Thursday, November 19, 2009

Japanese Equities

Japan Smaller Capitalization fund, ticker JOF (chart above).

MSCI ishares Japan, ticker EWJ (chart above).

Japan Equity fund, ticker JEQ (chart above).

Many market watchers, much smarter and well versed than I have opined that Japanese equities are cheap based on many metrics of valuation. In many cases trading at or below book value offering the best values globally in the equity arena. I do not disagree as on a relative basis they are much cheaper than most elsewhere.

The problem is, as we all know, the markets can remain irrational far longer than you and I can remain solvent. Japanese equities continue to be in a secular bear market, only interrupted briefly by cyclical bull markets the return the oversold nature to equilibrium. That said, the 3 benchmarks I readily follow to gauge Japan seem to have enjoyed their run off the March lows (coincidence?) and look to have rolled over once again as they have done so often in the past.

Yes I know the 'we're smarter over here in the U.S.' crowd deny we are heading down the path of Japan, but it looks to be a spot on sequel to me. Funny how the same ones who say we're not making the mistakes of Japan, were the same ones who didn't see sub prime coming, didn't see the housing bubble, yet we continue to seek them out for counsel and prognostication.

Regular readers know I believe we are headed down the Japanese path, where ZIRP (zero interest rate policy) leads to POAS (pushing on a string). What this means is you can lower rates to nothing and yet still no one borrows. This is how you end up with multiple lost decades. People who need the money cannot borrow due to their credit risk and people with worthy credit risk are smart enough to know not to borrow. Catch 22 so to speak for the money shylocks.

I understand that a Goldman, JP Morgan or a Morgan Stanley will continue to borrow, or rather take, taxpayer money and ride the roulette wheel, fully confident there is more where that came from, courtesy their concubines in congress and the senate. But this will happen for only so long before even the most Prozac ridden, Ritalin addled, American idolized among us wake up from the stupor and say... What the f@%#& !

As my notes above indicate, is this the canary in the coal mine we should be paying attention to. With the high frequency algorithm traders absolutely dominating our markets, price is all that matter, until one day it doesn't. So lets pay attention to Japanese equities and see if they tell us something.

Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $6.05
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 1 unit Ultrashort Xinhua China ticker FXP @ $8.32
Long 1 unit Ultrashort Real Estate ticker SRS @ $9.82
Long 1 unit Direxion Tech 3X Bear ticker TYP @ $10.68
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97
Short 1 unit i-shares Russell 2K ticker IWM @ $61.70 stop @ $63.80
Short 1 unit Vornado ticker VNO @ $68.30 stop @ $70.71
Short 1 unit Bed Bath ticker BBBY @ $37.75 stop @ $38.41

No comments: