Happy Thanksgiving! Sony and Panasonic are Junk! Japan Has No Leadership! Mish Shedlock Spells it Out!

Happy Thanksgiving! May the rest of this year see you and yours healthy and prosperous!

My son and daughter along with two friends (Ko & Takashi) visiting us for turkey in 2010

Yesterday, I posted about how messed up the Japanese economy was in "Japan is Collapsing." The response to that article was amazing. Thank you... Too bad the article contents are true.

Interestingly, just two nights ago I had dinner with some high ranking executives from Germany's biggest television network. They were in Japan on a fact-finding mission and had visited several Japanese corporations who told them all sorts of nonsense stories (spin) about Japan.

The most ridiculous one was given to them by a spokesman from either Nissan or Docomo (they couldn't recall which company told them - Jet lag and all). The spokesman told them something along the lines of, 

"The Japanese work so hard because of their samurai ancestors."

I was asked by several of the visiting German delegation if this statement was true. I told them it was "...total and complete bullsh*t!"

Actually, I've heard this "samurai ancestors" romanticist nonsense before. It's not true at all. Folks, there might be only a handful of people in Japan who have "samurai ancestors." 95% of all Japanese have peasant-class ancestors and the other 5% or so have merchant class ancestory. The samurai were low-class paid killers and "worked" (if you call it that) for money killing people or being body guards. Their only dedication, generally speaking, was to whoever paid them the most. 

That certainly doesn't translate into long and hard hours sitting at a desk all through the 50s, 60s, 70s and 80s that most Japanese dedicated during the so-called Japanese economic miracle.

And a big reason that Japan is messed up today is that she doesn't have the people with the leadership qualities like she used to and her people don't work hard and dedicate the long hours like they used to. For more on that subject please refer to: Why Korea Beats Japan:

"...the biggest problem for Japanese companies versus Korean companies in manufacturing may not be simply issues with design and ease of use, but it has a lot to do with corporate culture in Japan.

Frankly speaking, from what I've seen, Korean companies will continue to beat Japanese companies for the long foreseeable future. There's no way out. Why? Because inside a Korean company, there are no factions fighting for position like what goes on at a Japanese company. Also, Japan doesn't have the leadership it once had; there are no more good leaders, definitely in politics and there is a terrible shortage in business in Japan too.

My Samsung friend put it this way, 

"At a Korean company everyone is on the same bus and we are all going the same way. At a Japanese company, the leaders have a very difficult time getting everyone pointed in the same direction."

He's absolutely right. 

At a Japanese company groups are struggling within, and against each other, to gain power. At Korean companies, I think they feel it is "Korea versus the world!"

When I worked as an executive at a major Japanese TV station subsidiary, I saw a consistent in-fighting between three or four factions for power. When faction "A" would come to power, the other factions seemed to not put in their best effort. In fact, I saw times when the other factions would actually drag their feet and become a hindrance to the efforts of the group in power.

It was infuriating to me as a foreigner who wasn't inside of any group to see people protecting their friends and their position as the number one work priority rather than the success of the company business or the project. 

It seems to me that the success of the project would automatically protect one's position. But no! These folks wanted success for sure, but only if their group was the one in power when that success occurred.

I saw this same problem at a Sony subsidiary, another TV network I worked at in the mid 80s ~ early 90s; and you can readily see this same problem in Japanese politics anytime anywhere.

I was, and am still to this day, astounded at the immaturity of some of these people." 

I wrote that article at the end of September. It's been only two months but I only see things getting worse.

Also the other night, the COO of the German television network told me that he still thought Sony was a great corporation. I told him,

"You do know that Sony lost a billion dollars last year?"

He said nothing and drank his wine. Sorry to burst his balloon.

That was a few nights ago.... 

This morning I wake up and the first thing I see is an article that the ratings agency of Fitch has cut Sony and Panasonic's stock ratings to "Junk" (what timing, eh?): 

The agency slapped a speculative rating on each firm, pointing to their weak balance sheets and declining position in the global electronics sector.

Fitch said it cut Panasonic by two notches to BB, while it slashed Sony's rating by three notches to BB-, with both firms given a negative outlook.

"The downgrade reflects Panasonic's weakened competitiveness in its core businesses, particularly in TVs and panels, as well as weak cash generation from operations," Fitch said in a statement.

"It also reflects the agency's view that the company's financial profile is not likely to show a material improvement in the short to medium term."

Fitch also cast doubt on Sony's prospects, saying a "meaningful recovery will be slow, given the company's loss of technology leadership in key products, high competition, weak economic conditions in developed markets and the strong yen".

Panasonic was also downgraded to one level above junk by Moody's earlier this week.

I just wonder what took them so long to downgrade these companies... All they had to do was to go and check out and talk and work with the people I do and they'd have known 5 years ago that Sony was headed for the trash-can. Heck, when Sony unveiled their MP3 player that was to compete with the iPod years ago and called it the "Walkman" you knew they were out of good leadership and good ideas. 

Look for Sony to be emblematic of the rise and fall of Japan's economic miracle.

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This morning, I also received a mail from my good friend Mish Shedlock and he wrote that I could reprint his entire blog post about Japan (that I referred to yesterday) in full and I wish to do so here. Mish has the most wonderful insights and I find his blog to be a "Must Read" everyday. I think you should too!

Doorsteps of a Currency Crisis; Economic Illiterates Debate Monetary Policy; Monetarist Mush 

Japan's grand experiment of decades-long QE coupled with Keynesian foolishness is about to take one last gigantic leap forward before it plunges straight off the cliff into a massive currency crisis.

Please consider the New York Times article A Call for Japan to Take Bolder Monetary Action 

 For years, proponents of aggressive monetary policy have offered this unusual piece of advice as a way to end Japan’s deflationary slump and invigorate the economy. Print lots of money, they said. Keep interest rates at zero. Convince the market that Japan will allow inflation for a while.

Japan’s central bankers long scoffed at such recklessness, which they feared would ignite runaway inflation. But now, the bank’s hand could be forced by an unlikely alliance of economists and lawmakers who have argued for Japan to take more monetary action after more than a decade of weak growth and depressed prices.

Championing their cause is the former prime minister Shinzo Abe, who is favored to return to the top job after nationwide elections next month. Otherwise deeply conservative, Mr. Abe surprised even his own supporters by calling for the Bank of Japan to be much bolder in tackling deflation, the damaging fall in prices, profits and wages that has choked Japan’s economy for 15 years.

In escalating remarks over the last week, Mr. Abe has said that he will press the Bank of Japan to act on government orders if his Liberal Democratic Party wins the Dec. 16 election and even rewrite Japanese law to reduce the bank’s independence.

In a speech in Tokyo on Thursday, Mr. Abe said he would call for the Bank of Japan to set an inflation target of 2 to 3 percent, far above its current goal of about 1 percent, with an explicit commitment to “unlimited monetary easing” — an open-endedness that has caused jitters among some economists. The bank’s benchmark interest rate should be brought back to zero percent from 0.1 percent, Mr. Abe added.

He went even further over the weekend, saying in the southern city of Kumamoto that he would consider having the bank buy construction bonds directly from the government to finance public works and force money into the economy, according to local news reports. That raises concerns, however, the bank may be called on to bankroll unrestrained spending on more roads and bridges that Japan does not need.

Economists cite several missteps by the central bank that have entrenched Japan’s deflationary mind-set and made consumers and businesses wary that the bank’s policies will stick. In early 1999, as the country’s economic woes deepened, the bank lowered a benchmark interest rate to virtually zero and said it would keep rates at zero until deflationary concerns disappeared. But an economic uptick in mid-2000 caused the bank to raise that rate to 0.25 percent despite protests from the government that the move was premature.

Monetarist Mush

Anyone who thinks an interest rate hike from 0% to .1% or even .25% has much influence on economic growth has "monetarist mush" for brains. Seriously.

The NYT does not name the economists, but I have no doubt they exist. Highly respected (for no reason) Richard Koo is one of them.

I have written about Koo on numerous occasions. From Japan's decade long experiment resulting in public debt of a 1,000,000,000,000,000 yen (a quadrillion yen), Koo reckons Japan failed to defeat deflation because it did not do enough!

Japan is in a crisis alright, and it was entirely self-made, by politicians listening to clueless economists all begging Japan to do something.

One Thing Worse 

Central banks are bad enough on their own, but history shows that one thing worse than central banks acting on their own is central banks acting under control of politicians.

 Committing to a little inflation will push stock prices higher, while a weaker yen will bolster Japan’s exporters and strengthen corporate balance sheets. Incomes will rise, fueling consumption and raising tax revenue for the government, said Kozo Yamamoto, a lawmaker of Mr. Abe’s Liberal Democratic Party.

“Basically, it’s what the Bank of Japan should have been doing for the past 15 years,” he said. “A few percent of inflation is nothing to be worried about.”

US Populist Position

It's not just Japan loaded up with populist fools. The US has its share of them as well.

For example, Ellen Brown wants to end the Fed and put California politicians (state politicians in general) in charge of printing money to support "growth" as well as union causes.

As I have said, the one thing worse than having a Fed in charge of monetary policy is having politicians in charge of monetary printing!

For a discussion and an absurd video by Ellen Brown, please see Lawmakers Threaten to Take Over Monetary Policy

Economic Nonsense Regarding Inflation, Consumption, Wages

Kozo Yamamoto preaches widely believed economic nonsense.

Inflation will not raise consumption. People do not stop buying things just because prices are falling. Computers are proof enough. Prices of computers and electronic goods have been falling for decades, yet every year the volume of merchandise sold reaches skyward.

History suggests people buy things when they need to or want to not just because prices are rising. Government interference and tax breaks can shift demand forward by a few months (for no real economic benefit of course). There is only so much room to store things.

How much food or clothing can you store? Will you buy a coat you do not need, just because prices are going up?

US QE Example

Take a look at the US.

QE has put a floor (for now) on asset prices but it has not done a damn thing for wages.

I discussed this at length with Lauren Lyster on Capital Account on November 3: Mish on Capital Account: Jobs, Real Wages, Income Distribution, Fiscal Stimulus

I come in at about the 3:00 mark, but the first few minutes of Lauren are entertaining as usual.

Average Hourly Earnings vs. CPI 

Average hourly earnings has been falling for years and lagging CPI inflation since September 2009. Simply put real wages have been declining. Add in increases in state taxes and the average Joe has been hammered pretty badly.

If inflation and QE forces wages and hiring up, then why didn't it?

The fear for Japan should be rising interest rates not deflation. If interest rates rise a mere 2%, interest on the national debt will consume 100% of government revenues.

When that happens a currency crisis awaits. I have long stated a currency crisis would happen far sooner in Japan than the US, and I believe we are about to find that out soon enough.

Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.com 


Read more at Mish's Global Economic Trend Analysis: http://globaleconomicanalysis.blogspot.jp/2012/11/doorsteps-of-currency-crisis-economic.html