U.S. Situation Could Be Worse Than ’90s Japan?
The United States isn’t Japan — people in Japan drive on the left hand side of the road, for instance, and eat with chopsticks. But somehow, with the bursting of the housing and credit bubbles putting financial firms on the gurney, the comparison keeps getting made.
“People say the U.S. isn’t like Japan 10 years ago,” Societe Generale strategist Albert Edwards wrote in a note to clients today. “I agree. Actually it’s WORSE!”
Mr. Edwards has been making Japan comparisons ever since the dot-com bubble burst. Many people disagreed with such assessments, pointing out that U.S. banks and real estate were in far better shape. That’s not the case anymore, says Mr. Edwards, who also notes that Japan didn’t experience a real credit crunch until years after the bubble burst in 1990. And while there’s a view that Japanese banks were glacial when it came to writing off bad loans, part of the problem was that bad loans kept on turning up as the situation worsened. Sound familiar?
What could make the U.S. situation worse, he says, is that Japan’s citizens had deep reserves of saving to tap into, whereas the U.S. personal savings rate is near zero. And Japanese companies were unwilling to fire people, which, while it may have made for a sclerotic economy, helped prop up spending.
Meantime, CLSA Asia-Pacific Markets strategist Christopher Woods, who writes as “GREED & Fear,” thinks that the U.S. will need to swallow the same sort of bitter pill that Japan eventually did. The Fed’s actions, in his view, amount to nothing more than a Japan-style staving off of the inevitable.
“[T]he stock market has now embarked on a rally driven by the view that the Fed will now ‘do anything’ to prevent a systemic problem,” he wrote in a note today. “If the moral hazard trade remains as seductive as ever, GREED & fear remains firmly of the view that the Fed’s unprecedented action has only delayed market clearing Japanese style and certainly does not mark a definitive bottom. Investors should, therefore, use any classic bear market rally led by the financials to sell any Western financial stocks they still own.” –Justin Lahart |
