03/08/11 Baltimore, Maryland – Nothing much to report from the markets yesterday. The Dow was down 79 points. Gold rose $5.
So, let’s look across the wide Pacific…to the land that invented suicide bombing. Did we update you on our “Trade of the Decade”? We did? We thought so…
And here’s our old friend Marc Faber…with the same idea (or at least half of it.) Buy Japanese stocks, he says…
After a two-decade bear market, now is the time to buy and hold Japanese stocks, Marc Faber, publisher of the Gloom, Boom & Doom report, said.
Faber, who is credited with predicting the 1987 stock market crash and said two years ago that shares would decline just as they began the biggest rally in more than 50 years, said the Japanese government will be forced to print money to monetize the country’s public debt, the developed world’s biggest. That will cause the yen to weaken, helping boost earnings for the nation’s exporters and buoying stock prices.
Faber joins other bullish investors on Japan, such as Goldman Sachs Group Inc. and David Herro of Oakmark International Fund, in countering skepticism about Japan earned through four recessions and dismal stock returns after the 1990 crash of the bubble economy. The Nikkei 225 (NKY) Stock Average has fallen about 73 percent since it peaked in December 1989.
“If I had to make a bet for the next ten years in terms of equity markets, I would seriously consider a very strong weighting here in Japan,” Faber said yesterday at the CLSA Asia-Pacific Markets’ annual conference in Tokyo. “Once the debt market starts to go down, the yen will begin to weaken and that will lift equity prices. I would buy equities at the present time.”
But wait. What’s this?
Here’s Dennis Gartman with a nuance:
Japan is demographically and fiscally doomed. Her population is collapsing in size and growing elderly at the same time, while her fiscal circumstances are far and away the worst of the industrialized world. Japan has survived for decades in a strange world of fiscal irresponsibility by being able to sell her debt to her own people rather than to the rest of the world as the US can do and must.
Of course, this just supports our position. The Japanese soon will have a bitter choice. Either they abandon their whole silly economic model – with its eternal stimulus budgets and its perpetual zero interest rates. Or they print money. If they give up, it will bring on the final and devastating bottom of their 21-year slump. If they print money, on the other hand…they might hold off the disaster long enough to make it worse.
It is a bit like their situation after the Battle of Midway. Had they examined their situation carefully, they would have seen that the gods of war had gone over to the over side. They faced a superior adversary. And they were out of fuel. They needed control of the seas in order to re-supply; and they had just lost it.
What to do? They had a choice. They could have pulled back to the home island, begged forgiveness and negotiated a settlement. Instead, they soldiered on…in a long, hard, nasty retreat…and eventually turned to kamikaze pilots to try to save the day.
What choice will they make this time? Probably, they’ll print money. Inflation rates will rise. Japanese government bonds will collapse. And investors will try to protect themselves from inflation by buying stocks.
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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And here’s the easiest way to buy japanese stocks.
Buy the Exchanged Traded (index) Fund EWJ which trades in the U.S.
I do not unfortunately know of any inverse Japanese long bond fund that would allow us to short those bonds.
There is probably something on futures markets to short Japanese bonds but hose tend to be short term. And you need a futures account. I would prefer a bear ETF that could be held for a long time.
However a lot of ETFs that use futures tend to have a natural decline in price when the market is flat. So you would face costs holding an invesre Jap bond ETF if one is available.
Bill,
Japan has virtually no natural resources. The coming inflation will increase the cost of materials that Japanese businesses need to make their products. How is that going to make them export competitive? The only way is via devaluation of Japanese salaries. They have a long way to fall. In high tech, a Jaoanese worker costs about 180% what a US worker costs. Indian engineers are about 40% of the cost of a US engineer.
Perhaps you can provide an example of a country’s stock market that did well when it’s government created massive inflation. The definition of well here is important. It must be in terms of an objective value — gold — not the local currency or even our own debased currency.
Hi Stephen,
Zimbabwe in 2006 had one of the best performing stock markets of the time, thats in real inflation adjusted terms, even after allowing for the utter destruction of their currency – http://www.guardian.co.uk/business/2006/apr/25/Zimbabwenews.internationalnews
I think the reasoning, which i’ve seen stated here on the DR, is that when money printing happens if you can get close to where the money is entering the economy (ie where the gov cronies and elitists are investing their freshly printed zillions) you can do well even while all around you sinks.
Having said that, of course Japan is very different to Zimbabwe. I doubt i’d be brave enough to follow this advice.
So printing and debasing money eventually leading to a collapse in the currency is the reason to buy japanese shares. By the same logic you should be bullish US stocks also. If such scenario of a weaker Yen happens won’t Japanese investors just buy foriegn assets and avoid all things Yen? Few Japanese stocks are at what i’d call cheap.
it must be remembered that the people who would have to make this decision to print money are governed by the Japanese electorate.
Bill is predicting that they will decide to print, and thereby slit the throats of their own constituency, who are the largest holders of Japanese bonds… ain’t gonna happen.
I would suggest the Japanese should have invested in a small firm mtch.pk which developed something like a warning device then they would have made some time not to losse so many lives