Oct

13

The attached chart compares log Nikkei 225 and SP500, adjusted in time such that the SP500 high in 2000 aligns with the NIK high in 1989. For comparison purposes, log SPX was also scaled by 1.44X, so that the peak values of both indices are the same value.

The first decade of Japan's lost decade was characterized by more high-frequency volatility in stock returns than the first decade of our lost decade. Japan lost ground over their first lost decade, while we have held up pretty well. Compared to the Nikkei, the SP500 rose faster to its 2000 peak, then experienced two large peaks and two deep dips. This shows that our central bank is better than theirs, if the goal for investors is lower frequency and greater amplitude.

The next lost decade of our lost decade is still to be determined, but for the sake of our entitled youth hopefully the path will differ from Japan's.


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5 Comments so far

  1. Andre Wallin on October 13, 2010 5:58 pm

    I have been pondering this for 6 months as I am 27 and will face this. Thinking about moving to Bombay and cut standard of living. Sent this email recently to my father:

    Just talked to Abbas and he emphasizes that the attitude and expectations in India are very optimistic and people are making money. It is surprising to hear this and I have been hearing this for a while now. I checked IFN and FXI and compared their retrace from from the bottom vs. their fall from 2008. This is VERY surprising. China has retrace exactly 50% of its fall while India has retraced only 45% of its fall. Meanwhile the US has retraced 62% of its fall. And it appears that India leads in optimism with China coming in second and US definitly third. It’s the absolute reverse of how much they’ve retraced their fall. What does this mean? My initial reaction is that there was first a flight to safety pushing US equities up more vs. China and India. I think that this foreshadows the next 5 years with India being the biggest gainer, China dealing with currency pressures and maintaining an average growth rate, and US as the patient on morphine. On the other hand it could be the exact opposite and there is a boom bust forming in India, but the boom bust might take a decade. I’d rather be where the optimism is though…

  2. Russell Sears on October 14, 2010 10:02 am

    Andre,
    Perhaps the reason that the optimism is “the absolute reverse of how much they’ve retraced their fall” is not about the recovery period; but about the optimism that each started with before the fall of 2008. China did hold the 2008 Olympics right before the meltdown.
    When you have a bubble and a panic, you must consider both periods in resetting the clock.

  3. Steve on October 14, 2010 10:50 am

    “This shows that our central bank is better than theirs”

    Devaluing the dollar has had a bigger impact on commodity prices and hence stock prices than devaluing the yen. The dollar is the world’s currency, print more of it and stuff goes up in price. The major reason stock prices and commodities are higher is that people are scared of owning central bank managed currencies.

  4. Andre Wallin on October 14, 2010 8:23 pm

    That’s a good point Mr. Sears, however, I would argue based on my friend’s observations that the sentiment in India is at an all time high. I went there in early 2008 and based on my friend’s perceptions of sentiment now vs. then is noticibly more optimistic now. It may have something to do with the culture. In my current opinion they have much more to gain than any other country on the planet. The attitude of the people makes everything and they have the most beautiful attitude. The ego stands in the way of the US. We need to get away from the ayn Rand mentality and we need more cooperation and less ego. We need a more dynamic society that views the human condition objectively. Ayn Rand emphasizes ego too much

  5. Anonymous on October 17, 2010 9:42 am

    you are looking at dollar etfs…the sensex and nifty have retraced almost all losses

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