Hi John, by generally accepted observation, Maurice's comments, and my own personal experience, the Japanese also sense no urgency, possible dire consequences, or, for that matter, recession, much less depression, and yet ...
Message 16835414
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Message 16837997
I believe in 'more or less' efficient market for most of the time, small mis-pricing for some of the time, and outrageous valuation once in half a lifetime, for each asset class. I look at fundamentals, peek at technical indicators, and sense the psychology, always, and occasionally I go with the crowd, sometimes against the crowd, and much of the time stay well diversified, or simpler still, sit on my hands, away from the crowd.
I now will put on paper my thoughts in the most succinct fashion I know how:
(a) The indicated nominal risk-free rate is zerodotnaught percent (5% real) in the second largest economy in the world, accounting for 40% of global savings;
(b) The indicated nominal risk-free rate is 5% in the largest economy (2% real), which is also the largest debtor;
(c) If the globally indicated risk-free rate is between nominal zero and very low single real digits, how much should equity risk return in the form of dividends and capital gains? Double the risk free rate, or 0 to 4%?
(d) For that 4+% possible real gain, what is the downside by traditional valuation measures? Negative 50% real and nominal?
(e) What is the cost of investing in nothing? Well, 0-2%.
Why should anyone bother playing the mug’s game at turkey’s odds?
Surely the drama, fireworks, and the killing of a life time is worth waiting for … picking off the bullish species of the investing electorates as they scramble out of the soon to be burning houses. Rifles ready, scopes aligned, take a deep breadth, and wait. It is so very simple.
The anecdotes about the monster homes you described only serves to convince me that there is a suicidal valuation discrepancy and self-destructive cognitive dissonance that had been set, ticking to the inevitable kaboom, and if not, all of history was for naught, because all past financial crisis could have been prevented or ameliorated by simply encouraging J6P and W3C to borrow and consume, to keep up the confidence measures, and compartmentalize the enveloping gloom. If so, why ever bother with factories and farms, when one can just print money, crank up the banking mechanism, and build consumption oriented real estate.
Come to think about it, that is exactly the script Japan is on:0)
Recovery depends, always, on three events: uptick of consumption, increased construction, rising capital investments. Well, consumption and construction are at highs already and can not likely rise further if in projects that are productive. Capex recovery requires profit justification, and yet, there is only declining and disappearing profit. The simple replacing of IT boxes does not a recovery make, and neither does retiring a 20 months old SUV.
Where will the impetus for recovery come from, and even if the magic of low rates does produce a phoney recovery, how strong can it possibly be?
The script is Japan.
Chugs, Jay |
