Saturday, October 25, 2008

Party like it's 1981 - Japan style!

The Japanese stock market got hammered this week like every global stock market. The long-term chart for the Japanese Nikkei stock market average is both compelling and instructive. Take a look:

This market is now back at levels seen in 1981. In other words, after 27 years, Japanese stocks in aggregate have made no net progress. If you factor in inflation and the offsetting effect of stock dividends, we're talking 27 years and zero net return. TWENTY SEVEN YEARS IN AN INVESTMENT AND NOT ONE DIME OF PROFIT.

Japan is a modern, advanced economy and they have a well-educated populace with similar age-related demographics. They do not have the same bounty of natural resources that we do, but they have an advanced physical infrastructure and a dedicated workforce. Their stock market lost 80% of its value between 1990 and 2003. No country, not even the good 'ol US of A, is immune from cycles and corrections.

Our stock market peaked in real terms in 2000 and has been mired in a secular (i.e. measured in decades, not years) bear market that will last until at least the year 2015. Possible targets are easy to guess at, but only a range can be provided with a best and worst case scenario:

Stay out of the general stock market, hold cash, buy gold, and invest in gold mining stocks. Traders can alter between shorting the stock market and riding the brief and wild bear market rallies. The nasty part of this stock market bear has already started, and though it is about to take well-deserved rest, the bear will awaken again in a few months to terrorize "the buy and hold forever" crowd. McCain, Obama, Paulson, Bernanke and anyone else with a slogan or plan to sell the sheep will only make things worse.

Wikinvest Wire