Dennis Elam / [email protected]
Sunday Morning May 3, 2009 7:44 AM CST
Empires in Decline
Nikkei at the Top
Let’s go back to the Height of the Japanese post WW II revival. Their industrial might was such that the Big Three in Detroit begged and got limits on the numbers of trucks the Japanese could import into this country. My recollection is that over twenty governors trekked to Japan begging them to build a factory in their state. Japan actually created an exchange to trade golf course memberships. Rich Japanese bid ordinary houses on Hawaii to over $1 M each. Even today the Toyota Method is taught in our advanced management and accounting classes at American Universities. The end came in 1989 at a dizzying 38,000 on the Nikkei, not bad for an index in the low hundreds in the 1950s. But our point is this, the index sold off to a lower low by 1992 and then appeared to begin a recovery. Indeed the MACD is curling up and the histogram is recovering on this chart. Is there a parallel t o the US experience?
The US at the Top
Well gee this looks familiar! The index made another high in 2007 and then crashed to a lower low than in 2002. Even the time period is about the same, roughly five years from trough to trough. Note however that in each case the index made a lower, not higher low.
Still things look better in each case, right? The index appears to have recovered, the long term monthly indicator is turning up, and price exhibits the sort of sharp reversal that signals an apparent selling climax. So shall we signal the all clear? In this case we know how the Japanese story turned out, let’s take a look.
Uh Oh
Uh oh! That low in 1992 turned into a sort of 1972-1982 long term train wreck. Indeed it lasted about ten years like that 1972-82 experience in the US. Those ten years of the 1990s occurred as the rest of the world was experiencing their own Japanese 1980s, record highs on the stock indices. What went wrong? My understanding is that we, Alan Greenspan no less, recommended that take all the credit losses on bad loans, write them off, and begin again. The Japanese did not do that. Does this sound familiar? The Japanese had a much closer relationship of government and business than in the US, but we appear to be catching up fast. Indeed we are tying to fix it in much the same way, ignore the bad loans, prop them up, inject more money hoping to keep giant markets at their over valued state.
The end result in Japan has been a devastating lost decade of the 1990s. Their recent experience parallels ours, history repeats. Now their average, like ours, has a second series of a lower low, and over the same time period! Look back at the S & P and it is recovering as the Nikkei did in 1992 and now in 2009.
Does history repeat itself? It certainly did in Japan. We present this as a potential road map to the future. One can certainly line up the graphs and see if the parallels pan out in the near future.
At 7500, the Nikkei has lost 80% of its value from a 38,000 top. Along the say low interest rates forced life insurers there out of business, sound familiar?
Here at Fortucast we are on record predicting that this correction/recession/depression will go on for some time. We do not know if the Nikkei will be the window on our own future. But it appears that we have two empires in decline. The US is a net debtor nation, China is a net creditor nation, without the myriad complex of constraining regulations and interest groups clamoring for attention.
Which would you bet on?
As Fox says, we report, you decid
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