Japan - Their 20 year Downturn and their Investors.............

[Cut-Throat]

Japan's stock market has been down for around 20 years or so, but yet you always hear that the Japanese People have such great savings rates. Does anyone here know what these Japanese folks have been investing in the last 20 years or so?

Probably not the Japanese Stock Market.

U.S. Treasuries, U.S. Stocks, - Money under the mattress?

Just wondering

 

[wabmester]

Cut, I asked the same question to MikeW (who lives in Japan). The answer is basically CD's.

Mike's answer

 

[Gone4Good]

Cut, I asked the same question to MikeW (who lives in Japan).   The answer is basically CD's.

Mike's answer

A recent WSJ article said the same thing.

 

[REWahoo]

The Japanese invest primarily in savings accounts and the largest recipient is the Japanese Post Office which is actually the largest bank in the world. It holds some $3 trilllion in savings, approximately 1/3 of the total personal savings in Japan.

http://slate.msn.com/id/2124035/

 

[soupcxan]

I wonder what will happen if Koizumi succeeds in privatizing the post office system. Maybe all that money will no longer be used on government make-work projects (e.g. highways that go nowhere)? And new competition will actually cause the banks to write off their massive bad debts instead of just shuffling them from one zaibatsu to another?

 

[bpp]

For the past 10-15 years, CDs and government bonds mostly, plus plain old cash in the bank.  But stocks are starting to get popular again -- domestic investors now dominate the volume in the stock market;  until a couple of years ago, foreign investors dominated.

I have also seen several stories on the news featuring day traders in the past year or two, something which would have been unheard of just a few years ago.  Lots of younger folks (20's, 30's) who didn't experience the 80's bubble directly, but not limited to that cohort.  One story last week featured a retired pensioner who took up day-trading 6 months ago in order to keep his mind and reflexes sharp.  He is having fun (but then, the market has been doing very well the past 6 months), but he was also pragmatic enough to calculate that even if he lost all his stock investments he could still live on social security, so his wife indulges his hobby.  Technical analysis classes offered by financial advisors (shudder) seem to be becoming a popular pastime with retired folks...  I would actually start to worry that a lot of people have forgotten the lessons of the 80's, and that the market may get too frothy here in Japan soon, hard as that may be to believe.

Bpp

 

[Mr._johngalt]

I wonder what will happen if Koizumi succeeds in privatizing the post office system. Maybe all that money will no longer be used on government make-work projects (e.g. highways that go nowhere)? And new competition will actually cause the banks to write off their massive bad debts instead of just shuffling them from one zaibatsu to another?

That would give a new slant to the whole picture.

JG

 

[Honkie]

That would give a new slant to the whole picture.

JG

Unless they nip it in the bud.

 

[Mr._johngalt]

Unless they nip it in the bud.

Excellent!

 

[TargaDave]

When I see the lifestyle our Japanese Rep's lead it's kinda depressing. Still a lot of that 10hr/day black suit-white shirt-solid tie male dominated conformist atmosphere. Watching them packed on the train after a 10 hour day in a comatose state is scary. Typically a 1 hr commute each way from Tokyo to where they live. The guys I know all seem to have a solid LBYM mindset. Not a lot of physical possessions. I think it's the norm.

I notice the young ones under 30 smile and laugh far more (and smoke far less) than the ones over 40.

 

[mikew]

Bpp
I think I saw you write that you hold Japanese stock.

What's your take on corporate governance in Japan? Do you think it is getting better? With more transparency?
From what I have seen. Companies are run for insiders, mainly upper management and then average workers. Then come customers, banks and suppliers. Stockholders are somewhere behind the yakuza.

Do you think Japan actually has some wind behind it or is this temporary? Are you still buying Japanese stock?
My feeling is Japan will go as US consumption does. Although domestic consumption seems to be picking up a bit.

Do you think the market is getting less speculative?

These are my main concerns and the reasons I don't own Japanese stock.

Mike

 

[mikew]

I wonder what will happen if Koizumi succeeds in privatizing the post office system. Maybe all that money will no longer be used on government make-work projects (e.g. highways that go nowhere)? And new competition will actually cause the banks to write off their massive bad debts instead of just shuffling them from one zaibatsu to another?

I think they are shooting for privatized with government control. So probably no change.

Isn't the US building a bridge to nowhere in Alaska?

 

[Michael]

Japanese could invest in fixed income because they had deflation. It wouldn't work here, as inflation has destroyed fixed income as an asset class.

 

[bpp]

Hi Mike,

Bpp
I think I saw you write that you hold Japanese stock.

Yes.

What's your take on corporate governance in Japan? Do you think it is getting better? With more transparency?
From what I have seen. Companies are run for insiders, mainly upper management and then average workers. Then come customers, banks and suppliers. Stockholders are somewhere behind the yakuza.

Governance may be generally getting a bit better...but slowly. You hear executives at least mention shareholder interests these days, and most big companies seem to take investor relations somewhat seriously these days, for whatever that is worth.

But I have to confess to being more-or-less infected with efficient market theory, so I assume that the problems are generally discounted by the market over the long term.

Do you think Japan actually has some wind behind it or is this temporary? Are you still buying Japanese stock?

I buy as needed to keep my asset allocation in line. I am basically in the Bernstein/Bogle camp, but for tax and asset location reasons have essentially created my own passively-managed index fund out of individual Japanese stocks. So I don't particularly make assumptions about whether the recovery has wings or not when it comes to my investing -- though I do happen to think that Japan really is turning the corner this time. I don't think that means it will go all boom-boom again like 20-30 years ago, rather that it will settle into being a mature, industrialized economy, nothing spectacular, but healthier than it has been the past 15 years. In other words, I expect it to fall in line with places like Western Europe, North America, etc.

My feeling is Japan will go as US consumption does. Although domestic consumption seems to be picking up a bit.

Sure, short term, Japan and everyone else will keep following the US's appetite. Long term, that doesn't seem sustainable, so I think the directions of trade will of necessity become more diffuse around the globe (unless somebody else takes over the role of being the world's mouth, but I hope against such an inherently unstable outcome.)

Do you think the market is getting less speculative?

No, I think the market is getting more speculative at the moment, certainly as compared to 2-3 years ago. Trading volumes on the Tokyo Stock Exchange have lately been exceeding those at the peak of the 80's bubble; internet trading has been credited/blamed for this growth. And the trading on the JASDAQ (home of OTC, mostly small-cap stocks, for those who don't know) is currently something like 70% due to individual day traders. I am avoiding JASDAQ stocks entirely for now. A healthy correction might be needed to shake out a lot of the silliness... which I would then rebalance right into.

Bpp

 

[Cut-Throat]

Bpp,

Is there a good reason why the Japanese have not been buying U.S. Treasuries instead of CD'S?

 

[Michael]

Well connected Japanese did. They borrowed money at 0% interest in Japan, and bought US treasuries at 4%, pocketing the difference. The small fry investors were not allowed to do this. Until recently, their money was locked up in a government run program that limited their choices to what the politicians wanted.

 

[wabmester]

I'm not sure that would have been a brilliant strategy.   The dollar dropped against the yen for years.   It's recovered quite a bit this year, but for a few years any Japanese buying US treasuries would have lost about 30% due to forex.

 

[Cut-Throat]

I'm not sure that would have been a brilliant strategy.   The dollar dropped against the yen for years.   It's recovered quite a bit this year, but for a few years any Japanese buying US treasuries would have lost about 30% due to forex.

So old Wab-son could have put his money under the mattress and made about 30% relative to the U.S.

 

[mikew]

Too US centric.
A lot of Japanese willing to take the currency risk have been buying Australian or New Zealand CDs.

US: 3%
Aus: 4%
NZ: 5%

Michael is right about regular people getting screwed which is still happening.

 

[wabmester]

So old Wab-son could have put his money under the mattress and made about 30% relative to the U.S.

Eh, wabsabi is still holding his original Japanese stock fund from 1980-something.   And I'm still adding to it.   Mostly in vain.   If I had been born in Japan, I'm certain that I'd still be working, and would probably continue working well into my 70's.   I hope it doesn't happen here, but I consider Japan my worst-case scenario.   Much worse that the Great Depression from a long-term financial perspective.

 

[Cut-Throat]

  I hope it doesn't happen here, but I consider Japan my worst-case scenario.   Much worse that the Great Depression from a long-term financial perspective.

A much bigger bubble and far more corruption (Hard to believe, I know)

 

[wabmester]

A much bigger bubble and far more corruption (Hard to believe, I know)

Yeah, hard to believe. The peak 1929 P/E ratio was around 60 before the GD. In Japan, it was about 70. As far as corruption, we had sweeping changes in security laws due to that bubble in the US.

BTW, do you know what the peak P/E was for the NASDAQ during our most recent bubble? 125.9 on March 7, 2000. Do you think we've already let all the air out of that bubble? I hope so.

 

[haha]

One has to prefer a market like Japan that has already crashed to one like the USA that has not, but I can't see a credible scenario where the US gets into trouble and Japan doesn't.

The main problem with the whole world is the US consumer of last resort, and overheated and unbalanced economies feeding that US consumer on credit. Japan directly feeds him with cars and high end electronics, and indirectly feeds him with machine tools exported to China, Malaysia etc, offshore manufacturing throughout Asia. etc.

Japan may come through quicker, but if our economy goes down so does theirs IMO.

I nevertheless hold some Japanese stocks, which have really been strong lately. I have already taken some profits, and I plan to be gone at the first sign of a US recession.

Ha

 

[mikew]

In terms of corporate governance, the one name I have heard is Hoya as being responsive especially to foriegn investors.

Sure, short term, Japan and everyone else will keep following the US's appetite.  Long term, that doesn't seem sustainable, so I think the directions of trade will of necessity become more diffuse around the globe (unless somebody else takes over the role of being the world's mouth, but I hope against such an inherently unstable outcome.)

Japanese seem to doing their best to diversify

People I have talked to think Japan badly misjudged China and Korea and has a real chance of losing out to them. The Japanese thought the Chinese were going to follow a standard development model. Progessing along a ladder. Instead they are developing at every rung simultaneously. The Koreans have really come along since the asian crisis.

Japanese risk behavior puzzles me. It seems they either won't touch anything without a principal guarantee with a ten foot pole or they are day trading. I have had a couple of students ask me about day trading recently. Strange

 

[wabmester]

Japanese risk behavior puzzles me. It seems they either won't touch anything without a principal guarantee with a ten foot pole or they are day trading. I have had a couple of students ask me about day trading recently. Strange

I think we're just seeing the cycle time speed up due to the internet (the great financial data democratizer).   I figure we're going to have a bubble and depression cycle every 10-20 years now.