IDN Forums - Internationalized Domain Names  
Home | Advertise on idnforums | Premium Membership

Go Back   IDN Forums - Internationalized Domain Names > IDN Discussions > General Discussion

General Discussion Feel free to talk about anything and everything in this board.

Reply
 
LinkBack Thread Tools Display Modes
  #1 (permalink)  
Old 16th August 2007, 06:25 AM
touchring's Avatar
Veteran
 
Join Date: Dec 2005
Posts: 7,547
iTrader: (29)
Rep Power: 1263
touchring is an unknown quantity at this point
Asia Decoupled? Now There's a Subprime Concept: William Pesek

http://bloomberg.com/apps/news?pid=2...eY&refer=home#


Asia Decoupled? Now There's a Subprime Concept: William Pesek

By William Pesek
Enlarge Image
An electronic stocks board in Tokyo

Aug. 16 (Bloomberg) -- So, Asia finally unshackled itself from the U.S. economy. Riiiight!

Just ask executives at Mitsubishi UFJ Financial Group Inc. Shares in Japan's largest bank fell to a two-year low yesterday amid losses from the U.S. mortgage crisis. Sumitomo Mitsui Financial Group Inc. also said it recorded losses in securities backed by subprime loans.

Financial contagion oozing from the U.S. wiped out the Nikkei 225 Stock Average's gains for the year; that benchmark was down 7.2 percent this year as of 2:14 p.m. in Tokyo. The Morgan Stanley Capital International Asia-Pacific Index lost 2.5 percent on Wednesday alone.

Arguments that Asia has decoupled from the U.S. suddenly look, dare I say, rather subprime.

Yes, Asia is a very different place than a decade ago. Banks, Japan's included, are healthier and carry significantly less debt. On top of that, the region amassed some $3 trillion of currency reserves. Asia has so much cash available to fend off crises that government investment funds are being created to take more advantage of it.

That's just one of the many ironies a decade after Asian's financial crisis. Another is how U.S. woes now threaten Asia, not the other way around. One more is that Asia may soon be gobbling up distressed U.S. assets, the way U.S. investors did in Asia in the late 1990s.

First, though, Asia's export-dependent economies must gauge just how much damage their growth will get from the U.S. troubles.

Exposure

The focus is on Asia's indirect exposure to credit market woes. The subprime crisis is dragging down derivatives like collateralized debt obligations, which became popular in Asia in recent years and increased the opacity of markets.

The problem for Asia is that this is no longer just a subprime story. While subprime default was the catalyst, markets are now melting down for a variety of reasons. Greater opacity means we don't know where the financial landmines are planted.

The bigger question is what a U.S. slowdown will do to the region. Amid China's explosive growth, it's easy to forget that the U.S. economy is nearly three times bigger than Japan's, which in turn is nearly twice the size of China's, which is nearly three times bigger than South Korea's.

If U.S. demand hits a wall, growth in Japan, China, Korea and the export economies of Southeast Asia may get slammed. The forces of globalization are masking the extent to which Asia still relies on U.S. demand. Much of the trade within Asia involves intermediate goods that are used in the production of other products -- many of which go to the U.S. and Europe.

Smart Money

Optimism Asia can stand alone comes from the view that China and India together account for roughly the same amount of global trade -- around 20 percent -- as the U.S. That's all well and good, but don't ignore the fact Asia's economies need U.S. demand to maintain their share of global trade.

China's boom is certainly getting headlines, partly because the global rout has yet to dent its stock rally. Still, China is a glaring bubble, devoid of logic and an aberration. The sense of foreboding in Asia comes partly from how even Wall Street's ``smart money'' got in trouble in credit markets. Buyout legend Henry Kravis's KKR Financial Holdings is counting losses, as are executives at Goldman Sachs Group Inc., BNP Paribas SA, Bear Stearns Cos. and others.

How quickly contagion spread from the U.S. was encapsulated today by Rams Home Loans Group Ltd. The Australian lender that went public last month failed to refinance short-term debt as buyers shun credit markets. Japanese banks also are getting hammered by investors, raising prickly questions about the industry's health.

The question is: has the world taken the stability of Japan's financial system for granted?

The whole subprime mess started when investors had to refinance loans made when the Federal Reserve was holding U.S. short-term rates at 1 percent to spur growth.

Japan's central bank has facilitated the so-called yen carry trade. Untold amounts of Japanese currency have been borrowed at near-zero interest rates and moved overseas into higher-yielding markets. A surge by the yen as those funds are brought home could slam Japan's economy.

When the ``Lost Decade'' of the 1990s led to deflation and a series of banking crises, Japan came under pressure to strengthen its finances. The government focused on weakening the yen and holding down interest rates, effectively exporting a financial bubble. If that bubble bursts, the world's No. 2 economy may find itself back up the creek.

U.S. Contagion

Folks in New Zealand could be excused for thinking the yen bubble already is bursting. The New Zealand dollar is heading for its biggest weekly loss since the 1987 stock market crash as investors slash holdings of high-yield assets funded by yen loans.

Asia's emerging markets are taking particularly big hits. From Seoul to Jakarta, risk aversion is increasingly dominating trading -- and the headlines. It's a reminder that, while Asia has come a long way, it's anything but immune to turmoil in America.

To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net
Last Updated: August 16, 2007 01:20 EDT



Print


Terms of Service | Privacy Policy | Trademarks
Reply With Quote
  #2 (permalink)  
Old 16th August 2007, 07:55 AM
Rubber Duck's Avatar
Veteran
 
Join Date: Sep 2005
Location: Czech Republic (For those of you from USA = Chechnya)
Posts: 15,929
iTrader: (59)
Rep Power: 4513
Rubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura about
Re: Asia Decoupled? Now There's a Subprime Concept: William Pesek

It seems to me the markets are still suffering from bewilderment.

The short-term strategy seems to be to wind back positions to where they were about a year ago and rebuild from there.

There is a great deal of repatriation of funds going on at the moment, particularly in the US. This is having the perverse effect of strengthening the dollar, which is only going to weaken the US economy further, and is clouding the overall outlook.

We are still looking for a substantial depression of the dollar in the coming weeks and months.
__________________
All offers to sell are void.
Reply With Quote
  #3 (permalink)  
Old 16th August 2007, 12:56 PM
touchring's Avatar
Veteran
 
Join Date: Dec 2005
Posts: 7,547
iTrader: (29)
Rep Power: 1263
touchring is an unknown quantity at this point
Re: Asia Decoupled? Now There's a Subprime Concept: William Pesek

Quote:
Originally Posted by Rubber Duck
There is a great deal of repatriation of funds going on at the moment, particularly in the US. This is having the perverse effect of strengthening the dollar, which is only going to weaken the US economy further, and is clouding the overall outlook.

We are still looking for a substantial depression of the dollar in the coming weeks and months.

The recent strengthening of the dollar is because of Yen carry trade unwinding.


US Dollar Rallies on Carry Trade Unwind, Interest Rates May Slow Advance
http://www.dailyfx.com/story/currenc...115765927.html
Reply With Quote
  #4 (permalink)  
Old 16th August 2007, 02:11 PM
Rubber Duck's Avatar
Veteran
 
Join Date: Sep 2005
Location: Czech Republic (For those of you from USA = Chechnya)
Posts: 15,929
iTrader: (59)
Rep Power: 4513
Rubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura about
Re: Asia Decoupled? Now There's a Subprime Concept: William Pesek

Quote:
Originally Posted by touchring
The recent strengthening of the dollar is because of Yen carry trade unwinding.


US Dollar Rallies on Carry Trade Unwind, Interest Rates May Slow Advance
http://www.dailyfx.com/story/currenc...115765927.html
I agree that might be part of the story.

Some of it, however, will be US investors selling up to cover debt positions at home, or simply trying to reduce what they perceive as risk.
__________________
All offers to sell are void.
Reply With Quote
  #5 (permalink)  
Old 16th August 2007, 04:25 PM
touchring's Avatar
Veteran
 
Join Date: Dec 2005
Posts: 7,547
iTrader: (29)
Rep Power: 1263
touchring is an unknown quantity at this point
Re: Asia Decoupled? Now There's a Subprime Concept: William Pesek

Quote:
Originally Posted by Rubber Duck
I agree that might be part of the story.

Some of it, however, will be US investors selling up to cover debt positions at home, or simply trying to reduce what they perceive as risk.

Yes, i read that hedge funds are selling equity to meet margin calls, that includes Asian and European equities.
Reply With Quote
  #6 (permalink)  
Old 16th August 2007, 10:00 PM
Neptune's Avatar
Member
 
Join Date: Apr 2006
Location: California
Posts: 232
iTrader: (16)
Rep Power: 517
Neptune is an unknown quantity at this point
Re: Asia Decoupled? Now There's a Subprime Concept: William Pesek

Quote:
Yes, i read that hedge funds are selling equity to meet margin calls, that includes Asian and European equities.
Hedge funds, yes, but retail as well. Retail margin calls crushed Korea yesterday, has already occured in Japan, and is probably due in HK today. Imagine the same in Europe as well.

But have to agree with touch, it looks like yen-carry unwind has begun (see that yen move today?), a beast nobody knows the size of. Whether it fully unwinds or merely covers short term until we see a new rate hike in Japan (Sep) and lowering in the US (soon?) is a different story.
Reply With Quote
  #7 (permalink)  
Old 16th August 2007, 10:31 PM
Administrator
 
Join Date: Jan 2006
Location: On the Road
Posts: 2,276
iTrader: (50)
Rep Power: 1223
thefabfive is on a distinguished roadthefabfive is on a distinguished roadthefabfive is on a distinguished roadthefabfive is on a distinguished roadthefabfive is on a distinguished roadthefabfive is on a distinguished road
Send a message via Skype™ to thefabfive
Re: Asia Decoupled? Now There's a Subprime Concept: William Pesek

A Japanese interest rate hike is looking less likely since the economic growth has slowed substantially in the last quarter.

And while inflation has looked tame recently I don't believe the Fed is inclined to "bail out" the financial markets unless the sh*t really hits the fan and the turmoil spreads to other sectors of the economy.
__________________
IDN? What's an IDN?
Reply With Quote
  #8 (permalink)  
Old 17th August 2007, 05:31 AM
Rubber Duck's Avatar
Veteran
 
Join Date: Sep 2005
Location: Czech Republic (For those of you from USA = Chechnya)
Posts: 15,929
iTrader: (59)
Rep Power: 4513
Rubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura about
Re: Asia Decoupled? Now There's a Subprime Concept: William Pesek

There seems to be a presumption in the markets at the moment that exchange rates is primarily about the level of interest that fixed return investments will yield, but things are a lot more complicated than that. Currency are hard on the presumption that inflation will be kept within prescribed guidelines. That takes intelligence and resolve and may mean toughing it out with public opinion whilst jobs are lost and living standards fall or even plummet.

If control of inflation is lost, then the currency will plummet, a foreign investor become more concerned about depreciation of their capital than the apparent investment returns. At this stage of the game, to suggest that Poulson is walking a tight rope would be a massive understatement!
__________________
All offers to sell are void.

Last edited by Rubber Duck; 17th August 2007 at 05:49 AM..
Reply With Quote
  #9 (permalink)  
Old 17th August 2007, 06:47 AM
touchring's Avatar
Veteran
 
Join Date: Dec 2005
Posts: 7,547
iTrader: (29)
Rep Power: 1263
touchring is an unknown quantity at this point
Re: Asia Decoupled? Now There's a Subprime Concept: William Pesek

Quote:
Originally Posted by Neptune
Hedge funds, yes, but retail as well. Retail margin calls crushed Korea yesterday, has already occured in Japan, and is probably due in HK today. Imagine the same in Europe as well..

Asian markets now going into free fall due to forced selling.

Last edited by touchring; 17th August 2007 at 07:01 AM..
Reply With Quote
  #10 (permalink)  
Old 17th August 2007, 07:00 AM
Rubber Duck's Avatar
Veteran
 
Join Date: Sep 2005
Location: Czech Republic (For those of you from USA = Chechnya)
Posts: 15,929
iTrader: (59)
Rep Power: 4513
Rubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura aboutRubber Duck has a spectacular aura about
Re: Asia Decoupled? Now There's a Subprime Concept: William Pesek

Quote:
Originally Posted by touchring
Asian markets now going into free fall due to forced selling. Forced selling just started....
Yes, but don't worry. US markets made up 300 points in an hour last night. Just spontaneous I guess.

Well, no there was a distinct rumour going around that interest rates would drop.

If the US authorities do this to bail out the markets, then the whole concept of controlling inflation and demand through money supply goes out of the window. They might as well supply dollar bills in twin pack rolls with perforations for you to tear them off!
__________________
All offers to sell are void.
Reply With Quote
Reply

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are On
Pingbacks are On
Refbacks are On



All times are GMT. The time now is 12:27 PM.

Site Sponsors
Your ad here
buy t-shirt
מחיר הזהב

Powered by vBulletin® Version 3.8.4
Copyright ©2000 - 2019, Jelsoft Enterprises Ltd.
Search Engine Friendly URLs by vBSEO 3.3.0
Copyright idnforums.com 2005

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54