan is going for its third lost decade.
I've tried multiple ways - but the x axis scale does not match on two of the three charts... and the duration in days does not calculate on either??? Starting in 1990?
Somebody gonna say 'bitchez' on this one?