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Old 03-14-2011, 09:24 PM   #1
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Nikkei!!

Futures dipped below 8000?! Wow...should be fun days ahead in the global markets. Laissez les bon temps roullez...
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Old 03-15-2011, 01:46 PM   #2
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Hmm--bargains to be had? I dunno. Japan still has the same institutional handicaps that have hampered equity growth there for decades. The current calamity is likely to increase government spending, which will drive them further into debt. Reconstruction spending will not improve their situation compared to where they would have been without the calamity (see "parable of the broken window" and this article from the WSJ. It's the same reason that "green energy" won't create jobs).

From a moral side: Is someone who scoops up beaten-down Japanese stocks an evil jackal who is benefiting from the misery of others, or is he being helpful by providing demand for these stocks and preventing their value from declining further? I'd vote for answer #2, but I know some people will disagree.
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Old 03-15-2011, 01:54 PM   #3
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From a moral side: Is someone who scoops up beaten-down Japanese stocks an evil jackal who is benefiting from the misery of others, or is he being helpful by providing demand for these stocks and preventing their value from declining further? I'd vote for answer #2, but I know some people will disagree.
I'd say more like having faith in Japan to recover from this terrible disaster. I'm impressed with how civilized the Japanese people are under the worst of circumstances. I believe they will get through this and go on to grow and prosper. In fact, an event like this can pull people together. I think Japan will emerge even stronger.
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Old 03-15-2011, 02:09 PM   #4
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From a moral side: Is someone who scoops up beaten-down Japanese stocks an evil jackal who is benefiting from the misery of others, or is he being helpful by providing demand for these stocks and preventing their value from declining further? I'd vote for answer #2, but I know some people will disagree.
As an investor I am typically a bottom fisher, buying beaten down values and in some cases buying into a panic. Am I a vulture? I don't believe so. Nobody is holding a gun to the head of the sellers and they obviously dearly need liquidity. I am simply providing it.
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Old 03-15-2011, 02:32 PM   #5
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The Japanese have a remarkably strong social fabric. They have survived much worse and they will get past this as well.

I don't get the evil jackal thing. No deceit, nothing underhanded, no misrepresentation going on. Anybody buying today (I did) is certainly taking risk.
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Old 03-15-2011, 03:41 PM   #6
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I don't get the evil jackal thing. No deceit, nothing underhanded, no misrepresentation going on.
I don't get it either, but that's the logic and refrain we hear when the hotel owner bumps rates from $30/night to $150/night on the hurricane evacuation route, or when the hardware store triples prices for chainsaws and generators after an ice storm. There's no more practical way to assure scarce resources get put to best use (and made less scarce) than to price them according to the real market value.
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Old 03-15-2011, 03:53 PM   #7
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I don't get it either, but that's the logic and refrain we hear when the hotel owner bumps rates from $30/night to $150/night on the hurricane evacuation route, or when the hardware store triples prices for chainsaws and generators after an ice storm. There's no more practical way to assure scarce resources get put to best use (and made less scarce) than to price them according to the real market value.
Human feelings about fairness are deep. If Japanese people were trying to sell shares directly person to person to get money they needed for housing or food or medicine, and some foreigners set up booths in shelters to buy the shares at lo-ball cash bids, many people would feel that this was abusive. On the other hand, the essence of finding real estate bargains is finding someone who is trapped and needs to sell- the classic motivated seller. If something is frequently done, and not just by one class of people like merchants, it is usually is more or less accepted, even if some people claim that they will not or actually will not do it themselves.


Also, people love to moralize, especially when by moralizing they can feel superior to some other individuals or better yet some group. And why not? Superiority is a very agreeable feeling, and usually it can be had quite cheaply as almost everyone in an in-group will hold similar attitudes in similar situations.

It is even one of our favorite pastimes right here at ER.org. For example, most here agree about the pecking order of good, really frugal people at the top, and total wastrels with credit card debt and too many children at bottom. Those who don't agree know enough to keep their mouths shut, not wanting to be ostracized. Social harmony is precious, and those who understand and enjoy the many interesting tricks and turns that groups devise in the service of cognitive comfort will never be bored.

Ha
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Old 03-15-2011, 06:16 PM   #8
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"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful."

Berkshire Hathaway 2004 Chairman's Letter


Others are fearful now.
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Old 03-15-2011, 06:21 PM   #9
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I went into the lion's den and bought the largest Japanese non-life insurer, after reading an article that I hope is accurate about the way commercial insurance policies are writen in Japan, and what kind of coverages the large insurers write.

Also, this company as well as others has very little other than loss reserves on its liability side.

Also bought an ETF. We'll see about that I guess! Tokyo Electric has been clobbered, but I cannot figure out how bad their position might be when all this unfolds.

Ha
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Old 03-15-2011, 06:31 PM   #10
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I went into the lion's de and bought the largetst Japanese non-life insurer, after reading an article that I hope is accurate about the way commercial insurance policies are writen in Japan, and what kind of coverages the large insurers write.
Bottom feeding vulture

I have been trying to increase my exposure for several months to international equities. The collapse of the Nikkei dropped the broad market international averages enough to hit my buy prices. So I am merely a dirty market timer, but I am using international index funds, not attempting to pick individual winners and losers cause we all know that isn't possible in a rational efficient market.
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Old 03-15-2011, 11:42 PM   #11
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Hmm--bargains to be had? I dunno. Japan still has the same institutional handicaps that have hampered equity growth there for decades. The current calamity is likely to increase government spending, which will drive them further into debt. Reconstruction spending will not improve their situation compared to where they would have been without the calamity (see "parable of the broken window" and this article from the WSJ. It's the same reason that "green energy" won't create jobs).

IMO Keynesian economics is a less than ideal philosophy when applied in practice but based on what little I truly know of the Japanese situation I nevertheless am beginning to believe that a massive war-era type fiscal policy may be the only hope of reversing their economic malaise - the caveat being that if returning the Japanese economy to the proximity of it's once mighty self is actually possible given the social, economic and political realities of that nation. Ever since the US dismantled Bretton Woods and made the USD the global currency reserve the Fed has clearly had the implicit ability to value the dollar as they wished but had to walk the fine line since the Dollar was now King. While the '70s were the socio-economic Dark Ages for the US, the same decade was the Good Ole Days for Japan - there are always innumerable factors to consider in analyzing international trade but the fact is that $1 could buy 360Yen in the mid-'70s which is pretty much turbo-charge for an island nation that focused it's economy on export manufacturing. To think that the Yen is now at it's strongest historical exchange rate versus the USD ($1 buys 80Yen) despite Helicopter Ben doing his best to weaken the USD in order to apply his own CPR to the US economy is...well, fruitless or hopeless are close but it is evident that no monetary policy exists from either the Fed or the Tankan to jumpstart the Japanese economy. This is frightening and bad for both the US and the Japanese given the political and economic marriage between these two behemoth economies.

Japan should be all the evidence that Americans need if they were to ever think that deflation - which turns into stagflation due to monetary response - is not the worst thing that can happen to this country. Deflationary spirals are basically impossible to contain because people (consumers) will always act prudently in their own best interest. People spend less...job market weakens...people spend even less...job market weakens further...and so forth, etc and ibid...and then in a panic the government leaders print money. Anyway, all of us know somewhere in the back of our minds that Japan has been in some type of deflationary funk that doesn't seem too menacing since we don't like to think about it but what we should also know is that the percentage of Japanese adults that are working is at a recorded low: Prices are going down, few people are working and EVERYONE is getting older.

Japan needs to compel or force adults to work at some semblance of market wages. This is not the same as printing money and hiring two people to have one dig a hole and the other to fill that same hole - that will lead to inflation, labor imbalances and no economic growth. They will need a magical version of the WPA which creates infrastructure that will aid in the eventual creation of products that can be sold to consumers outside of their island. The vicious do-loop is of course that the Yen is too strong for the Japanese to sell their products to foreigners even if the government did create their magical version of the WPA. In some ways, perhaps the greatest silver-lining of this horrible earthquake event will be that it is the stimulus that creates actually needed jobs which then is able to ultimately slow down and break the terrible deflationary trap that they are in.

Anyway, am off to Hawaii in the morning so have been obviously thinking a lot about the recent events there.
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Old 03-16-2011, 12:01 AM   #12
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IMO Keynesian economics is a less than ideal philosophy when applied in practice but based on what little I truly know of the Japanese situation I nevertheless am beginning to believe that a massive war-era type fiscal policy may be the only hope of reversing their economic malaise - the caveat being that if returning the Japanese economy to the proximity of it's once mighty self is actually possible given the social, economic and political realities of that nation. Ever since the US dismantled Bretton Woods and made the USD the global currency reserve the Fed has clearly had the implicit ability to value the dollar as they wished but had to walk the fine line since the Dollar was now King. While the '70s were the socio-economic Dark Ages for the US, the same decade was the Good Ole Days for Japan - there are always innumerable factors to consider in analyzing international trade but the fact is that $1 could buy 360Yen in the mid-'70s which is pretty much turbo-charge for an island nation that focused it's economy on export manufacturing. To think that the Yen is now at it's strongest historical exchange rate versus the USD ($1 buys 80Yen) despite Helicopter Ben doing his best to weaken the USD in order to apply his own CPR to the US economy is...well, fruitless or hopeless are close but it is evident that no monetary policy exists from either the Fed or the Tankan to jumpstart the Japanese economy. This is frightening and bad for both the US and the Japanese given the political and economic marriage between these two behemoth economies.

Japan should be all the evidence that Americans need if they were to ever think that deflation - which turns into stagflation due to monetary response - is not the worst thing that can happen to this country. Deflationary spirals are basically impossible to contain because people (consumers) will always act prudently in their own best interest. People spend less...job market weakens...people spend even less...job market weakens further...and so forth, etc and ibid...and then in a panic the government leaders print money. Anyway, all of us know somewhere in the back of our minds that Japan has been in some type of deflationary funk that doesn't seem too menacing since we don't like to think about it but what we should also know is that the percentage of Japanese adults that are working is at a recorded low: Prices are going down, few people are working and EVERYONE is getting older.

Japan needs to compel or force adults to work at some semblance of market wages. This is not the same as printing money and hiring two people to have one dig a hole and the other to fill that same hole - that will lead to inflation, labor imbalances and no economic growth. They will need a magical version of the WPA which creates infrastructure that will aid in the eventual creation of products that can be sold to consumers outside of their island. The vicious do-loop is of course that the Yen is too strong for the Japanese to sell their products to foreigners even if the government did create their magical version of the WPA. In some ways, perhaps the greatest silver-lining of this horrible earthquake event will be that it is the stimulus that creates actually needed jobs which then is able to ultimately slow down and break the terrible deflationary trap that they are in.

Anyway, am off to Hawaii in the morning so have been obviously thinking a lot about the recent events there.
Enjoy your trip!

Do you believe that given the very different demographics and social and psychological makeup of Americans that it could be even remotely likely that, like Japan, we might just ruin the national accounts printing money but never get the inflation our government dearly wants?

I think I remember that before he replaced Greenspan, Ben consulted with the Japanese and told them that stopping deflation was easy- just start printing money and don't stop until people get good and scared that their money is going to zero, then stand back and watch them spend! But it didn't happen. As you point out, the yen is as high or higher than it has ever been against the dollar, and Japan is still closer to deflating internally than it is to inflating.

I can't understand any of it, other than to realize that my mental models are obviously incorrect, as are all the other ones that I have heard discussed. As Charlie Munger says, when the world and your model are not congruent, your model is at fault.

Ha
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Old 03-16-2011, 01:28 AM   #13
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Greetings haha,

To your first point my guess would be that we will get inflation if consumer confidence is not shaken (sorry for pun) from economic events such as the Japanese earthquake and Middle East turmoil - and whatever else comes down the road beyond the next bend. The yield curve, forward rate curves and Tips before these recent events were telling us so. If the global stock markets hold to their major support levels then higher consumer prices and wages are inevitable. Now, whether the loose fiscal and monterary policies can hit their broad long term price targets is anyone's guess - having said that, the rough rule when all else fails in the past has been to "Don't bet against the Fed" so I would keep that in mind for myself. However, the Market clearly feels the same way which is why we have bounced and quickly retraced much of the stock mkt's losses in the past two yrs...we are pretty much in the final scene of The Good The Bad and The Ugly where the Fed, the Market and the Consumers are staring down one another nervously. Each one of the three depends on the other two for their survival in the near term.

As to your comment on Ben and Japan I believe that Ben felt that Japan made the mistake of not having loose enough monetary policy during the '90s when it would have made a difference. Unfortunately, easy money policy recently is either futile or, worse, it could lead to stagflation given Japan's particular situation with their job market and currency. Ben has often stated that massive liquidity during our financial crisis was the appropriate policy having learned from Japan's mistakes a decade ago.

If it's difficult for supremely intelligent men like Ben to figure out all of this stuff then guys like you and I shouldn't feel so bad to be so scared, helpless and confused! In many ways the easy part for Ben was to stop the fire and rally the market back to here by standing confident and firm...the truly difficult and hard part is to convince us to follow from here IMO.

Anyways, I've got my own problems as I am heading to Hawaii on our first trip with our 3mo old daughter! Markets will go up or down...babies are completely irrational and impossible to reason with!
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Old 03-16-2011, 01:33 AM   #14
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Greetings haha,

To your first point my guess would be that we will get inflation if consumer confidence is not shaken (sorry for pun) from economic events such as the Japanese earthquake and Middle East turmoil - and whatever else comes down the road beyond the next bend. The yield curve, forward rate curves and Tips before these recent events were telling us so. If the global stock markets hold to their major support levels then higher consumer prices and wages are inevitable. Now, whether the loose fiscal and monterary policies can hit their broad long term price targets is anyone's guess - having said that, the rough rule when all else fails in the past has been to "Don't bet against the Fed" so I would keep that in mind for myself. However, the Market clearly feels the same way which is why we have bounced and quickly retraced much of the stock mkt's losses in the past two yrs...we are pretty much in the final scene of The Good The Bad and The Ugly where the Fed, the Market and the Consumers are staring down one another nervously. Each one of the three depends on the other two for their survival in the near term.

As to your comment on Ben and Japan I believe that Ben felt that Japan made the mistake of not having loose enough monetary policy during the '90s when it would have made a difference. Unfortunately, easy money policy recently is either futile or, worse, it could lead to stagflation given Japan's particular situation with their job market and currency. Ben has often stated that massive liquidity during our financial crisis was the appropriate policy having learned from Japan's mistakes a decade ago.

If it's difficult for supremely intelligent men like Ben to figure out all of this stuff then guys like you and I shouldn't feel so bad to be so scared, helpless and confused! In many ways the easy part for Ben was to stop the fire and rally the market back to here by standing confident and firm...the truly difficult and hard part is to convince us to follow from here IMO.

Anyways, I've got my own problems as I am heading to Hawaii on our first trip with our 3mo old daughter! Markets will go up or down...babies are completely irrational and impossible to reason with!
Hi Gus, thanks for your answer. For sure you won't reason with a 3 mo old, try reasoning with her any time in the next few years if you really want a laugh! You will have a lot of fun in Hawaii. My son and DIL just came back from there with their 2 1/2 year old daughter. She polished up her no-saying while there, so she is really good at it now.

Enjoy every minute. It may sound like a cliché, but it truly is the best time of one's life.

Ha
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Old 03-16-2011, 01:34 AM   #15
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Japan needs to compel or force adults to work at some semblance of market wages. This is not the same as printing money and hiring two people to have one dig a hole and the other to fill that same hole - that will lead to inflation, labor imbalances and no economic growth. They will need a magical version of the WPA which creates infrastructure that will aid in the eventual creation of products that can be sold to consumers outside of their island. The vicious do-loop is of course that the Yen is too strong for the Japanese to sell their products to foreigners even if the government did create their magical version of the WPA. In some ways, perhaps the greatest silver-lining of this horrible earthquake event will be that it is the stimulus that creates actually needed jobs which then is able to ultimately slow down and break the terrible deflationary trap that they are in.
.

I am cautiously optimistic that this might happen. There is a lot of real work to be done in building roads, houses, ports, airports, and yes even nuclear reactors. Perhaps it will lead to higher prices for goods and labor in the country and start re-inflating a badly deflated economy.

Perhaps Japan may even allow in foreign workers to do some of the hard physically labor. There are so many old people there I don't see how they can possibly do themselves. Long term the country needs to change their immigration policy.
Japan will need to replace at minimum two groups
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Old 03-16-2011, 07:21 AM   #16
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Although Japan has a lot of debt it is also the largest creditor nation.
Japan holds top creditor-nation spot for 17th year | Reuters

Top Debtor Nations | Economy Watch
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Old 03-17-2011, 04:35 PM   #17
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Bought GE this morning at the open. In addition to the general fear trade, GE has been driven down by its association with the Fukushima plant. However, the nuclear part of its business, which is conducted as a joint venture with Hitachi, is a very small portion of revenues (<3%). We'll see how that goes.
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TEPCO up 17% with 2 hours 13 minutes to close in Tokyo
Old 03-17-2011, 09:58 PM   #18
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TEPCO up 17% with 2 hours 13 minutes to close in Tokyo

Either Japan has a plunge protection team, or somebody is spending considerable money to speculate that things at Fukushima Daiichi power plant are quite a bit brighter than our US press and the US NRC seem to think. Yesterday's (3/17) low was 715, which was also the also the 52 week low. With a little over 2 hours to close, it is now trading calmly at 937 to 938, up 17%, with volume of 86+million shares.

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Old 03-17-2011, 10:58 PM   #19
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Either Japan has a plunge protection team, or somebody is spending considerable money to speculate that things at Fukushima Daiichi power plant are quite a bit brighter than our US press and the US NRC seem to think. Yesterday's (3/17) low was 715, which was also the also the 52 week low. With a little over 2 hours to close, it is now trading calmly at 937 to 938, up 17%, with volume of 86+million shares.

Ha
I'll bet that for every nervous owner of TEPCO shares there are 20 hopeful vultures watching the hyperventilating news wags and wanting to scoop up a bargain.

I read that the G-7 will be helping to protect Japan's currency against speculation. How thoughtful. Seems to me the other G-7 nations are protecting their own interests by "protecting" Japan--a yen devalued by speculators helps Japan export more--at the expense of the other G-7 countries. "Doing well by doing good."
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Old 03-17-2011, 11:26 PM   #20
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I read that the G-7 will be helping to protect Japan's currency against speculation. How thoughtful. Seems to me the other G-7 nations are protecting their own interests by "protecting" Japan--a yen devalued by speculators helps Japan export more--at the expense of the other G-7 countries. "Doing well by doing good."
I think the intervention, if any, may have had the opposite intention- to keep the yen from appreciating too high. It had reached an all time high yesterday at 76 yen=$1, and now is it back down a bit to yen 82.82=$1. John Authers at FT.com said that the yen has appreciated 8% since the quake. It seems counterintuitive, but it may stem from money being repatriated for the rebuilding effort.

Ha
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