Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and he teaches a graduate investment class at the University of Colorado at Denver. He is the author of “Active Value Investing: Making Money in Range-Bound Markets” (Wiley 2007).


Japan – Past the Point of No Return – By Vitaliy Katsenelson

Category: Investing, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

9 Responses to “Japan – Past the Point of No Return; Call Me Mr. Realist”

  1. [...] Disclosures « Japan – Past the Point of No Return; Call Me Mr. Realist [...]

  2. flipspiceland says:

    But I’ll bet they have national health care, n’est ce pas? whoopee.

  3. dead hobo says:

    I think we’re all going Japanese. These pictures all look like the US historically and/or as anyone with a little common sense can project for the future.

    The only omission is the expected higher cost of anything that can be commoditized and traded like oil. Iron ore is the new poster child fof greed and incompetent regulation. It is the most abundant element on earth excepting nitrogen or hydrogen, but financial cartels are piling in to create an effective middleman structure, just like the one controlling the price of oil today. OPEC is not the cartel in charge today for oil. The financial cartels that trade paper on exchanges using financial innovation all combine to act as effective middlemen while adding no value to the end consumer. Incompetent regulation can be thanked for this.

    Thus, Japan and the US and probably the EU can expect a lowered standard of living for decades due to both their own debt financed excesses AND the financial cartels that control commodity pricing.

  4. franklin411 says:

    What gives Mr. Katsenelson the confidence that his “painful” solutions to the current crisis won’t result in the “painful” lynching of our economic aristocracy, just as it did during the French Revolution?

  5. 4horsemen says:

    Dead Hobo – Here, here! I couldn’t agree more!

    The last thing I want to sound like is a conspiracy theorist, but it all seems too obvious. Iron Ore, coal, and many other commodities are abundant and financial players have been given free passes to speculate cheaply in the game (although “speculate” may not be the right word when they are ultimately controlling the results). Yes, I “get” that there are infrastructure issues, and I “get” that China has many many people that will lead to much demand. But look outside the standard thinking box. China has some glaring issues of economic imbalance that will need to be rectified sooner rather than later. In addition, China has already overbuilt (therefore over-consumed) many raw materials – pulling forward future demand. Again, this is on the assumption of continued rapid, straight-line growth. This is rarely the case.

    Asset inflation in an otherwise deflationary environment leaves core CPI benign. The result is a statistic that allows the Fed to claim there are no inflationary pressures – all the while, Joe Consumer pays more at the pump, businesses see input costs rise, and people lose jobs in an economy that is still weak (save for rising commodities). But, of course, the speculators make out like bandits.

  6. highside says:

    Watch out for the misleading use of “Gross” debt as a lot of Japanese debt is actually held by Japanese government organisations leading to significant double counting.

    A recent article either in the FT or the Economist, sorry cannot remember which, quoted a number of academic sources suggesting net debt to GDP is well below 100% and in line with other developed nations.

    Furthermore the vast bulk of Japanese government debt is domestically owned unlike UK or US!!

  7. jtholland says:

    Ok, the first 13 slides of this analysis are great.

    However, at the end he says “Eventually, increased debt level and higher interest rates will drive the deficit up…”

    That’s great. Thanks for that brilliant analysis. The problem is this, at what debt level do interest rates go up? The US TRIPLED our debt level from 2000, and yet long term interest rates are as low as they were then. The Debt to GDP level in Japan is quickly approaching 200%, in the US, it’s not even predicted to hit 100% for a few more years. In addition, the US is a reserve currency, which probably means we have a lot more wiggle room until we have to start paying higher interest rates. China could choose to quit buying Treasury bonds, but then, lo and behold, their currency would go up, undermining their export led model of development.

    It is ridiculous to claim that Japan and the US are comparable cases, and as a result, we should let the economy “naturally fix itself in the short term”.

    Until somebody shows me some direct correlation between debt and interest rates that would ACTUALLY AFFECT THE US, then in the short term, Keynesian counter-cyclical policy is the best way to go. Stimulate the economy, get it moving in the next 18 months to 2 years, work on entitlement reform (especially health care costs), and this country will be back on solid ground.

    Now, whether or not Congress is smart and courageous enough to actually do all those things is another story.

  8. jtholland says:

    highside, I think you might be wrong about the US debt ownership. Foreigners don’t even own over 50% of the debt held by the public, much less the total debt.

    I’ll have to go look up your info about double counting in Japan, that’s intriguing. Got any links?

  9. Mike S says:

    This is an epic misunderstanding of the nature of money and debt. Epic. And on both the Japanese govt and Mr. Katsenelson. With this analysis, they aren’t even wrong they are so off base.

    One of these years, people will start to listen to Warren Mosler. At least I hope they do.

    Japan has issued too much debt, they should have just spent and not issued any associated debt for the last few years. The Japanese economy would be booming by now. I’ll repeat the key phrase so you know that I am not mis-speaking: They should have just spent and not issued any associated debt.

    They didn’t, so here is a plan: When the bonds come to due, just pay back the cash and do not issue new bonds, or maybe bonds for only 50% of the roll. Do this for a few rolls in a row and you’ll see staggering demand for JGB’s. Interest payments will not skyrocket. Long term rates will go below 1%. And lots of cash will just be floating around in the economy, and not earning any interest. People will figure out they need to invest it soon enough.

    Bonds are about the term price of money, spending is about quantity. The price of short term money is too high, so they should keep more of it around until they have 3% inflation. Since this is like 6% away right now, they have lots of room to play.

    Warren Mosler. BR – you need to read Warren Mosler.

    The savings rate is BS too. Japan has saved so much, a few more % is meaningless.