Puddle Jumping

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    • How the U.S. Financial Crisis Resembles Japan’s 'Lost Decade' - And How to Play It, Part II [view article]
      Hee Hee! You almost had me. I was almost a believer, and then I read the article. If I understand this correctly, your solution for Japanese investors in 1989 was to buy gold, foreign assets, and hold them until the year 2003? While they would have lost less money this way, they would have watched gold prices fall below $440 an oz and stay below $440 an oz until 2003. Considering that gold is not money, has no properties of money, and is classified as a commodity, it would have been much wiser for Japanese investors to place their money in the bank and earn a 1% dividend each year. At least they were beating deflation that way (sounds like a rigged match up to me).

      OK, so Japanese investors decided not to buy gold, but to invest their money overseas in other developing markets instead of their own (come to think of it, that is how the carry trade started). If we go back and look at the IMF reports showing growth in money supply in many developing markets, it is often far quicker than developed markets. Inflation is also higher in such markets. Cherry picking winners with perfect hindsight is far easier than predicting winners over the next 15 years. However the carry trade idea is viable under such conditions.

      By far, my favorite quote comes from the comments section, lep July 19th.
      "Investing in European equities (e.g. growth stocks) will be profitable, as well as in Brazil and/or Japan. It is possible that telecom companies (cellular providers) in Japan (DCM, NTT) and EU (DT, TEF, ERIC, NOK, VOD) will do well <<<due to explosive population growth>>>, popularity of cell phone usage, and little dependence on oil."
      Demographic reports over the past decade or two have been discussing how Japan and developed Europe have birth rates below sustainability indicating population decline over the next several decades.

      Fear-monger reports like these are fun to dissect. The authors clearly have not done their homework and have cherry-picked their supporting arguments. It is best to investigate the 'science' behind any such bold claims. Are there any other fixes to higher prices besides higher prices? Substitution effects are real and substantial over time.       Jul 20 06:29 PM
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