Japan (again)

[ERICOPOLY]

Does Japan have jingle mail?  Or is it full recourse everywhere?

 

I was thinking... they never had much unemployment.  Thus their indebted consumers had to repay their debts.

 

We have high unemployment which forces personal bankruptcy and we have mortgage rules that allow lots of people to mail the keys in to the bank.

 

Does our system cleanse consumers of our debts faster?  I mean, it's dirty and ugly to have all this unemployment and stuff but in a way is this "taking our medicine"?

 

Lets say our corporations didn't fire anyone and let's say that all mortgage loans were full recourse from the beginning.  There would be no bankruptcy and no jingle mail.  We'd be stuck waiting for people to actually pay down their loans.  Instead, we have been dedicating would-be bank profits to charge offs for a few years now (in addition to some people paying down loans).

 

So if most of our GDP comes from consumer demand (as Prem says), and if the consumer is 2/3 complete with consumer debt reduction (as Jamie Dimon says), then isn't it time to take a sigh of relief?  It's taken 3-4 years to become 2/3 complete with consumer debt reduction -- does this imply 1.5 to 2 more years to call it done?

 

Then can the consumer demand come back and government deficit reduction take hold?  Are we almost there?

 

Or is Jamie Dimon on crack.

 

 

 

[ubuy2wron]

That is pretty much how I see the future unfold. At some point in the next 24 months we are going to take out the high on the S&P and will  have pretty clear sailing for  at least a decade is my guess. This bull mkt started in March of 2009 we have at most 2 more years to coil the spring a little tighter and then we are off. Unless the world decides to do something really stupid like let all the banks fail in Europe or default on the US debt or have a messy revolution in China or start a MAJOR war somewhere.(The world can handle little scurmishes like the Viet Nam war or the Gulf wars, no problem ,apology to any of those conflicts vets.)

[Parsad]

Investors do not buy until they see clarity and feel that prices will continue moving up.  It's the foible that keeps on giving.  We mentioned in our annual letter this year that house prices are at multi-decade lows, while gold is at multi-decade highs, and where is investment capital flowing to?  It's the same thing right now.  You have 10-year treasury yields at multi-decade lows, yet investors are fearful of housing and stocks.  The psychology never changes.  Cheers! 

[biaggio]

" if the consumer is 2/3 complete with consumer debt reduction (as Jamie Dimon says)"

 

is there a way to measure or verify this?

 

or was that just Jamie Dimon s experience with his customers which may stilll be valid.

 

sure would be reassuring to know that debt clensing would be done in 1-2 years.

 

I have thought that it would be >10 years...maybe others are thinking that too + hence all the fear + "irrational" selling

[merkhet]

I think Jamie might have a good amount of insight into the stage we're in for debt cleansing given his access to JP Morgan Chase data.

 

However, I'm wondering whether post-debt cleansing, we might have what Richard Koo labels "debt rejection syndrome."  People are more reluctant to borrow given their experience with debt.

 

So then, we'll recover a bit better than we're currently doing, but not quite near where we're used to since it's not being fueled by imprudent levels of debt -- but then again, people are habitual creatures....

[ERICOPOLY]

I didn't realize that Japan's real estate declined in price by 70%.  It makes our real estate decline seem pretty tame, even though we've already exceeded the price decline of US real estate during the Great Depression.

 

That 70% number is what I heard from Paul Volcker a couple of nights ago when I was watching Charlie Rose.  Not sure if that was a re-run from an earlier taping.

 

 

[hyten1]

i think the japanese RE bubble of the 80's and 90's is way beyond what we experience here int he US recently

 

"Prices were highest in Tokyo's Ginza district in 1989, with choice properties fetching over 100 million yen (approximately $1 million US dollars) per square meter ($93,000 per square foot). Prices were only marginally less in other large business districts of Tokyo."

 

source http://en.wikipedia.org/wiki/Japanese_asset_price_bubble

 

that is insane 93k per sq foot!!!

 

the avg in manhattan nyc is over little over $1k

 

 

[ERICOPOLY]

I've heard people talk about the Nikkei's 80% decline, but to me the 70% real estate decline appears far more impressive.  Is Volcker's number accurate at 70%?

[hyten1]

well base on http://en.wikipedia.org/wiki/Japanese_asset_price_bubble

 

japanese RE decline more that 70%

[merkhet]

By 2004, prime "A" property in Tokyo's financial districts had slumped to less than 1 percent of its peak, and Tokyo's residential homes were less than a tenth of their peak, but still managed to be listed as the most expensive in the world until being surpassed in the late 2000s by Moscow and other cities.

 

If I remember correctly, at one point Japan's real estate (Japan is the size of California) was worth about 4x all the land in the United States...

[jjsto]

Richard Koo repeats this over and over in his book.  And I think the commercial real estate in Japan fell by as much as 85%.  Isnt there a saying about how using some valuations, the land under the imperial palace in tokyo was worth more than all the real estate in california?

 

"Some people look at Japan and say the government spent huge sums on public projects and there was no real growth, so spending didn't really cure the economy.

 

Koo: The early '90s recession in Japan was far worse than people realize. Commercial real estate prices nationwide in Japan fell 87% from the peak. Imagine U.S. housing prices down 87%. The fact that the Japanese government halted what could have been an enormous drop in GDP in the early '90s speaks to the success of its economic policies."

 

http://money.cnn.com/2011/09/27/news/international/US_Japan_recession.moneymag/index.htm

[ERICOPOLY]

This makes me feel a lot better as to whether or not we're becoming another Japan.

 

We're perhaps a tiny scale model of Japan.  Our bubble was nowhere near as big -- scale the ensuing malaise accordingly?

[stahleyp]

"The total area including the gardens is 7.41 square kilometres (2.86 sq mi). During the height of the 1980s Japanese property bubble, the palace grounds were valued by some as more than the value of all the real estate in the state of California.["

 

 

 

http://en.wikipedia.org/wiki/Tokyo_Imperial_Palace

[txlaw]

Richard Koo repeats this over and over in his book.  And I think the commercial real estate in Japan fell by as much as 85%.  Isnt there a saying about how using some valuations, the land under the imperial palace in tokyo was worth more than all the real estate in california?

 

"Some people look at Japan and say the government spent huge sums on public projects and there was no real growth, so spending didn't really cure the economy.

 

Koo: The early '90s recession in Japan was far worse than people realize. Commercial real estate prices nationwide in Japan fell 87% from the peak. Imagine U.S. housing prices down 87%. The fact that the Japanese government halted what could have been an enormous drop in GDP in the early '90s speaks to the success of its economic policies."

 

http://money.cnn.com/2011/09/27/news/international/US_Japan_recession.moneymag/index.htm

 

Yes, Richard Koo talks about how much real estate fell in Japan and asks rhetorically, in almost every interview he does, how the US could have handled such a destruction in paper wealth.

 

Koo also worked at the NY Fed when Volcker was Chairman, and he highly praises the actions Volcker took back then.  See excerpts from a Koo interview at http://www.zerohedge.com/article/richard-koos-views-macroeconomy-volckers-plan-and-why-extend-and-pretend-will-be-us-long-lon .  I'm sure Volcker has read Koo's books.

 

I finally was able to borrow Koo's book, "Balance Sheet Recession."  I'm looking forward to reading it after I get done with the Steve Jobs bio.

[BargainValueHunter]

Does anyone know of any stories of contrarian investors shorting Japanese RE in 1989-1990?

 

That play probably worked out quite well.

[tombgrt]

Does anyone know of any stories of contrarian investors shorting Japanese RE in 1989-1990?

 

That play probably worked out quite well.

 

Peter Cundill. ;) Made a killing.

[beerbaron]

Watsa too.