I've called Japan my "other" home since 1989 and in that time I've seen it change in ways that ought to scare the pants off you.
I say that not to ruin your day, but because I fear we are headed down the same exact road as long as Ben Bernanke and his central banking buddies think it's easier to print money than actually stimulate real growth.
In doing so, they are re-creating Japan's "Lost Decades" here at home with years of smoldering, piss-poor growth as our destiny.
Yet it doesn't have to be that way. We can still choose a different path.
Here are 10 lessons from Japan I would share with Chairman Bernanke right now if I sat down with him:
1) All the cheap money in the world won't matter if banks hoard it and customers don't want it. You could lower interest rates to zero and it won't make a difference. Japan tried this to no avail. At this point, low rates are hardwired into the Japanese business system to the extent that any increase whatsoever is likely to cause a massive wave of corporate and personal bankruptcies. Don't let that happen here. You still have a chance to prevent this.
2) At some point somebody has to take the loss. You cannot pretend that the debt you've advanced is performing any more than the Japanese have. No matter how much money you inject into the system, the deleveraging process will continue until excess credit is bled out of the system one way or another. Defaults happened with alarming regularity before Central Banks tried to stave them off. There have been literally hundreds in Eastern Europe, Africa, Asia, and Latin America over the centuries. Spain and France failed six and eight times each in the 16th century alone.
3) Trying to manage any singular crisis will only result in a much bigger one down the road. The longer you prop things up, the worse they're going to get and the more consolidation you will see. Five of the 10 largest banks in the world were Japanese in 1990. Today the only bank to make the cut is 5th on the list (the Japan Post Bank Co. Ltd according to Bankers Accuity).
4) When politicians find it easier to borrow money than make hard policy decisions, they will because they prefer their short term re-election prospects over the long-term economic interests of the country. Japan has had 15 Prime Ministers in the last 12 years. Granted, their system works a little differently than ours, but continual reshuffling diminishes the effectiveness of any solution. Take advantage of the situation and act decisively before our elections risk a reset. You're supposedly apolitical. Prove it by acting with conviction instead of giving us more FedSpeak.
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The Real Housewives of Japan: Shopping for Bargains … Driving Deflation?
KYOTO, Japan - Could 70,000 Japanese housewives tip this Asian giant into a deflationary spiral?
As farfetched as that sounds, it's become a major cause for concern in this nation of 128 million, which has been in an economic funk for two decades. These "real housewives" are part of a user-driven, social-networking site called Mainichi Tokubai, which delivers the best prices on specific grocery-store items to the fingertips of Tokyo-region consumers.
To hear frustrated Japanese policymakers and retail executives tell it, these bargain-minded consumers and their equally frugal social-networking site is almost-single-handedly undercutting the Japan's economy.
"We understand consumers want the best deals," Japan Chain Stores Association executive Shoichi Ogasawara groused to CNN's Kyung Lah. "And we understand that the social-networking site is a natural extension of consumer behavior in the Information Age. But supermarket prices have fallen for 13 years in a row in Japan," and sites such as this are making it difficult to reverse that trend.
Don't make the mistake of believing that something similar couldn't happen here in the U.S. market. Given that Japan's consumer technology tends to be anywhere from 18 months to two years ahead of U.S trends, this could be a preview of what's to come for the badly troubled U.S. economy.
To see how Japan's consumers have taken matters into their own hands, please read on...
History Says Lost Decade For Stocks Should Lead to a New Bull Market … But Will It?
In its 1969 song "Spinning Wheel," the rock group Blood, Sweat & Tears immortalized the phrase "what goes up, must come down."
I cite this bit of music trivia in an investment story for two reasons: First, the name of the band fairly well describes the conditions attached to the stock market's historically sad performance over the just-completed decade. Specifically, a lot of blood, sweat and tears - thankfully followed by a tiny bit of healing in the final eight months of 2009.
Second, for those more attuned to mathematical theory than music, the market results for the 10 years from 2000 to 2009 provide the basis for a prediction for the coming decade - one essentially the inverse of the band's famous phrase. To be more precise, "what went down, must now come up."
That forecast is based on a fairly simple principle: Things that move in wave patterns - such as the stock market - have an overwhelming tendency to "revert to the mean." In other words, when stocks perform well above their long-term historical norm (known as the "arithmetic mean") for an extended stretch, they usually have to underperform for an extended period to get back in line with that long-term mean.
Conversely, when stock-market performance is well below the norm for a long stretch, it theoretically should enjoy an extended run well above the historical mean in order to bring the market's performance back in line with the long-term norm.
And the decade we've just completed was definitely far below that norm.
The prediction is also based on historical precedent, as demonstrated by past per-decade performances of the major stock market indexes.
How to Profit in Any Kind of Market
When it comes to the global financial crisis, many so-called "experts" think the worst is behind us. But I don't buy it.
And I'm not alone.
Just look at what some other big-name investors - each also known for their independent thinking - are saying or doing right now:
- Bond king Bill Gross is nervous and raising cash.
- Author, commentator and global-markets guru Jim Rogers has repeatedly said that he's not investing in stocks anywhere in the world right now.
- Hedge-fund heavyweight John Paulson is moving aggressively into gold.
- And investing icon Warren Buffett - never one known for tipping his hand - is candidly stating that the U.S. financial-crisis cleanup is far from complete. The fact that he's reportedly buying more shares of Korean steel dynamo Posco (NYSE ADR: PKX) would punctuate this point.
This kind of uncertainty can be paralyzing, making it tough to decide where - or even if - we should deploy our investments.
Fortunately, we've been here before. And what we learned will allow us to profit no matter what the financial future holds for the U.S. marketplace.
To learn the four secrets to investing success, please read on...
- Bond king Bill Gross is nervous and raising cash.
Hidden Traps Make Bank Stocks a Bad Deal
Billionaire investor George Soros said yesterday (Monday) that the U.S. recovery would be a slow one because of all the "basically bankrupt" financial companies impeding it. U.S. Federal Reserve Chairman Ben S. Bernanke and Congress agreed Friday that the financial system – not the American taxpayer – should bear the costs of bank bailouts. Sheila [...]
U.S. Making Same Mistakes that Led to Japan’s Lost Decade, Say Analysts
By Jason SimpkinsManaging EditorMoney Morning Experts on the Japanese financial crisis, which culminated in 10 years of stagnation known as the "Lost Decade," are fearful that the United States is making similar mistakes with its recent bailout efforts. The two meltdowns started in much the same way – with busted stock-and-real-estate bubbles. With both the [...]
The Lost Decade: How the U.S. Financial Crisis Resembles Japan's Ten Years of Misery – And How to Play it
Part I of a two-part story. By William Patalon IIIExecutive EditorMoney Morning/The Money Map Report If you think the "Lost Decade" Japan endured during the 1990s was deep and painful, stick around: As the global financial crisis that was jump-started by the meltdown of the subprime mortgage market continues to unwind, the U.S. economy is [...]