Asia Coming Unglued

The news out of Asia has been absolutely atrocious. Here are a few recently released gauges:

Japanese industrial output down 16.2% in November
Japanese exports down 26.7% in November
Japanese Real wages down 3.1%
Economic contraction of 1.8% in Q3 after a 3.7% decline in Q2 (estimates are for -12% in Q4)
Japanese December sales down 22% to a 34 year low

Japan is literally falling apart. Their own deflationary depression had been propped up for years by the enormous consumption bubble in the west and the massive expansion in China that resulted from it. Bernanke and other "academics" have mistakenly attributed this phenomenon to Japan's government stimulus programs in the 90's and quantitative easing starting in 1999. Now, as the US consumer bubble collapses and the China bubble goes with it, we are left to see that they had only postponed the inevitable consequences of a mania gone bad. The west doesn't even have that luxury now. There's nowhere to export to - and even if there were, there's no manufacturing capacity remaining.

Today we hear that Toyota is to halt production for 11 days.

From the article:

"Analysts say drivers are opting to hold onto their old cars for longer and making more use of public transport, while younger people are losing interest in having a car."

(emphasis mine)

From a socionomic and generational perspective, this should come as no surprise. The young Japanese have inherited an incredible amount of public debt. Going out and buying a new Lexus would only serve to associate oneself with the recklessness of the past. They'd rather take the train or ride their bike.

But the carnage is not limited to Japan:

Singapore Q4 GDP down 12.5%
Singapore non-oil exports fall 17.5%
Taiwan November exports fell 28% - exports to China fell 45%
Taiwan industrial output contracts 28.35% in November
Korean November exports down 19% in November, 17.4% in December
Korean industrial output down 14.1% year over year in November
Chinese manufacturing contracts for 3rd straight quarter in December
Chinese electrical output contracts by 9.6% in November

These are not your typical recession numbers. They are all far worse than what was seen even in the Asian economic crisis of the late 90's. Asia is entering a full-fledged depression. The decoupling theory has now turned into one of the biggest shams of the decade. It turns out that much of the growth experienced there was artificial also. The notion that they would all be able to gradually shift to domestic consumption when the west slowed was based on nothing other than wishful thinking. They don't have the infrastructure to start consuming more. And they don't have the consumerist mentality to consume more. In fact, now that many are losing their manufacturing jobs, are experiencing huge losses in the stock market, and see the unravelling going on around the world, their natural inclination is to save more and consume even less. Go figure.

To be sure, I don't put much stock into any statistic coming out of China, nor do I for any country for that matter, but especially not China. So even if these numbers look terrible, I fully expect them to be far worse in reality. Social unrest in Asia is one theme I expect to be very prevalent this year. Already we are seeing violent clashes inside the Korean Parliament. And Japanese Premier Taro Aso, who's approval rating sits at 20% is rebuffing calls for his resignation. Are political troubles in China soon to follow? Even China's state-run media seems to acknowledge that possibility.

Whatever 2009 brings, we can be reasonably certain that any relative leadership will not be forthcoming from Russia or East Asia. However, there is a good argument to be made that China and the Tigers (Korea, Taiwan, Singapore) are in a similar position to inter-war America. Regardless of how bad things get, it is a distinct possibility that some of the best long-term opportunities may be found when it appears Asia is in irreparable chaos. Now may be a good time to start preparing some wish lists among the dual listed securities we have access to.