Quote Originally Posted by sixpack
Housing & Japanese Liquidity.

hi, first post from sunny London. Very interesting site. Read the stuff about respectful contributions, no abuse (what not even self-abuse ?) or demeaning comments. Will have to rely on carefully crafted innuendo in that case.
Anyhow, back to matters in hand.

A) the site hosts the article from the FDIC: 2006 Economic Outlook Roundtable:
Scenarios for the Next U.S. Recession by Ms Whitney


who appears to put a strong case for the housing slow down to have a limited impact on the US - and televised commentators / Big Al appear to be suggesting a similar limited effect.
While my selfish interest lies in impacts on the insane UK (London) housing market I would be very interested in iTulip contributors' comments on Ms Whitney's work.
Q1) Does she have this right or is there a snowball effect waiting to happen ? I've not seen any comments on her work yet while the meltdown story appears to have wide agreement on this site.
While the meltdown sounds good in theory and explanation, the opinions here are quite one-sided.

Q2) Is there a way of assessing the impact of any US slowdown on the UK where I'm thinking of buying (for my own use !) ?

fyi - London property has gone insane again in '06. Another 10% hike in prices after a pause in '05 (and that's just on flats from converted victorian houses - most of which are just not done that well as the houses do not lend themselves to good conversion designs).
Looks like a lack of supply in popular areas but also strong buy-to-let interest support. USD600K for a two bedroom London flat just doesnt appear to be an obstacle to buyers so that amount doesnt buy you a good one in a good area; jobs situation is still good and lots of Eastern European immigration with the enlargement of the EU.

B) I read an explanation of Japan's delay in modest monetary tightening. Thought I would put it here as i hadn't seen it anywhere on the site yet. apologies if its old news. Apparently, the BOJ were ready to raise interest rates, but the MoF seeing that as undesirable, altered inflation calculations (remember the revision?). Removed some 30 or so expensive items and added some 24 cheaper ones to the inflation basket and hey presto, inflation was not running as high as had been announced (there's nothing like keeping politics out of monetary management, and it seems, this is nothing like keeping politics out of money management). Hence the ever so frightening .25% increase in their rates is thought to have been put off till 2007 (why would such a small increase cause a panic problem anyhow ?) and you have all written most eloquently of the subsequent re-launch of the yen carry-trade.

So, if Japanese money is such a huge trigger the question perhaps is when they might go ahead and raise their interest rates (over the Ministry of Finance's dead body it seems). Any opinions ? If this is likely to cause people to 'unwind positions' wouldnt this be more likely to create financial market problems ? Taking Ms Whitney's paper, the housing market might actually be a significant but small side-show to the actions following a Japanase rate hike.

Responses appreciated.
I noted Ms. Whitney's paper earlier http://www.itulip.com/forums/showthr...=3558#post3558 and it really did not draw any comments directed as disputing what she related. Perhaps it was too counter to the general disposition here on iTulop, or perhaps those who saw it thought it too ridiculous to comment on it, or again because it was so long perhaps no one read it. Personally I do not know enough to suggest that in some way she must be wrong. The way the markets are going up, one cannot discount that she may be more correct that all those who expect gloom and doom.

If you haven't already seen it, http://www.itulip.com/forums/showthr...=3822#post3822 Pompoy is presumably a smart woman, so perhaps she is onto something, though today I think the existing homes report was negative, it seemed to cause the markets to go up, or something did.