Japan in the 1990's?

[Gearhead Jim]

Most people believe that we won't repeat the disasters of the Great Depression, but what about us being like Japan in the 1990's?
I don't know enough about that situation to make an intelligent comment, can someone educate me or post a link?

 

[dex]

Crashes: The Asian Crisis

try wikipedia also

 

[FUEGO]

Well, their broad index, the Nikkei, went from 12,000 in 1985 to 39,000 in 1990. So they are still under water from where they were in 1985. But not disastrously so. They also received a small dividend yield and increases in real terms over time due to deflation in the Japanese economy. So in dividend-adjusted terms, they might be around a wash after 23 years. Those buying in at the bubble peak of 39000 are still way under water and probably will be for a loooooong time (although the Nikkei was recently at 18,000 a couple years ago).

Just wanted to throw out that bit of history. There was a huge runup in the late 80's in Japan, but if you had invested significantly before around 1985, you are just looking at near zero real return since then. Folks often assert that the Japanese market dropped from 39,000 to what it is today (around 7650), without discussing the huge runup in the late 1980's that (in hindsight) artificially inflated stock asset prices.

No comment regarding underlying Japanese economic issues in the 1990's, other than my limited understanding suggests there are a number of differences between our societies and responses to the crisis we are facing, so our experience may be different than theirs.

 

[haha]

Well, their broad index, the Nikkei, went from 12,000 in 1985 to 39,000 in 1990. So they are still under water from where they were in 1985. But not disastrously so.

Let me be sure I understand. The Nikkei closed Friday, October 24, 2008 at 7649. In 1985 it stood at 12,000 before a wild runup to 39,000 in 1989. And today, almost 20 years after the peak it is off a mere 80%.

I guess this is not a financial disaster because most of us were not involved personally. But it seems that it might fit the definition for our Asian brothers and sisters.

Ha

 

[ziggy29]

I guess this is not a financial disaster because most of us were not involved personally. But it seems that it might fit the definition for our Asian brothers and sisters.

To what extent, though, do Japanese workers need to rely on self-directed personal investments like 401K plans and IRAs in order to retire?

THAT aspect of a market meltdown is the really unsettling one for many people. Because if Japanese workers are as dependent on their own personal investments for retirement as Americans are in the post-pension era, they'll be working until they are dead or physically unable to work any more.

Even though the market has fallen about as much as the '73-74 bear, I get the sense that a lot more people are directly affected -- and freaked out -- by this one because many people didn't *need* to directly invest in stocks back then in order to retire comfortably at a reasonable age. When the market was tanking in '74, you didn't have millions of people lamenting the loss of their retirement -- a generous pension and Social Security were often enough.

 

[haha]

To what extent, though, do Japanese workers need to rely on self-directed personal investments like 401K plans and IRAs in order to retire?

THAT aspect of a market meltdown is the really unsettling one for many people. Because if Japanese workers are as dependent on their own personal investments for retirement as Americans are in the post-pension era, they'll be working until they are dead or physically unable to work any more.

Even though the market has fallen about as much as the '73-74 bear, I get the sense that a lot more people are directly affected -- and freaked out -- by this one because many people didn't *need* to directly invest in stocks back then in order to retire comfortably at a reasonable age. When the market was tanking in '74, you didn't have millions of people lamenting the loss of their retirement -- a generous pension and Social Security were often enough.

Probably true. Though during that time my home base was farming center where many had their savings in the market. American farmers tend to be gamblers. They were lamenting plenty. I was young and generating money, so it was positive for me, but I sure saw a lot of real pain. In the fall of 1974 I might be sitting in a coffee shop having some pumpkin pie and coffee and looking at a stock chart book and some farmer would lead over and tell me what an ass I was. Everyone would have a big rueful laugh.

My Dad had no pension, but he was always kind of afraid of stocks. He did have some that he inherited, which drove him goofy during this time. He eventually liquidated and bought a lot of very high coupon treasuries which supported him well over a long lifetime. In his case, mostly pure luck.

Ha

 

[FUEGO]

Let me be sure I understand. The Nikkei closed Friday, October 24, 2008 at 7649. In 1985 it stood at 12,000 before a wild runup to 39,000 in 1989. And today, almost 20 years after the peak it is off a mere 80%.

I guess this is not a financial disaster because most of us were not involved personally. But it seems that it might fit the definition for our Asian brothers and sisters.

Yes, they are off 80% from their high point of 39,000. My main point in my post is that the 39,000 was a huge runup from a few years before. In other words, someone who had a million or two (USD equivalent) in the market before the 1980's runup would have been filthy rich (on paper) at the end of 1989. But in the early 1990's, they would have been much poorer than their 1989 high, but not a lot worse off than their 1985 valuation.

I guess if you hit the million dollar mark in 1989 Japan, then retired expecting a life of luxury (after a huge market runup), then your expectations would have been dashed. But that wouldn't be any different than retiring with a million bucks when the Nasdaq was at 5,000 and expecting everything to fall in place.

Maybe for a 100% nikkei investor, the last 25-30 years would have been rough. But how would a properly diversified Japanese investor holding fixed income and international investments have performed in the same time period?

By the way, the Japanese market history has greatly influenced my decision to have a significant (~50%) international holding just in case the US does a Japan 1990 scenario. Although I would expect the broad US markets to go up a few hundred percent within a few years prior to "the big crash" if that were the case. And I would be rebalancing on the way up to limit risk.