Sunday, January 17, 2016

A Little Bit Of Thinking Out Loud About The Markets

So oil is in a tailspin and the markets, particularly in Asia, are getting hammered. Here are a few odds and ends swimming around in my head that may or may not connect to make anything valuable or coherent.
  • As I understand it, the Saudis and Russians are pumping more oil to maintain cash flow in the face of falling prices. This pushes prices down even more.
  • The Chinese are finally seeing the end of government stimulus-related demand. After all, you can only build so many empty cities.
  • The Baltic Dry Index is way low. That means that shipping is very weak, which means that international trade is shrinking.
  • Every major nation has destroyed their equity and debt pricing mechanisms by printing huge amounts of money.
Where does this leave one of my favorite basket-case economies, Japan? 
  • They've shown a willingness to print money to buy things that the market won't buy, be they stocks or roads and bridges. 
  • Their debt is monstrous, but pretty much internal. 
  • As Japan's economy is very dependent on exports, if international trade falls off, their exports will fall off and their big companies will see reduced profits or even losses.
  • That will cause ... the Japanese Central Bank to print more money and buy more things?
When does this lead people to dump the yen and cause a full-blown currency crisis? Does anyone outside of Japan hold enough Japanese anything (bonds, stocks, etc) to cause a Yen-dumping?

More broadly, countries all around the globe have masked the effects of recession by printing money and creating false demand. What does the end of this cycle look like? How can you see it coming? Is this market drop the start of it as people and firms sell off assets to get cash to pay bills they can't pay as they no longer make money through business transactions?

Hmm. Maybe in a future post, I'll look at a family budget analogy and see how far that takes me. This one has too many moving parts and is too far outside of my ken to make sense.


Foxfier said...

Another complication for Japan-- some of their exports don't require shipping, they just need a communications link.

Entertainment has traditionally been something that sells well when times are bad-- an inexpensive splurge.

If things are bad, then I'd expect Japan's art studios to start churning out public domain books as movies, sort of like they did in the 70s and 80s, but with English dialog that matches Anime level voice-acting ability.

They can do entire series for less than a single CGI heavy movie, and with better writing.

Same thing goes for video games.

There's already a sign of that market changing for tougher times-- World of Warcraft went from being the norm, to being expensive, from the perspective of a monthly subscription; now they're letting people buy tokens that are worth a month's subscription and sell those-- has the effect of reducing demand for gold sellers, which lowers their security costs slightly, while making it so that people don't stop playing because it's too expensive.

K T Cat said...

Good points all, Foxie, but it doesn't help employ many people. I'm thinking of Toyota and Mitsubishi and the other big boys of Japan. Once they start going down the tubes, can the JCB save them? What would they do, print Yen and just hand it to the big industrial firms?

Foxfier said...

*sad* Given their demographics, they're running like crazy to make enough machines to take care of the people they've got, or make it so very old people can do the jobs of younger and healthier ones.

tim eisele said...

Speaking of demographics, here's an interesting site:

It shows the population breakdown by sex and age for every country in the world, over pretty much any time period you like. The age distribution for China looks a lot like the one for Japan, only running about 15 years behind. The US looks pretty stable, and it looks like the "Baby Boom" has largely been smoothed out. And if you really want to see wonky demograpics, have a look at the United Arab Emirates.