Sunday, April 12, 2015
“On the Japanese Stock Market & Economy”
You may have heard that the Japanese stock market is doing great… Don’t believe it. The Nikkei 225 closed Friday at 19,907.63. Journalists are claiming this is really great, get in they say, don’t miss out, etc.
GOOD ONE!
Nikkei 225 on Friday, April 10, 2015
Nikkei 225 on December 29, 1989
As you can see, there’s really nothing to celebrate or to get excited about. The Nikkei 225 on 12-29-1989 was at 38,916, and about 25 years later it’s literally down roughly 50%. To me that’s totally pathetic. It’s worse than the lost decade, or the lost quarter century, it’s the lost generation at this point, with zombie banks. Maybe it’s the lost empire?
The reason the Nikkei 225 is down 50% over 25 years is also a good one. The Japanese in the 80’s were believed to be so successful that they’d buy the whole world up, and their real estate market was booming! Then they were plagued with a real estate bubble, recession, and a stock market collapse. They’ve apparently never recovered.
What would one expect after a totally delusional, market mania, of excessive euphoria, elation, and elevated prices surrounding real estate and high double digit appreciation annually lasting for decades?!
How, seriously, can anyone take any real estate market that appreciates this rapidly, anywhere on earth? Bubbles go pop!
Additional risks as of late, include their looming demographics issues, involving a generation or two obsessed with birth control pills. Consequently, the birth rate and the fertility rates have fallen off a cliff. This is not going to bode well for their economy and their generous entitlement programs. There are similar problems looming in the USA and in Europe, but not at the scale of the Japanese. Additionally, the Japanese have been plagued and foiled by a nuclear power plant disaster, tsunami, and earthquake in recent years.
I’m not sure how or why the Japanese government and its people have managed to suffer from deflation nearly every year since their real estate and stock market bubble of the late ’80s. Did their Central Bank forget that it could print money, and expand the monetary base, and jack up the inflation rate, if it wanted? Deflation is obviously crippling to any economy, and so I can’t believe they sat around and let that cripple their economy over the past nearly 25 years! If they had more aggressively printed money, they could have created and constructed low to moderate annual inflation rates, which would have been a much better environment to deal with.
For all these reasons, I would not invest in the Nikkei 225 (see etf EWJ).
Andrew G. Bernhardt
Bernhardt Capital Management LLC 