Friday, August 06, 2010

Japan should take a page from our book!

Unfortunately, for these lost sons they don't have a widely in demand entertainment structure like the US to soak up all this excess talent.  We have this problem too, but with the Bachlerette, America's Got Talent and American Idol and a million sports we manage to keep our youth engaged and productive;-)

Japan's Economic Stagnation Is Creating a Nation of Lost Youths

Posted 7:00 AM 08/06/10 ,
Japanese youth
What happens to a generation of young people when:

  • They are told to work hard and go to college, yet after graduating they find few permanent job opportunities?
  • Many of jobs that are available are part-time, temporary or contract labor?
  • These insecure jobs pay one-third of what their fathers earned?
  • The low pay makes living at home the only viable option?
  • Poor economic conditions persist for 10, 15 and 20 years in a row?
For an answer, turn to Japan. The world's second-largest economy has stagnated in just this fashion for almost 20 years, and the consequences for the "lost generations" that have come of age in the "lost decades" have been dire. In many ways, Japan's social conventions are fraying under the relentless pressure of an economy in
seemingly permanent decline.

While the world sees Japan as the home of consumer technology juggernauts such as Sony and Toshiba and high-tech "bullet trains" (shinkansen), beneath the bright lights of Tokyo and the evident wealth generated by decades of hard work and Japan Inc.'s massive global export machine lies a different reality: increasing poverty and decreasing opportunity for the nation's youth.

Suddenly, It's Haves and Have Nots

The gap between extremes of income at the top and bottom of society -- measured by the Gini coefficient -- has been growing in Japan for years. To the surprise of many outsiders, once-egalitarian Japan is becoming a nation of haves and have-nots.

The media in Japan have popularized the phrase "kakusa shakai," literally meaning "gap society." As the elite slice prospers and younger workers are increasingly marginalized, the media has focused on the shrinking middle class. For example, a best-selling book offers tips on how to get by on an annual income of less than 3 million yen ($34,800). Two million yen ($23,000) has become the de-facto poverty line for millions of Japanese, especially outside high-cost Tokyo.

More than one-third of the workforce is part-time as companies have shed the famed Japanese lifetime employment system, nudged along by government legislation that abolished restrictions on flexible hiring a few years ago. Temp agencies have expanded to fill the need for contract jobs as permanent job opportunities have dwindled.

Many fear that as the generation of salaried baby boomers dies out, the country's economic slide might accelerate. Japan's share of the global economy has fallen below 10% from a peak of 18% in 1994. Were this decline to continue, income disparities would widen and threaten to pull this once-stable society apart.

Downsized Expectations, Opting Out

The Japanese term ''freeter'' is a hybrid word that originated in the late 1980s, just as Japan's property and stock market bubbles reached their zenith. It combines the English ''free'' and the German ''arbeiter,'' or worker, and describes a lifestyle that's radically different from the buttoned-down rigidity of the permanent-employment economy: freedom to move between jobs. This absence of loyalty to a company is totally alien to previous generations of driven Japanese "salarymen'' who were expected to uncomplainingly turn in 70-hour work weeks at the same company for decades, all in exchange for lifetime employment.

Many young people have come to mistrust big corporations, having seen their fathers or uncles eased out of ''lifetime'' jobs in the relentless downsizing of the past 20 years. From the point of view of the younger generations, the loyalty their parents unstintingly gave to companies was wasted.

The freeters have also come to see diminishing value in the grueling study and tortuous examinations required to compete for the elite jobs in academia, industry and government. With opportunities fading, long years of study are perceived as pointless. In contrast, the freeter lifestyle is one of hopping between short-term jobs and devoting energy and time to foreign travel, hobbies or other interests.

As long ago as 2001, Japan's Ministry of Health, Labor and Welfare estimated that 50% of high school graduates and 30% of college graduates quit their jobs within three years of leaving school. The downside is permanently shrunken income and prospects. These trends have led to an ironic moniker for the freeter lifestyle: dame-ren (no good people). The dame-ren get by on odd jobs, low-cost living and drastically diminished expectations.

Changed Men

The decline of permanent employment has also led to the unraveling of social mores and conventions. The young men who reject their fathers' macho work ethic are derisively called "herbivores" or "grass-eaters" because they're uncompetitive and uncommitted to work.

Take the bestselling book The Herbivorous Ladylike Men Who Are Changing Japan, by Megumi Ushikubo, president of Infinity, a Tokyo marketing firm. Ushikubo claims that about two-thirds of all Japanese men aged 20-34 are now partial or total "grass-eaters." "People who grew up in the bubble era [of the 1980s] really feel like they were let down. They worked so hard and it all came to nothing," says Ushikubo. "So the men who came after them have changed."

This has spawned a disconnect between genders so pervasive that Japan is experiencing a "social recession" in marriage, births and even sex, all of which are declining.

With a wealth and income divide widening along generational lines, many young Japanese are attaching themselves to their parents. Surveys indicate that roughly two-thirds of freeters live at home. Freeters ''who have no children, no dreams, hope or job skills could become a major burden on society, as they contribute to the decline in the birthrate and in social insurance contributions,'' Masahiro Yamada, a sociology professor wrote in a magazine essay titled, ''Parasite Singles Feed on Family System.''

Take My Son, Please

"Parasite singles" is yet another harsh term for some Japanese youths. It refers to those who never leave home, sparking an almost tragicomical countertrend of Japanese parents who actively seek mates to marry off their "parasite single" offspring as the only way to get them out of the house.

Even more extreme is hikikomori, or "acute social withdrawal," a condition in which the young live-at-home person nearly walls himself off from the world by never leaving his room. Though acute social withdrawal in Japan affect both genders, impossibly high expectations for males from middle- and upper-middle-class families has led many sons, typically the eldest, to refuse to leave home. The trigger for this complete withdrawal from social interaction is often one or more traumatic episodes of social or academic failure. That is, the inability to meet standards of conduct and success that can no longer be met in diminished-opportunity Japan.

The unraveling of Japan's social fabric as a result of eroding economic conditions for young people offers Americans a troubling glimpse of the high costs of long-term economic stagnation.

Japan leading the pack in rising debt at 200% debt to GDP...

This article ties in with my recent article on the obsolescence of human capital... remember Japan has the jump on nearly the whole world when it comes to automation and the the impact on their economy as their workforce transitions from 70+ hours of hard salaryman labor to 40+ hours a week of leisure time.  Hey if you aren't working and you aren't saving, you must be spending

Japan's Cheap Debt Could Cost the World Dearly

Posted 5:30 PM 08/04/10 ,
Japan flag
Japan has been piling up debt for years. Over two decades, the government of the world's second-largest economy has borrowed staggering sums of money to fund domestic stimulus spending. Much of the spending has produced public goods of questionable value, the Japanese equivalents of "bridges to nowhere."

This profligate borrowing has left the island nation with ratio of debt to gross domestic product (GDP) nearing 200%, almost double that of troubled Greece (113%).

Japan's government debt has more than tripled since 1992, and that doesn't include local government borrowing, the equivalent of state and county municipal bonds in the U.S.

How has Japan been able to sustain a debt load that would have crushed other economies long ago?

Saving -- and Retiring

The answer lies in a dynamic few nations share: a populace which saved an extraordinarily large percentage of its income, and then invested those savings in its own government's debt. More than 90% of Japan's government bonds are owned by its people.

In effect, Japan's soaring debt was self-funded. As long as the Japanese people saved trillions of yen and handed them to their government for 1% interest, then the government had a cheap and seemingly limitless supply of low-cost money to tap.

But demographics are finally putting the squeeze on this arrangement. As Japan's population ages, the nation's savings rate is plummeting. A recent report from the McKinsey Global Institute summed the situation up succinctly: Japan: The World's Savers Retire.

The consequences are visible in this chart, which shows that Japan's savings rate is slowly dropping to zero.

Why is the savings rate falling so dramatically? As workers retire, they stop saving as their income declines in retirement. They need cash to live and cover the costs of aging -- additional health care, home care, etc. -- so they sell their investments (often Japanese government bonds) to raise cash. This puts double pressure on bonds: buying dries up and selling accelerates.

Japan Faces a New Reality

The net result of this demographic trend toward lower savings means Japan's government must soon start competing on the world market for capital. In other words, it must start selling its bonds to international investors since its own savings will no longer be substantial enough to fund its enormous debt.

For two decades, Japan's fiscal policy has operated on the assumption that the government can always borrow money at very low interest rates. But as domestic demand for government bonds declines, the government will have to raise interest rates to attract buyers.

Currently, Japanese ten-year Treasuries currently yield 1.3%, compared to U.S. bonds yielding 3.5% or German bonds offering 3%. Facing international competition for capital, Japan will have little choice but to double or even triple the interest rate paid on its bonds. This jump in servicing costs will place impossible pressures on the nation's budget, as roughly 40% of all tax revenues have long gone to paying interest on Japan's ballooning debt.

Global Implications

The consequences of Japan's declining savings rate and the necessity of paying higher interest rates will not stay bottled up in Japan. As the second-largest holder of U.S. government debt behind China, Japan may decide to start selling some of its hundreds of billions of dollars in U.S. Treasuries. That would put pressure on the U.S. Treasury, which already must sell $1.5 trillion in new bonds every year, in addition to rolling over hundreds of billions in bonds which mature.

As Japan's need to sell bonds on the global market increases, the world may see an increasingly desperate competition for global capital arise, as all nations seeking to fund their sovereign debt must raise the yield (the interest rate) they pay on their bonds. That would dramatically raise the interest costs each government pays annually, further pressuring their other spending priorities.

If Japan's cheap debt balloon finally does pop, the consequences will reverberate throughout the global economy.

Thursday, August 05, 2010

Paulson, finally got the memo or did he?

Time to hunker down and batten own the hatches for the wind is building steadily and the waves it is a pushing are 2-4 feet and building.  I expected better from Paulson, specifically to have taken the first bump from the bottom last in March 09, and gotten off somewhere around the top of this year.  Apparently he missed the exit at the "TOP"  and he paid the price.  Remember this kids Sell All Rallies And You'll Be Happy! 

Paulson & Co takes a bearish turn

By Sam Jones and Henny Sender in New York
Published: August 4 2010 20:33 | Last updated: August 5 2010 01:35
Paulson & Co, a leading hedge fund manager, is scaling back its bullish positions on the US economy.
After a vicious second quarter that saw its funds hit hard by a rise in market volatility, Paulson has cut its net long bets across almost all of its funds.

“A consequence of our portfolio positioning is higher short-term market correlation and volatility,” John Paulson, the company’s founder, said in a letter to investors describing his funds’ performance in the second quarter.

The move reflects increasing uncertainty over the sustainability of the US recovery.
Paulson’s Recovery funds have been among the casualties of the second quarter downdraft. The funds were down 12.6 per cent, according to the second quarter letter sent to investors.
The $3bn Paulson & Co Recovery fund, which was launched in late 2008 to take advantage of a rebound in the US housing market and economy, has decreased its net exposure from 140 per cent to 107 per cent in recent weeks, according to Mr Paulson’s letter.

Net exposure is a measure used by hedge fund managers as a gauge of their directional bias, and is calculated by subtracting total short positions from total long positions, with leverage taken into account. A net exposure of zero would imply a market-neutral portfolio with equal long and short positions.

John Paulson’s flagship Advantage fund, which manages $9bn of client money and was down 6.6 per cent for the period, has shrunk its net long exposure from 72.4 per cent to 67.3 per cent. The more specialist $4.3bn merger arbitrage funds, which make money by trading corporate names engaged in takeover talks, have scaled back from 58 per cent to 50 per cent.

“We are now at the point where further upside in the enterprise is less in the credit but rather in the equities of companies which have or will undergo restructuring, recapitalisation and bankruptcy reorganisation,” Mr Paulson told investors in his letter.

The average hedge fund lost 2.5 per cent in the second quarter, according to Hedge Fund Research.
Many managers have significantly derisked their books over the past few weeks in response to the volatility.
According to Hedge Fund Research, equity long short and event driven funds lost $32.5bn in the three months to the beginning of July.


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