Ron, basically the demographic argument is a variation on the greater fool theory of investing, i.e. 'stocks will go higher, because there's a long line of people waiting to buy more'. funny enough, when i debated the Japanese bubble with a trader in '89, his argument as to why the Japanese stock market would inevitably go higher in spite of the outrageous valuations was 'where will all those huge savings go?'.
well, as we have found out there are several alternatives to stocks. nothing dictates that money MUST go into the stock market. if a recession hits i guarantee you it will go somewhere else, no matter how far the boomers are from retiring.
here is btw. Prechter's critique of the demographic stock market theories, it contains some pretty interesting data:
elliottwave.com
as for Japan's burgeoning national debt, it is a direct result of the bursting of the bubble, and the subsequent futile attempts to revive the economy with the Keynesian deficit spending recipe.
obviously it was a mistake to do everything to keep muddling along instead of allowing the malinvestments and bad private sector debts to be cleaned out radically. however, it is a natural thing for politicians to react in this manner to a protracted depression following the bursting of a financial asset bubble. once the US bubble bursts, you will see a more proactive spending spree by the US government as well...the surplus will disappear quickly under such circumstances. similar to the capital spending boom, it is more or less a direct result of the bubble anyway, as the government enjoys a huge capital gains tax windfall.
however, i agree that the Japanese system was/is far more sclerotic and i generally expect a bursting of the US bubble to be handled better and the resulting problems to be surmounted sooner in the US than in Japan.
btw, one of the practices that were all the rage in the late stages of the Japanese bubble the so-called 'zaitechu', using corporate capital to speculate in the stock market to enhance earnings has now become all the rage in the US as well...to wit the increasing role of 'investment' (read speculation) income in the quarterly earnings releases of various tech companies and banks.
btw, here's a comparison of US and Japanese economic data, '99 (US) vs. '89 (Japan). the similarities are eerie...
Indicator
Japan Year End 1989
US '99
10 Yr. Annualized Real GDP
3.8 %
3.2 %
10 Yr. Annualized Earnings Growth
9.4 %
7.4 %
Year over Year CPI Change
2.6 %
2.6 %
Unemployment
2.1 %
4.0 %
10 Year Interest Rates
5.6 %
6.6 %
Y/Y % Change in 10 Yr. Yield
18.5 %
38.2 %
Discount Rate
4.3 %
5.25 %
Fed Funds
6.3 %
5.75 %
Prime Rate
4.9 %
8.75 %
Trade Balance (monthly)
895 B Yen
($25 B)
Y/Y % Change in Currency Yen/$
(12.3 %)
(12.9 %)
Market Cap/Nominal GDP
158 %
180+ %
Bond Yield - Earnings Yield
3.9 %
3.4 %
M2 Y/Y Change
10.6 %
6+% *
Y/Y% Change Industrial Production
3.5 %
4.3 %
90-Day Advance/Decline Ratio
99.6
84.2
30 Day Avg. of Daily 52 Week Highs
72.1
76.4
30 Day Avg. of Daily 52 Week Lows
1.5
292.9
regards,
hb
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