The 17 year cycle in history, Any strategies to PROFIT from it? buy put leaps, my, my my...
THE 17 YEAR ITCH
by Bill Bonner
"Thus is the universe alive. All things are moral. That soul, which within us is a sentiment, outside of us is a law." Ralph Waldo Emerson
Oi chusoi Dios aei enpiptuousi (I'm sure you know what that means. But I had to look it up. "The Dice of God are always loaded.")
Yesterday's news brought new evidence, not necessarily of a moral universe, but of a symmetrical one. Nature gives...but it takes away too.
Far from Wall Street, the law of regression to the mean...of "return to trend"...has been invoked. A sentence has been handed down and carried out. "Japanese Stocks Plunge to New Low," the BBC reported.
Ten years ago, the Dow in Tokyo and the one in New York were 35,000 points apart. Fewer than 1,000 points separate them today.
Yet, there is still a big difference between Tokyo and Manhattan. Wall Street is still on top of the world, the way most people view it. Tokyo is on the other end.
Daily Reckoning masochists will recall the Japan story. It has been recited often in this space, once as a cautionary tale, then as moral lesson, and most recently as a preview of things to come in America.
In 1989, it was hard to find something negative to say about the Japanese economy. Every word was flattery as the Nikkei Dow rose towards 40,000. The triumph of "Japan, Inc.," as it was called, was thought to be inevitable. Japanese labor was more disciplined and harder working than labor elsewhere. Japanese management was willing to look farther ahead and take bigger risks than its competitors. The Japanese government was thought to be capable of guiding the economy more artfully than Western counterparts.
Japanese terms - such as "kaizen" - sprang from the mouths of investors in January of 1990, as they rolled the dice again, expecting to win as they had in every year since the "Japanese Miracle" began. Little did they know that the dice were loaded.
The head follows the heart, reasons dress up reality, and markets make opinions. In January of 1990, the Nikkei began its descent. Eleven years later, it is hard to find a good word to say about Japan.
Columnists - so recently busily trying to explain why the Japanese would dominate the world economy for a very long time - now explain why Japan will not recover anytime soon. With an alarming lack of imagination, they turn to the familiar reasons, merely giving them a spin in the opposite direction. Japanese government is out-of-date, managers are incompetent, and Japanese laborers will never learn the secret of a healthy economy; that is, borrowing and spending!
Rarely, (perhaps not since the peak of the Nasdaq) has the financial press been so unanimous. Every headline about Japan makes the country sound hopeless. Yesterday, not only did we learn that stocks "Plunge to a New Low" in Japan, we also discovered that "Japan's Jobless Rate Surges" to its highest level since WWII (USA Today) and "Japan's Industrial Production Falls for 5th Month" (Financial Times).
The Nikkei dropped to 10,9779...below 11,000 for the first time since 1984. It has taken more than a decade, but Japan has erased 17 years of stock market gains. Over a period of 11 years, investors have lost 75% of their money as the Nikkei Dow has come from a high of nearly 40,000 to within 900 points of Wall Street's most popular index.
Tokyo's unemployment rate - once almost a non-existent number - has risen to 5%...almost exactly the same as America's current level.
Even Japan's GDP growth and that of the U.S. have converged - both presently at about 0.2%...an 8-year low for the U.S...and very nearly an 8-year average for Japan.
My, my...might not other things converge too? How long will it be before American reputations are flattened by a bear market just as those in Japan have been? Will people come to see that U.S. stocks, U.S. central bankers, U.S. corporate managers, and U.S. politicians are big losers...just like their Japanese counterparts?
"There is a crack in every thing God has made," explains Emerson. "It would seem there is always this vindictive circumstance stealing in at unawares, even into the wild poesy in which the human fancy attempted to make bold holiday, and to shake itself free of the old laws - this back-stroke, this kick of the gun, certifying that the law is fatal; that in nature nothing can be given, all things are sold."
"Great bear markets take their time," says Jeremy Grantham. "In 1929, we started a 17-year bear market, succeeded by a 20-year bull market, followed in 1965 by a 17-year bear market, then an 18-year bull. Now we are going to have a one-year bear market? It doesn't sound very symmetrical. It is going to take years."
"Every one [bubble market]" adds Grantham, "went back to trend, no exceptions, no new eras, not a single one that we can find in history."
Japanese stocks have returned to their 1984 trend line - 17 years later. The U.S. bubble market began in 1995. If the U.S. repeats the Japanese experience, stocks may be expected to return to their 1995 trend line...with the Dow below 4,000 in the year 2012... almost the very moment at which America's baby boomers will most need the money.
Nature in her wisdom...and God in his grace...always make sure people get what they've got coming, not what they expect.
Your correspondent,
Bill Bonner |
