American Recession same as Japanese Recession?

Discussion in 'Trading' started by liltrdr, Oct 8, 2001.

  1. liltrdr


    I don't know if you guys are into economics or not. I'm an econ major myself and all the recent fed activity is very interesting. I think Keynes talked about a liquidity trap where monetary easing would have little effect on boosting economic growth. The theory is that the fed is "pushing on a string." No amount of rate cuts would increase consumer spending according to this theory.
    This is the current situation of the Japanese recession. The government has cut rates to near zero and rates even went negative at one point in time! Japan also had a tech and real estate boom before it's bubble collapse.

    Anybody else see similarities? And if there more rate cuts in the future, how would a trader take advantage of the situation? Buy bonds? Bond options? Some kind of bond spread? Buy or sell at what maturity? I know nothing about bond trading so any info is appreciated. Even if I never put on a bond trade, it's good to know about them IMHO.

    I don't know if anybody here trades on economic information like interest rates. I think tech analysis is great but fundamental changes like this can't be ignored.
  2. Dustin


    I did a report on the Japan crash of 1990 this past summer for a class. I agree that the interest rate actions are very similar, but the difference is what happened after the crash. In the U.S. we had dot-coms drop off the map. In Japan their banking system collapsed. During the 1983-1990 period the non-bank financial companies (brokers etc) found loopholes in real estate lending laws. This enabled them to do extremely risky loans during those "good times". But then the BOJ raised rates and the stock market bubble popped. Two years later the real estate market began to follow. By the mid nineties over 50% of those risky loans by non-banks were unrecoverable. I forget how many billions went up in smoke.

    My point is that unless war (or something else) really screws up our economy like in Japan, we could recover better than Japan did. Let's hope...

  3. dozu888


    same as Japan?

    This is a multi multi trillion dollar question.
  4. There are cultural factors at work here. First, Japan is not a multicultural society whereas America's strengths lie in its diversity. Second, Japanese innovations take place at a more collective level, whereas American creativity takes places at the individual level. For instance, the internet revolution which places a lot of emphasis on individual's innovative spirit has been spearheaded by America basically. We have yet to see Japan demonstrate the same level of creativity in that respect. Finally, there is still a relatively high level of protectionism in Japan than in America. This is perhaps my prejudice, but I believe America's economy is far more resilient than Japan's.

  5. JS11374



    so the basis of your analysis that we'll do better than the Japanese is that we are culturally superior? Forget prejudice, that's just one hell of a burden on rational trading....

    good luck trading, with thinking like that that's all you are running on. Kinda makes me think of the Sinatra song - "Luck Be a Lady"
  6. "that's just one hell of a burden on rational trading.... "

    Just remember has nothing to do with rational thinking-->Remember that!! Stockoptionist's ability to be a great trader has nothing to do with his ability to think rationally, in fact one of the greatest attributes of successful traders is that they THINK differently!!
  7. JS11374


    Agree with ya there buddy. Sure, luck (intuition, feeling, experience - and the rest of the non-quantifiable things out there) is a HUGE part of trading stocks. I can tell you from experience that studying the formal theories is actually pretty bad for trading. But that doesn't mean rationality should be taken out of the equation. Without rationality, trading is gambling.

    Think about it, hoping the US economy won't go into a recession because of 'diversity' and someone will think up of something eventually is like holding on to a falling stock because hopefully someone out there will buy in bulk - may happen, but probably nothing to bank on.

    But, I hope the economy recover. My long term position is exposed.
  8. original topic. None is talking about trading here it's marco economics... :eek:
    My secret fear and it's because I work for a living that the
    US economy (while resilient) not as strong as many hope.

    Japan is in their doldrums for 15 years, if this country is in the
    same catch for 1/5 we are in deep shit. The US saving's rate LOW and gov is in deep deficit. if we have a little depression as we had in the the 30's or in Japan. The populous is going down big. House values (and defaults), credit card companies and other credit agencies will go under. The US consumer and government debt is huge. Our cultural diversity is a big myth and it will
    buy us nothing of a substance. If you are broke white or broke
    Puerto rican and there are no jobs what the hell is our diversity
    good anyhow ????
  9. liltrdr


    so I guess I'm an expert. :) That's one thing that will probably not happen again. It was a catastrophic event caused by everything going wrong that possibly could. The past few years seem to have everything good. Tech innovation, relative world peace, strong build up of cash, good government, good capital investment, foreign investment. List goes on and on. I know the economy will come back. To me it's just a question of WHEN? If the government reacts to terrorism properly, we may have an amazing post war boom just like after WWII. My biggest fear is the debt in America. What will happen when the economy tanks and the average household lives on credit? :(

    As for America's superiority vs. Japan's, that discussion is just pointless. Both sides are usually wrong. Americans are not fat lazy and stupid just as Japanese are not mindless worker drones. The dumbest argument is that Japanese aren't innovative because the never invent something. What would you rather drive, a ford pinto or a honda civic. What kind of tire would you rather have, a Yokohama or a Firestone? Innovation is also improving things and making them cheaper.
  10. JS11374 and liltrdr,

    I didn't mean to be serious anyway. Again, I already said that was perhaps my prejudice. Of course, when I am trading, I cast aside these preconceptions and look at the charts instead.

    #10     Oct 8, 2001