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Nikkei’s New Highs Echo 1980 Excess

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The Nikkei 225’s “melting” pushed it back above levels last seen during the Japanese bubble era. It was a time when Japan Inc. was buying the world, and the land under the Tokyo Imperial Palace was said to be worth more than the entire state of California.

The Nikkei crossed 30,000 this week for the first time in over 30 years. It now sits at 30,292, a level last established in July 1990. At that point, the Tokyo market was indeed in a collapse that saw its entire value cut in half. Between late December 1989, when the Nikkei peaked at an all-time high of 38,916, and September 1990, the world’s second-largest stock market fell 46.1%. Tokyo stocks have lost more than US $ 2 trillion in market value.

The days of the bubble were embodied in the aggressive international expansion of Japan Inc. At the height of Japanese companies, it was the fictitious Nakatomi Corp. who was having his Christmas party at Nakatomi Plaza in Los Angeles when grizzled NYPD detective John McClane decided to gatecrash in Die hard (1988). For Sunrise (1993), it was during the inauguration of the headquarters of Nakamoto Corp. in Los Angeles that the boardroom table became the scene of the murder of a call girl investigated by the grizzled retired detective. John Connor, the “old hand of Japan” called in to investigate alongside Detective LAPD Web Smith.

They’re hardened, jaded Anglo-Saxon cops just trying to make sense of it all. The cops are in stark contrast to the garish setting of the ostentatious alien new rich wealth, company names and places interchangeable.

Those days of “the arrival of the Japanese” have been replaced very effectively by “the Chinese are coming”. Or at least they were. We have seen the biggest Chinese companies embark on a leveraged frenzy in the second half of the past decade, which has seen them buy as many shiny Western skyscrapers as the Japanese had three ago. decades. The Beijing government dismantled the party, leaving debt-fueled conglomerates such as HNA on the verge of collapse.

Film critic Roger Ebert had a great idea which I extracted in his review of Rising Sunot. The Sean Connery / Wesley Snipes Friends film does its best to explore the differences between Japan and the West. Connery’s character springs enough from gnomic lines, supposedly inspired by his time in Japan, to make him wiser than Mr. Miyagi.

“What bothers us the most about competing with the Japanese, I think sometimes, is that we are not unhappy with their methods – we envy them,” Ebert says. “Descriptions of Japanese trading tactics are almost always tied to dark thoughts that we should be doing the same.

There is a surge of jealousy in the movies that Japanese companies are so good at tech, real estate investing, and profit making. So strangely good at it that they must also be at no good. (It’s not a spoiler to point out that the ultimate villains turn out to be a German thief and an American lawyer.)

So where is Japan today? He is humiliated, chastised for these heady days of the bubble boom. The Japanese economy has spent a “lost decade,” or two, mired in deflation, falling prices, high household savings rates and the unwillingness of Japanese companies to spend the cash cushions accumulated on their balance sheets. It didn’t make sense to spend a lot on capital expenditures or buy expensive household items if you only expected prices to drop next month, next year.

Japan is also a more mature economy. Although the excessive number of bubble days in Japan has been extreme, most economies are going through a difficult period in the transition from soaring double-digit annual growth from their economic infancy to developed country status and more calm progress in the world. companies.

In 1989, Japan was only 45 years into its post-war expansion, when the nation desperately needed and benefited from the Kaizen continuous improvement concept. South Korea benefited from a similar boom that began when the Japanese bubble burst. Korean companies prospered by taking control of many of the low-end industries (cheap cars, displays, and electronics) that Japan had started.

In both countries, a worker (and it was almost always a man) gave his life to his employer, to the service of the company and as breadwinner to his family. Japanese working culture has also matured. Young Japanese people no longer expect to join a big company and have a job for life, which takes precedence over their lives.

In Korea, we have seen the stranglehold of chaebol broken, with the head of the Samsung empire last month sent to jail for bribing former president Park Geun-hye, who is currently serving a 20-year sentence for bribery. Back in the days of Korean military dictators, between 1960 and the early 1990s, it was a given that the political elite and business worked hand in hand. Samsung heir Lee Jae Yong is currently serving a 2-year sentence. His father has been convicted twice, including bribery of a former president, but never spent a day behind bars. The father, Lee Kun-hee, eventually obtained a presidential pardon – arranged with a bribe.

These economies have matured politically, economically and personally. China is only at the beginning of this process. In fact, it is backing down politically, and it is accepted that work can occupy 100% of your life.

A business owner and friend from Hong Kong told me this week that he doesn’t need to give his employees in China days off. Working and making money consumes everything, this dental supply business owner told me. And that’s considered a good thing. Salaries are now high, too high, higher in Shanghai than in Hong Kong, he said, for the frontline sales staff who make him money. It’s what they care about, not free time.

Japan hasn’t totally shaken off its recession cycles. The economic reform policies of former Prime Minister Shinzo Abe did not go far. There has been only slight progress in encouraging women to join the workforce and releasing immigration to provide organizations for hard-to-fill jobs. Inflation remains stable as negative interest rates from the Bank of Japan have yet to produce sustained growth.

The Nikkei only bottomed out in 2003 and even lower in 2009, at 7,568. It has now practically doubled in less than a year, compared to 16,553 last March. This growth is too fast.

Part of this recent Nikkei rally is produced by quantitative traders. Many global investors are forced to “buy Japan”, which has been underweight for many years. The recent appetite for growth and equities has driven most Asian markets to or from record highs.

Systematic traders are caught in a buying resumption, with their purchases of futures and stocks causing the market itself to rise again and produce more buying. There is a technical squeeze on the supply of stocks.

Nomura believes that quantitative buying has gone “far beyond” anything that is justified by the dynamics of domestic demand, represented by consumption, or external demand, mainly for goods in the United States and Canada. China.

“It is difficult to find conventional interpretations of current fundamentals that would justify the recent gains of the Nikkei 225,” writes Masanari Takada, Nomura macro-strategist in a research note. “So it is precisely the traditional fundamentals-based investors who probably feel pressured into panic buying against their will.”

This “aggressive push” by systematic investors is hardly unique to Japan. Quantitative buys that follow trends intensify stock gains in many markets around the world. The buying may pause in a few days, with Nomura believing that past average positioning suggests the buying could “hit saturation point” around February 19. The Nikkei could then consolidate between 29,500 and 31,500. The positioning of the futures contracts suggests that it is perhaps the Asian markets that are showing the first signs of weakness, which can be watched and will surely be followed in the West.

Economic growth in Asia, however, is well supported. Share gains make more sense in this part of the world because economies grow quite quickly. Fast, but reasonably. We have again seen hot air rise in the Nikkei in Japan, but the air will certainly not come out as dramatically and disastrously as it did 30 years ago.

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