Japan - What Now?

The first months of 2007 have certainly seen some wobbling in the Japanese economy, or perhaps it would be more accurate to say in the monetary policy of the Bank of Japan; the economy actually has been muddling along quite nicely as per usual in recent months, driven largely by export growth and of course playing the much allured Japanese specialty of a tightrope game with deflation. So we recently saw the BOJ raise the overnight lending rate to 0.5% in a move which was both odd given the shaky character of some of the economic fundamentals and at the same time perfectly in line with the general perception that global interest rates need to move towards 'normalization' in order to scoop up excess liquidity. However, clearly 0.5% does not constitute normal in any meaningful sense of the word, at least not when it comes to the fundamentals for the carry trade it doesn't. So, what now for Japan? Well, If we look at the economic data we have seen so far for 2007 it is tempting to go for a 'steady as she goes' take and although I do believe that this view would not be too far from the truth I still think it is worth taking a bit closer look at the data we have in front of us.

An Economic Outlook on Japan - Watch that In(de)flation!

The first thing to note I think is that Japan entered 2007 with 0% inflation being registered in January, and this it should be noted was before the hike to 0.5% which was itself justified on the back of comparatively strong Q4 06 GDP figures. However it should be noted that the domestic component in the economy shows continuing signs of weakness and both retail sales and industrial production dipped in January. Retail sales in fact fell by 0.8% on a y-o-y basis, and this of course should not be seen as grave drop yet it does as always bring to the forefront the question of whether or not consumer spending in Japan really does stand before an imminent surge. Industrial production also dropped by 1.5% from December, with this fall being mainly due to de-stocking from the pre-January build-up. Expectations point to further de-stocking in February and perhaps even March although of course the widening export surplus may well provide some much needed relief here. Yet, once again there seems little correction in Japan's overall growth path and this of course raises questions about what actually can be done concerning Japan's growth imbalance, and about just how long we can carry on believing in the likelihood of a spillover effect from buyoant capital spending to the household economy.

In all of this the export sector naturally demands special attention since it is, at the end of the day, what drives the Japanese economy forward at the present time. Indeed the data (see link above) reveals a continuation of the impressive Japanese export performance as epitomized by the February figures which show that the Japanese external surplus widened a whopping 7.7% y-o-y on the back of impressive exports which grew at a rate of 9.7% y-o-y in February. Of course the immediate outlook for export performance (and thus also for capital spending) in Japan is in part clouded by continuing questions about the future of the US economy and just how the current slowdown will play out in Q1 and Q2 of 2007. So what should we expect from Japan going forward?

First of all we have the monetary policy question which is pretty sure to be at a standstill for the immediate and forseeable future (which in the present case means over the course of the coming summer).

Earlier this week the BOJ acted according to expectations and held rates at 0.5% on concerns that consumer prices might drop below zero, and this is a risk I also ascribe some weight to in my economic forecast on Japan. Also the recent announcement by the Fed in the US and the apparent move away from a tightening bias should provide an indication that global rates in the developed economies (save perhaps UK) might be getting close to their upper limit given economic fundamentals, and really I do think the ECB should take note here as well.

Another forthcoming data release from Japan may well point to changing sentiment in the Japanese economy as the Tankan business confidence survey is expected by many to fall back from a 2 year high, although it is worth noting here that there is far from a general consensus on this and, for example, Takehiro Sato from MS sees the Tankan survey in a somewhat different light. Once again the outlook of the US economy is bound to have a significant bearing on this.


The second important point to consider concerns consumer spending and more importantly the future course of inflation. Given the inflation data from January it is now almost certain that Japan will be flirting with deflation in February and March given the inbuilt downward trajectory in energy prices on a y-o-y basis. Whether this evolution in prices will be sustained is of course another story, but I am far from happy about potential developments in Q1 and Q2 and the possible feedback mechanisms with business and consumer sentiment that these may bring into play. On consumer spending, we have of course the recent drop in retail sales in January but on a m-o-m basis we should expect a pickup as the weather gets warmer and spring arrives. None of this will, however, change the underlying growth path of the Japanese economy which driven by capex which is in turn driven by foreign demand or, in other words, by exports. Lastly, and this perhaps is something which could modify the outlook I have sketched above, we have just learnt that land prices in Japan have risen for the first time in 16 years as appreciation in urban areas has finally outweighed depreciation in rural and provincial regions. Of course, this is once more prompting vigilance over at the BOJ where it is being interpreted as a potential forerunner of an asset bubble. Now, I think it is reasonable here to attach some qualifiers.

In the first place there seems to some be indication of speculation here, and especially in the big cities where the appreciation in property values is greatest and as such speculation needs to called what it is, namely speculation on further appreciation. Another interesting aspect is that a lot of the appreciation comes from overseas investors who are investing in Japanese property expecting to wheel-in a gain on future appreciation. Now, the overall property price level development is still substantially negative in Japan as shown here in the latest round up by the Economist on global house prices. I am not attempting here to deny the facts, but merely suggesting that the current speculation which is pushing prices up might be building on the back of expectations and a view of economic fundamentals which perhaps are not present in Japan.

The Yen and Carry Trades - Still Exciting

I cannot of course write any note on Japan without also doing a stop-off in FX-ville and take the latest pulse on the Yen and associated carry trade. The first observation to take away from the carry trade debate of recent months is that it is the volatility displayed by the Yen which has been prompting commentators on an on/off basis to hail the end of the carry trade. Yet, they have of course not been reading or not fully understood what Artim noted recently in his brief on carry trade. Of course I am not trying to say that that we should not be keeping a wary eye on the Yen and on the potential for unwind of the carry trade, but we should also do this whilst remembering that the recent day-to-day volatility has basically been driven by stock market and economic data from the US and elsewhere, and that the fundamentals have not really changed and neither have the expectations, at least not decisively. Of course, the minute expectations begin to solidify towards an appreciation of the Yen Japan will be in hell of a bind since an appreciating currency is associated with deflation which is also why I don't see the BOJ moving much further north on rates in a climate where the Fed is likely to be on hold and perhaps even move down on the back of downside risk of a recession in the US. However, none of this has happened yet which leaves Artim's analysis noted above pretty much right on cue. Now, there is more to a yen carry trade than going short on the Yen and as such what is the most likely long position which we can expect from, for example, your average hedge fund? Well, of course the USD is always an option but as Brad Setser notes in his very recent entry there is much more to this than meets the eye in terms of the choice of high carrying currencies which make the flip side of a carry trade.

In Summary

So, on the economic outlook for Japan going forward I would especially like to stress one thing to watch, and that is the substantial risk of Japan falling back into deflation in March (and perhaps February) on a y-o-y basis. If this happens it will undoubtedly cause some ripples between the MoF and the BOJ where the latter will be accused of acting prematurely on the basis of a backward looking hike in February. The other thing is industrial production which almost inevitably fell in February on a m-o-m basis due to de-stocking on the back of the unsustainably high capex seen in Q4 2006. The evolution of the export surplus from March onwards will determine just how much capex can be ramped up in the months to come, and this again depends on how key economic data coming out of the US (and to some extent also China) evolves. On consumer spending, we should expect to see a small pick-up over the next few months on a m-o-m basis but I am not bullish about the evolution of consumer spending on a y-o-y basis. On the carry trade I see no change in the fundamentals and indeed if the US economy edges further towards a recession and the Fed begins to ease I am not sure that this would cancel out the carry trade in any substantial way. The point is that Japan, at this point, cannot muster an expectations driven appreciation of the Yen as this would feedback into price levels with a deflationary impact. As such, I see a distinct risk for the BOJ heading back into ZIRP if expectations begin to drive the Yen up relative to the USD and the Euro.

Finally, I want to end on an open note in terms of Japanese interest rates and whether the BOJ should normalize or not. My impetus is a recent article in Bloomberg which cites forecasters Christopher Wood and Brian Reading, who are both ardent Japan watchers, as saying that Japanese should interest rates and do so rather sooner than later. Wood for example notes that the BOJ should raise immediately from the current 0.5% to 1.5% in one go. But, we could ask, where might the sanity in such move be located?

Wood and Reading say that higher rates will help banks increase the margin between loans and deposits. Meanwhile, real estate companies should benefit as rising household incomes spur investment in land and deflation's end helps property prices.

``The Bank of Japan should raise short-term interest rates in one go to 1.5 percent now, not incrementally,'' said Wood. ``The normalization of rates in Japan would create a colossal buying opportunity for the stock market.''

So where do I stand here then? Well, first of all I do see the predicament with current monetary policy in Japan since the interest rate pretty much represents a blunt weapon for the BOJ. However, I am not sure I buy the Wood and Reading's chain of arguments. What we need to consider is that any such abrupt move would almost certainly lead to the return of deflation - at least in the short term - and it is hard for me to see how this could push consumer spending higher even if equity markets saw a substantial appreciation. We need to remember Japanese demographics here too (strangely Wood and Reading do not include the marginal propensity to consume vs. saving anywhere in their analysis) and as such deflation coupled with substantially higher interest rates seem to represent a rather strengthened incentive to save relative to consume. Of course, goes the story, property prices would increase as well which together with equity market appreciation would represent enough savings for the domestic economy to put more money into consumption yet once again this is a strange prediction given the fundamentals of the Japanese with a median age of close to 43 and climbing. In the end however I am all for going against the conventional wisdom but even in a best case Wood and Reading's suggestion would represent some gamble not least with the BOJ's credibility and with Japan's ability to service a mounting public debt.

4th Quarter to the Rescue?

By Claus Vistesen: Copenhagen

Earlier last week figures for Q4 growth in Japan and the Eurozone came out and by and large the reports make for very comforting reading accentuating the notion of 2006 as a very good year for economic growth in both the Eurozone and Japan. In my initial notes here at GEM I have maintained a rather pessimitic tone towards growth prospects in the Eurozone pointing most notably to long term structural factors, but also looking forward to 2007 I see the potential signals for a marked slowdown in key member states in the Eurozone itself and in Japan. Yet, as the Q4 figures have rolled in this week and the commentaries have appeared, we find ourselves right smack into the same old optimistic discourse. In the Eurozone the commissioner for monetary affairs Joaquin Almunia was quick to up the forecast for 2007 Eurozone growth pointing simultaneously to the robust and Eurozone wide recovery. You could even hear amongst some commentators mention of the illusive concept of a goldilocks recovery resurfacing. In Japan, the optimism amongst market watchers was also almost uncontainable although some still recognise that domestic consumption constitues an ever enduring weak spot for this proclaimed sustainable Japanese recovery.

So what do the numbers say and what should we expect going forward?

Eurozone - Enough Honey in the Pot?

The 4th quarter figures for the Eurozone were an overall comforting read. Relative to the Q3 figures of 2006 where the Eurozone grew 0.5% q-o-q growth rebounded somewhat to 0.9% q-o-q. So what happended? First of all, and quite surprisingly I have to say no one seems to link this rebound in Q4, at least to some extent, to the French economy where, as we might remember, there was a quite surprising 0% q-o-q growth rate in Q3. In Q4 France grew by 0.6% over the previous quarter, which translates into a 2006 growth clip at an annualised rate of 2.2%. Obviously, the 4th quarter is not all about France since Germany and Italy also reported strong growth rates above the earlier consensus forecast. In Germany, growth increased sligthly from Q3 (0.8%) to 0.9%. The reason for this is widely cited to be a pick up in domestic consumption as consumers chose to bring forward purchasing to avoid the three percentage VAT hike which came into effect on the 1st January 2007. I have not had time to consult the figures in terms of composition but generally the commentaries also confirm the picture of a German growth path which remains driven by strong export growth contributing significantly to Q4 growth too. This phenomenon of forward purchasing, especially of durable and capital goods, is also emphasized by MS's Eric Chaney in his note on the Q4 growth figures in the Eurozone. Actually, the German growth rate does not surprise me that much but Italy's does I have to admit. In Q4 the Italian economy raced ahead reporting a 1.1% growth rate q-o-q and here also the break-down of the growth components has not yet been given in the official data. However, intra-trade dynamics within the Eurozone and especially the sustained pace shown by Germany are noted as major contributors. However, as Eric Chaney also notes, external demand cannot be the sole driver for such impressive numbers for the 4th quarter. Lastly, we have Spain where growth also maintained a lively pace reporting 1.1% q-o-q which also translates into a very strong annualized growth rate of 3.8% (annualized quaterly figures) and close to 3.8% in y-o-y terms too.

So, all in all, there should be plenty of grounds for optimism and as such also grounds for the revival of the goldilocks recovery idea. However, the question remains, will there be enough honey to go around as we venture further into 2007? Well, both Eric Chaney's note as well as this analysis by Eurointelligence pretty much beats me to it in terms of calling and essentially maintaining my pessimism. There are at least two things which we all seem to agree on. First of all, as I have also persistantly been arguing since last summer, fiscal tightening is on the menu in 2007 in both Italy and Germany and given the nature of this tightening process which essentially is a proxy for personal savings I am weary for the outlook for consumer spending and ultimately the evolution in aggregate domestic demand in 2007. Secondly, there is the evolution of the US economy to think about, and although recent data continues to point to a 'soft landing' for the US economy on the back of a housing slowdown in Q3 and Q4 of 2006, the US economy is by no means out of the woods yet. Eurointelligence points to a recent note by Brad Setser in which the December Treasury International Capital report is scrutinized. The worrying data point is that private capìtal inflows have turned negative (at least temporarily) which of course brings into question the sustainability of the mounting US current account deficit. Stephen Roach from MS also has more on this in one of his recent notes. Yet, we also, of course, have commentators like Nouriel Roubini who has been busy pointing us to the possibility of impending credit crunch in the US. Lastly, I should also note that Eurointelligence seems to agree with me (or I with them) in terms of the questionability of the continued presence of inflationary pressures and whether or not the ECB really does need to remain so vigilant, at least on inflation grounds.

In this context we need to keep well in mind that liquidity/monetary measures such as, for example, M3 are not necessarily an accurate measure of inflationary pressures especially in the light of carry trading. Secondly, fiscal tightening is key member countries is also likely to have a deflationary effect on Eurozone aggregate inflation rates.

In the end I also need to point to the inability or reluctance of commetators to factor-in the sustained process of ageing in the Eurozone and especially Italy and Germany. As the ECB continues to pursue an ideal Eurozone-wide interest rate I fear that imbalances within the Eurozone itself might very well grow to become even bigger and as such the strutural growth path of key member countries may be pushed even more towards export dependancy. This is why I am so interested in consumer spending figures from especially Italy and Germany which provide an important test case for the hypothesis.

Japan - Expecting a Hike by the BOJ?

Turning over to Japan the Q4 also reported a healthy growth clip. From the third quarter the economy grew 1.2% which translates into an annual growth rate based on annualised quarterly figures of 2.2%. Of course the interesting thing here is consumer spending and here alongside the FT article linked above Takehiro Sato from MS provides the relevant figures in his note on the Q4 figures. The q-o-q figures show an increase in domestic demand in Q4 of 1% after a (-0.3%) decrease in Q3. This translates into an average q-o-q growth in domestic demand of 0.4% (0.35%) in the last two quarters of 2006. Turning to movement on a y-o-y basis, domestic demand grew 4.8% in y-o-y terms in Q4 but declined (-4.2%) in Q3 on a y-o-y basis. This consequently translates into a composite growth rate in the two last quarters of 2006 on y-o-y basis of a 0.3% increase. These figures are of course subject to continous revision and as the main sentiment goes we should perhaps be looking for a downward revision? Sato from MS also notes that consumer spending perhaps declined on a monthly basis in December relative to October and November. Turning to inflation, prices remain subdued and the Q4 did not see any notable move towards sustained inflation; in short, we are still hovering very close to negative price evolution. Sato has the relevant summary:

Among domestic demand deflators, the public and residential investment deflators remained in an upward trajectory, while the capex deflator also bottomed. Above all, the decline in the personal consumption deflator is hurting overall.

So what does this mean for the BOJ and future interest rate expectations? As I have already argued before following one of Takehiro Sato's points, the BOJ should be very careful about raising in March on the back of positive Q4 figures especially when the general trend in consumer spending figures and inflation is still very weak. MS apparently puts the possibility of a March hike at 50% (or marginally at 51%) which is the equivalent, in analyst-speak, of saying ... this could go either way. In the end, I think the BOJ decision should be pretty clear by now and evidently, if the main yardstick is to remain economic fundamentals, I do not see justification for a raise from the BOJ. However, there are other factors in play here, including pressure to unwind the carry trade as well as the perceived need and/or temptation to act on the Q4 figures. In the end I think that inflation will provide the strongest grounds for the BOJ to stay on hold as it is very likely that the first quarter of 2007 will see inflation dropping into negative territory as the headline reading continues to put downward pressure on prices. Finally, Takehiro Sato continued his Japan coverage last week by reporting that MS have recently upped their forecast for the Japanese economy. The above-mentioned reservations do however all remain, and as we stand on the brink of the next BOJ interest rate meeting we have reverted to a 'too close to call' stance by the markets.

4th Quarter to the Rescue?

So then, we should not be doomssayers here. Both in the Eurozone and in Japan 4th quarter economic data points to a solid growth towards the end of 2006, but what we are talking about here really is only data for one quarter and we should be looking at the bigger picture too, and also, crucially, the structural components of growth in the economies in question. As such, the fundamentals have not changed I think and ultimately this is why I remain sceptical on the ability of both these key economic regions to display the same kind of vigorous growth in the future that we have seen in the recent past. In fact, given the rather spectacular growth stint we have just been through, and especially in the Eurozone, we really should expect 2007 to be somewhat different. At the end of the day we need to think about just how to describe all of this and,crucially, we need to consider just what a 'sustainable' recovery actually means in the present context in the key economies? In Japan, 2006 was the year which marked (for the time being at least) the official ending of ZIRP was ended, but even exiting 2006, where it is widely recognised that growth was at an unprecedented rate in comparison to recent performance, interest rates have not been pushed up since the initial move which took Japan out of ZIRP in the summer of 2006. So, will 2007 finally be the year when this, after all, hideously slow normalization process really starts to take root? Perhaps, but perhaps not, and as I have stressed so many times on these issues we need to look at the structural components and what they mean. A 4th quarter rebound is indeed good in and of itself but whether it is a sign of maintained and sustainable strength is an entirely different question.

No signs of Inflation in Japan

by Claus Vistesen: Copenhagen

In this note, I will adopt a two-pronged approach. Firstly, I will do a round-up of the domestic scene in Japan and more specifically the inflation outlook as well as the subsequent outlook for a possible interest rate hike by the BOJ come February or March. Secondly, I will take a look at the international perspective on Japan, where there has been a recent flurry of news items on the Japanese economy, where especially the low Yen and the carry trades are very hot topics.

In(de)flation Moving Forward?

The Japanese economy simply does not seem to be able to catch a break these days. Back at the beginning of this month the BOJ had to dissapoint financial markets yet again as the central bank failed to find room for an interest rate hike. The reason for this is not slow growth per se but more specifically the persistent sluggishness in consumer spending figures which mirrors a domestic economy where demand seems locked in towards a steady decline despite a very low nominal interest rate of 0.25%. This also materializes itself in inflation figures which can be seen in a broad as well as a narrow perspective. In terms of the former, Japan has been fighting deflation for over 5 years now with annual inflation rates in deflationary territory (2002-2005) or very close to it. In 2006 the Economist Intelligence Unit estimated consumer inflation as running at 0.3%. Looking at the latter, where are we headed as we enter 2007 then? Sadly for Japan it now seems likely that deflation is steadily becoming a once more a reality rather than a pessimistic outlook. The first aspect of this is the growth in household spending which on a y-o-y basis in 2006 probably will come in very close to stagnation or even perhaps enter negative territory. The recent retail sales figures from December bode ill for the general bullish perspective on Q4 2006 and consequently for the prospects of a BOJ raise. On a monthly basis retail revenues fell 0.2% seasonally adjusted but more importantly sales on a y-o-y basis fell 0.3% which according to Bloomberg constitutes the biggest decline in the last eight months. Retail sales are of course here used as a proxy for household spending and I am beginning to wonder whether in fact the expected increase in consumer spending in Q4 2006 will in fact not be a dissapointment. Remeber also here that the second aspect of the decline in inflation going into 2007 is the recent dip in headline inflation as a function of dropping oil prices. As Artim pointed out recently the general outlook on oil prices still points to structural forces which will tend to push up prices but for reasons explained by Artim the headline inflation rate has been dropping throughout Q4 2006 and is set to continue into 2007. This of course only acts as another hit on Japan's already depressed inflation rate which incorporates the headline account in the overall inflation measure. Looking at what this means for inflation rates in Japan and subsequently the BOJ's ability to raise in February Takehiro Sato from Morgan Stanley estimates, for example, that the CPI index will go into negative territory as early as February-March on the back of a faster than expected decline in oil prices.

However, what about the tightening labour market and the prospects of wage-push inflation as the unemployment rate keeps on drifting down, from the current level of around 4%? To scrutinize this Edward had an illuminating post over at Bonobo Land which quotes a recent article from the FT. The FT article highlights some important points on the Japanese labour market which, based on the commentary by Hiroshi Shiraishi, economist at Lehman Brothers, directs us towards an explanation for the absence of wage push inflation in Japan. The first point relates to the global phenomenon of how corporate attention increasingly is biased towards shareholders which results in the increasingly missing link between booming corporate profits and wages. This is also reflected in the global labour arbitrage argument.

The second point relates to the compostional change in the labour force as large cohorts of highly paid baby-boomers are retiring and being replaced by much thinner young cohorts, who are obviously much lower paid. Also, the labour market reforms now mean that the seniority element in wages is now much less evident, and especially in the lower skill groups. The sum total of all this is to put an inbuilt and systematic downward pressure on wages.

Thirdly, and finally, Shiraishi points to the weak yen and how this is squeezing domestic companies' foreign buying power and especially inhibiting small companies from raising wages. However, despite these strutural economic aspects another data point caught my eye in the form of the jobs-to-job seeker ration which is at 1,08 to 1,00 and marks the tightest condition since 1992 according to the FT article. So it seems that although jobs indeed are present in the economy the supply side is having trouble following the demand side which I might add is pretty strong circumstantial evidence that at least a part of the labour market tightening process in Japan is due to the sustainened process of ageing and thus compositional change of the population structure and labour force.

In conclusion, what we have here then is hardly promising signs for Japan in terms of the domestic economy's ability to produce signs which would reinforce the BOJ's willingness to justify domestically a raise in the interest rate come February or March.

A Tough Burden to Carry?

A related topic to the one discussed above about how persistingly low figuers for consumer spending and thus inflation holds off the BOJ from raising is the issue of the low Yen and subsequent the Yen carry trade which exploits the interest rate spread between low yielding Japanese government debt and high yielding debt instruments (e.g. US treasuries). The first lesson here is that the transmission mechanism is very direct between economic data and the Yen because it all relates to whether investors expect the BOJ to raise or not. Consequently, Bloomberg (linked above) reports that the Yen recently fell to a fourth year low against the Dollar on the back of the dissapointing retail sales figures cited above. More importantly, the carry trade flows and outlook seem increasingly fortified as investors continue to bet short on the Yen at the same time as expectations point to both the Fed and ECB being likely to widen the interest rate spread thus making the carry trade even more profitable. In essence the carry trade follows a perfectly rational investor approach albeit with the subtle point that it basically hinges on low volatility and thus the expectation that the high-rated currency in the carry trade will not devalue. At a later point I will go into more detail here at GEM as to what drives the carry trade. Meanwhile, the carry trade is still the source of much debate and concern in Europe and the US, a debate which translates into a concern about an unhealthy build-up of leverage. Essentially, the concern boils down to the way in which a growing number of leading European politicians and economists are voicing their dissatisfaction with what they call the undervalued Yen relative to the Euro, and thus have started to protest about the inability of the BOJ to respond to what they perceive as being the sound fundamentals of the Japanese economy and thus raise rates to unwind the carry-trade, and even more importantly in a more general global perspective to contribute to the perceived need to mopup excess global liquidity. The criticism of Japan and concern over the carry trade and excess liquidity is for example becoming operationalized in the forthcoming G7 forum. So as we gear up for the G7 meeting next week we can be sure that especially European representatives will voice their concern over the distorting nature of Japanese monetary policy. However, what does this mean? To what extent will and indeed should investors correct to the messages from G7 and more importantly will the signals transmitted by the high lords at G7 really have an impact on the Yen?

In a recent research note, Robert Alan Feldman from Morgan Stanley points to the warranty of due attention to the signals coming from G7. It is of course always good to listen, but what should not escape our attention in this case is that this would not be the first time the G7(8) forum had tried to talk up the Yen. In fact they even tried to do this as recently as last September,and at that point all the talk ended up being cheap. In fact, I am going to pick a whee bit on Feldman here since he himself, only a few days ago, suggested that investor corrected to the fundamentals of the Japanese economy instead of the rhetorics of the BOJ and the Japanese policy makers. Surely this goes for G7 rhetorics as well, or what?