01/19/10 Waterford, Ireland – Markets were closed in America yesterday. In the rest of the world nothing much happened. This leaves us free to talk about whatever we want.
What do we want to talk about?
Let’s talk about Japan. You remember, Japan? It’s the country with the 20-year on-again, off-again depression. You could have bought stocks in Tokyo 20 years ago…held onto them…and guess what you’d have today? Well, for every dollar you invested two decades ago, you’d have about 25 cents. How’s that for ‘stocks for the long run?’ How’s that for capital appreciation? How’s that for getting rich from investing?
Stocks in Japan are back to their levels of the mid-’80s. So, an investor who was 40 in, say, 1984, is now 66. He’s retired. During his ‘investing years’ he made zero…nada…rien…zilch…from his money.
What to make of it? Is the whole promise of investing nothing but a Wall Street fantasy? The idea is that you can give your money to Wall Street…put it in a fund…in stocks…in some sort of investment…and it will grow larger. You will pay Wall Street a fee for this service. In fact, you could pay a lot of money…trading in and out of various investments.
And where would you end up? Well, if you were the typical Japanese investor you’d end up with less than what you started with.
The lesson we draw from that is that you only make money from investing when you buy assets that are cheap and sell them when they are dear. ‘Buy and hold’ doesn’t work. ‘Stocks for the long run’ is a trap.
But what about Japanese stocks now? We thought you would ask. Since we announced our new ‘Trade of the Decade’ – sell US Treasury bonds/buy Japanese stocks – we have gotten nothing but grief on the subject. Everyone thinks he knows what will happen to Japanese equities over the next 10 years; and everyone thinks they will go down.
Here is Ambrose Evans-Pritchard in London’s Daily Telegraph:
“…2010 will prove to be the year that Japan flips from deflation to something very different: the beginnings of debt monetization by a terrified central bank that will ultimately spin out of control, perhaps crossing into hyperinflation by the middle of the decade.
“Once a country embarks on such policies, the game is nearly up. The IMF says Japan’s gross public debt will reach 227pc of GDP this year. This is compounding at ever faster speeds towards 250pc by mid-decade.
“The only reason why this has not yet blown up is because investors (mostly Japanese) have not yet had the leap in imagination required to understand their predicament, and act on it. That roughly is the argument of Dylan Grice from Societe Generale in his latest Popular Delusions note released today. ‘A global fiasco is brewing in Japan.’”
We don’t doubt it. Evans-Pritchard is right. So is everyone who thinks Japan is going to meltdown or blow up. A global fiasco is brewing. But it will not necessarily be bad for Japanese companies. Investors will leave Japanese debt and buy Japanese equities. Inflation will reduce the real cost of operation for Japanese companies. Frugal, solvent, efficient Japanese companies will prove to be a refuge, not a trap.
More on this subject as the decade progresses. We will be proven right…or wrong… Geniuses…or idiots… Visionaries or hallucinaries… Depending on how the chips fall.
Regards,
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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I would like to believe Japanese companies are due for a bull market but I can find no evidence of it. If you look at the Japanese companies with a US ADR you’ll find most of them have a P/E of either N/A or north of 100. Furthermore, only one pays a dividend and it a paltry 2%. You said yourself that at the bottom stocks sell for less than 10 times earnings and pay 6% to 7%. Where are you seeing this in Japan?
On 1/13/10, Mr. Bonner wrote:
“Strong Earnings Growth Unlikely”
And, true to my word, I am posting it after all the major companies report blowout earnings. This evening – IBM. Crushed on every part of their business.
This is real growth, just like Intel. For the V-shaped doubters, just take a look at that IBM report, especially the part about huge global demand.
Oh, that’s right, I forgot, Mr. Bonner says we’re in a “depression”. Sounds sillier every day doesn’t it?
In defence of Mr Bonner’s suggestion – which we find highly valid – I do believe he was referring to the typical experience in the US when he cited 6% – 7% yields. I believe what he meant (and please correct me if I am being presumptive) is that yields would need to rise versus competing investments, particularly “risk-free” (ha) sovereign debt. We are finding Japanese equities yielding 3% and more; relative to 30-year JGBs, which are yielding 2.3% – and as SocGen suggested, loaded with risk. With the equities yielding more than the sovereigns, and with the Nikkei near 20-year lows, we find the risks to be rather limited compared to the potential upside. With the debt, the best you can hope for is timely interest payments and scheduled maturity. History suggests that those events occur far less frequently than portfolio managers believe.
Dear Bill,
What happen ? I try to post some very constructive comment and I simply cannot go through ! Simply constructive, non-toxic, full of facts. Why? Why? Why?
This means democracy ? I can’t even tell the real truth.
Dearr Bill
I have just read through “This is One Funny Bull”. It is a great article, but, I feel that yankee are still harbouring the bitter memory of defeat of their Chinese (counterpart) frontline field marshal, Chiang.
Let’s get things straight. Chiang’s defeat can be broadly linked to the followings :
1 – domestic economic failure.
2 – practice of woman foot-binding.
3 – result of Sino-Japanese war.
1st, corrupted governance led to total economic failure and wide spread unrest.
Paper money was overly supplied. The call for a change was overwhelming.
…next
Mr.Sincere,
Perhaps you are referring to a problem that I also had. I supposed then that the page spontaneously refreshes (Web 2.0-style) and then, in the process, erases your comment.
So you have to write it in NotePad or whatever and then cut and paste it to here.
Bill, I myself am not convinced that Japanese stocks will do well in the next decade, if you look at the weimar republic during the 1920′s hyperinflation the real value of stocks in Germany lost 60% of real inflation adjusted value, better than cash but not great, why take the risk of exposure to a bankrupt country?
“Geniuses…or idiots…”
________________________
may God never devise another such as our present predicament
You were to be a real genius in market timing if Japan proved to be a trade of the decade.
Thank you Mike, I will try again.
So does Agora have a service that picks the best Japanese stocks?
A Wall St Fantasy,well said. Dear Mr.Fantasy play us a tune! Bring it on IBM. I luv good earnings reports its so good for the short side of the s@p oh xcuse me,i mean the spx.2day W0o! Live long and prosper All!!! *S*