TSMC founder Morris Chang forecasts L-shaped recession

[B3D News]

Last week, EETimes.com reported that TSMC executives reached a concensus that this recession would be U-shaped, with a rapid rebound in the coming quarters. But Morris Chang, the founder and Chairman of TSMC, seems to have a very different opinion of what's going on.

Read the full news item

 

[Jawed]

Why was the GPU channel holding inventory levels at around 2.5 to 3 months?

Jawed

 

[rjc]

Economist recently had an article on taiwan's current state, subtitled "The ugliest economy of them all?": http://www.economist.com/world/asia/displaystory.cfm?story_id=13109874&fsrc=rss

For TSMC it does seem unlikely that it will be over quickly ie 6 months or less. I saw a TSMC executive state in december that they expect their mobile parts orders to come back first before their GPUs. So i guess that is something to look for as a sign of the start of the recovery.

As well as the current GPU inventory problem, need to also consider if there has been a permanent change customer demands. Could consider the original inventory problem as merely a side effect of a dramatic change in customer requirements?

 

[Silent_Buddha]

Why was the GPU channel holding inventory levels at around 2.5 to 3 months?

Jawed

They weren't. They were holding inventory based on historical buying models. IE - probably 1 month at most. When consumers suddenly stopped buying, suddenly they had enough product for up to 3 months worth of "current" consumer buying habits.

It's the nature of business. And one reason you want high margins to build a good cash position. To be able to weather the storm if consumer spending changes for the worse. It has happened in the past and will happen again in the future.

Unfortunately (or fortunately depending on how you think of it), our economy has basically been on the rise since shortly after Reagan too office (other than a couple small and fairly insignificant blips in the early 90's and turn of the century).

So many businessess (not all) now operate on razor thin margins and even when they do have good margins aren't building a large cash position. Rather they take most of their products and "invest" them in rapid expansion or other projects. Part of the thinking is that money that is sitting there is doing no good.

Which works fine as long as the consumer consumption doesn't go into an extended slump. If the current state of affairs continues for 1-2 years or more, expect quite a few companies to go under.

And unless the consumers in this country want to go back to being credit/debt heavy again, it's going to be at least 1-2 years, IMO. Especially if the current administration starts imposing large taxes in order to pay for that bloated pork laden stimulus package.

Regards,
SB

 

[Anon Lamer]

We are in the first stages of a debt driven depression. It is possible to quickly reset the economic system at the expense of the banks, but whats happening now in USA and Europe is that the banks are saved at the expense of the economy. So L-shaped is about right. But the situation is not as bad for computers as it is for other things like cars and houses - anything that is usually financed with credit is going to have a really sucky market for the next 15-20 years, but computers are so cheap that they should not be affected so much by that. On the other hand, people are not going to upgrade as often as they once did.

 

[Silent_Buddha]

I expect all luxury goods to take a dive for the next few years. Computers (other than netbooks and nettops), large screen HDTVs, high def multichannel stereo components, cars, houses that people are living in now that their job can't afford (thus the credit crash), etc...

I always used to laugh at the US "poverty" line when it isn't uncommon to see people under that arbitrary line owning large screen TVs and high def multichannel stereo's... But that's for another thing.

I do however except some lower priced luxury items to not be quite as effected. Console gaming for example. It's relatively cheap and serves to allow people an escape from their real life situation. A distraction with how bleak things might otherwise be. Especially now that they might actually be forced to live based on what they can actually afford rather than based on how much debt they can pile up.

Although it appears the current administration is putting HUGE pressure on banks to make it easier to get credit. /sigh. We'll never learn...

Regards,
SB

 

[Arun]

They weren't. They were holding inventory based on historical buying models. IE - probably 1 month at most.

Probably a bit more than that, and remember some orders are made in advance... NV claims new order volumes went down the shitter in early November for everyone in the industry (so also Intel/AMD/etc.)

Although it appears the current administration is putting HUGE pressure on banks to make it easier to get credit. /sigh. We'll never learn...

While I agree with your fundamental premise, there is something I want to say. And then repeat. And repeat again, and again.. Here it is: economics is not linear!

It is desirable to reduce debt, but you certainly don't want a sudden drop - and especially not in this economic environment. If consumer lending deteriorated much further, i.e. if people saved much more and 'improved their balance sheets', this could very easily turn into something much worse than Great Depression. The number of non-linear financial instruments in the world is also much greater than back then, making the feedback effect even more frightening.

Whether the administration has a firm grasp of the fact that debt should ideally be reduced in the long-term, I'm not sure. But even if they did, I can't really blame them for not talking about it right now... And in a way this could be argued this should rather be talked about in RPSC, but to be frank I'm scared of that thread!

 

[Silent_Buddha]

Whether the administration has a firm grasp of the fact that debt should ideally be reduced in the long-term, I'm not sure. But even if they did, I can't really blame them for not talking about it right now... And in a way this could be argued this should rather be talked about in RPSC, but to be frank I'm scared of that thread!

Heh, it probably should. But then again this is talking about a guys predictions of how/whether the economy will rebound and how it differs from his company's official stand.

So all this is speculation on why he's thinking L-shaped versus U shaped. And I happen to think he's more right than wrong.

I'd have to disagree with increasing debt being a better long term solution in trying to avoid another great depression scenario. Even if in the short term it increases consumer spending. It's still a phantom increase and only prolongs and increases the pain as their debt gets larger and their future spending is squeezed even further.

Although superficially many things are similar to the great depression it's not quite the same. The presence of an increasing number of "day traders" for example is similar to how many people prior to the depression tried to play the market (buy low sell high in relatively short periods of time) rather than actually investing in a company over the long term. Then when things started to go bad, trying to dump everything in an attempt to recover even a little bit sent the whole thing tumbling down in a viscious cycle.

However, while stock trading has more oversight now to prevent things getting that bad, we have something else compounding that problem at the moment. Which is the whole credit/debt heavy purchasing power that many American's use.

It's the whole buying beyond your means and the ease with which people that can't afford to have credit (see the housing bust due to high risk credit loans) can get credit and thus go into debt that's gotten us where we are. At some point the bubble had to burst, and it just happened to be last fall.

While decreasing debt will certainly hurt the economy overall in the short term, it should lead to a faster recovery than adding more debt. As people will slowly regain purchasing power based on what they earn rather than on how far into debt they can get themselves.

Unfortunate side effect is that companies that didn't plan for possible hard economic times and thus went "all out" in expansion while keeping minimal cash reservers will likely go out of business or if they are lucky be bought out by those companies with a stronger business foundation.

TSMC saying they predict a U shaped recovery are just as likely trying to foster the illusion that things will get better to get people to loosen up on their wallets and spend again.

Maybe I'm being overly pessimistic about the state of affairs (I like to think I'm being pragmatic), but I honestly don't see things improving for at least 1-2 years and quite likely only a slow recovery (if any) over 4-6 years.

And that's only assuming people stop relying on credit to buy things their current job can't afford. Like houses that are far to high priced for their current income and luxury items.

I still find it absurd to see stories where a school bus driver is asking for help from the government to pay for her 800k house. Really? In what bizarro world does a school bus driver's salary qualify for credit for an 800k house? [leaving comment out so this doesn't go into politics] And how did they expect to pay for that over the long term? And why are they expecting government help?

Anyway, I don't see many possibilites for a quick U shaped recovery for the economy. You can make credit easier to get which just leads to more problems in the future. Although it may keep some of the less financially sound companies in business longer. You can print more money which would just devalue the dollar which makes things worse in the future.

The most important thing though is the government can get out of dictating how or to whom money should be leant, other than dictating interest rates for the federal reserve. We'd still have a credit/debt crisis if they had been keeping their hands off the past decade or so, but it'd be far less than what it is now. But banks would have been far less inclined to give out loans to high risk segments of the population if the government hadn't given them incentives to do just that.

Regards,
SB

 

[Bob]

And in a way this could be argued this should rather be talked about in RPSC, but to be frank I'm scared of that thread!

C'mon, I don't bite [small]too hard[/small]

Professor Reisman addressed your point earlier today, and explains why repairing balance sheets (among other things) is necessary. RPSC for the rest...

 

[3dcgi]

I expect all luxury goods to take a dive for the next few years. Computers (other than netbooks and nettops), large screen HDTVs, high def multichannel stereo components, cars, houses that people are living in now that their job can't afford (thus the credit crash), etc...

I have a feeling a lot of netbook purchases have been luxury goods. I.e. second computers.

 

[rjc]

Professor Reisman addressed your point earlier today, and explains why repairing balance sheets (among other things) is necessary. RPSC for the rest...

There are quite a few problems with that essay. One thing that struck me straight away that was really wrong Milton Friedman(the figurehead of the Chicago school of economics) quote about everyone being Keynesians now. The actual quote was from Richard Nixon in the seventies and coincided pretty much with the end of the Keynesian movement which was largely replaced by the Chicago school in public policy making.

The Chicago school had lasted well until recently but may be on its way out now as it is largely blamed for the current mess we are now in. Keynesian is obviously trying for a resurrection but as with any resurrection that has a fair chance of getting ugly

Also the credit expansion producing money out of thin air showed complete ignorance of the carry trade was quite egregious. The savers were there, they just largely resided in asia.

Did not make it to the end

 

[Bob]

One thing that struck me straight away that was really wrong Milton Friedman [...] quote about everyone being Keynesians now. The actual quote was from Richard Nixon

It's not so outlandish. The quote is actually in-context in the article: The Chicago school has similar deficits on capital theory than Keynesism.

FWIW, Nixon only claimed the same phrase 6 years later.

The savers were there, they just largely resided in asia.

Monetary expansion in Asia does not constitute savings, neither here nor there.

 

[Anon Lamer]

Monetary expansion in Asia does not constitute savings, neither here nor there.

Correct. In modern banking, savers are not necessary for lending.

 

[rjc]

It's not so outlandish. The quote is actually in-context in the article: The Chicago school has similar deficits on capital theory than Keynesism.

FWIW, Nixon only claimed the same phrase 6 years later.

It is outlandish, i cant find the original interview but one of the links above gave the fuller quote as:
"in one sense, we are all Keynesians now; in another, no one is a Keynesian any longer."
further elaborated by:
"We all use the Keynesian language and apparatus; none of us any longer accepts the initial Keynesian conclusions"

This was at the height of the popularity of Keynesism as a economic philosphy, it's understandable Mr Friedman would try to subvert the then dominant way of thinking to his ideas.

Will give you that Nixon was subsequent and misquoted.

Mr Friedmans ideas(ie Chicago School/Monetarism) have been dominant as long as i have been alive. It overlaps a reasonable amount with the Rand Institute/Libertarian stuff Prof Resimann expounds, i am having really trouble why you are trying to tear Mr Friedman down wouldn't it be better to stick together when your philosophies are under assault?

Monetary expansion in Asia does not constitute savings, neither here nor there.

The monetary expansion that has happened recently is just government money trying to replace the money that private investors previously provided(ie the yen is returning home). Unfortunately there does not appear to be nearly enough government funds to keep things going at the same level.

Or are you talking about something else?

 

[Bob]

We have enough threads on the Credit Apocalypse in the RPSC forums, so I'll try not to add one here. But anyway, I'll just clarify one thing:

The monetary expansion that has happened recently is just government money trying to replace the money that private investors previously provided [...] Or are you talking about something else?

I'm talking about Japan's Zero Interest Rate Policy (and others like it) instored in the 90s and inevitable results thereof, and about China's dollar peg (achieved by perpetual devaluation).

 

[_xxx_]

government money == a fantasy product out of thin air. Not existing in reality, that's basically where the inflation and "national debt" comes from.

 

[Arwin]

I'm not an economist, but isn't all money basically a fantasy product out of thin air? Government money is really the only money there is! But obviously by printing more of it while representative value (BNP, national assets, etc.) remains the same or goes down, decreases its relative value, both nationally and internationally (though not necessarily equally).