Jun

14

 We reprint here some remarks made by Rocky Humbert on July 29, 2011:

QUOTE

The Japanese stock market continues to have a similar complexion to what gold had in the late 1990's. Back then, gold was trading below its marginal cost of production; central banks were selling gold; it was a barbarous relic. There was NO good reason to own gold. And it took about a dozen years of compounding at 14% to make people bullish. [,,,].

I cannot find a single compelling reason to own Japanese stocks (but for one.) The demographics are horrible. Their debt problems may be worse than Greece. They get hit by catastrophic earthquakes, tsunamis and radiation. Even Toyota is a mess. So — (other than the fact that their stocks are reasonably priced, and in some cases, extremely cheap), am I systematically nibbling at Japanese stocks with a 10+ year horizon? The answer is: ANY COUNTRY THAT DOESN'T LIKE THE iPAD CULT CANNOT BE ALL BAD!

END QUOTE

Charles Pennington comments:

Back in July of 2011 we had a discussion [see excerpt above] of how cheap the Japanese market was at the time. Today, the Nikkei is more than 10% below where it was at that time. Morningstar says that the portfolio of Japan etf, ticker EWJ, is at 10.5 times earnings and 0.94 times book value with a 2.6% dividend yield. So it doesn't look like it's too late to get on board.

If you want to avoid the hassle of foreign dividend withholding (money that you'll never get back if you're investing in a tax-deferred vehicle), and if you're agnostic about the yen, then one way to play this is with CME / Globex's dollar-denominated Nikkei contract, which has reasonable liquidity.

Rocky Humbert responds:

To mimic the archetypal Wall Street analyst: "I reiterate my position, I cannot find a single compelling reason to own Japanese stocks (but for one.) ANY COUNTRY THAT DOESN'T LIKE THE iPAD CULT CANNOT BE ALL BAD!" But in fairness, their Central Bank is now actually buying some hard assets — including REITS.There's a Japanese REIT index fund (1345 JN), but I don't know the company or its holdings. And amusingly, the Bank of Japan is a public company (8301 JN). It's always mystifying how a central bank, with it's ability to create money out of thin air can be a bad investment in its local currency. Yet the BOJ has been an awful investment: 10year return= -41% and 5 year return= -75% Only in Japan can a company that prints money lose money.


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