Thoughts On Japan (ETFs: EWJ, ITF)

Includes: EWJ, JPXN
by: Roger Nusbaum

Roger Nusbaum submits: The Japanese market bounced back a little bit last night, closing 2.3% higher. I started thinking about a market truism that I know applies to the US market but want to see if it also applies to Japan.

If you look through market history you will notice that in a lot of decades most of the average 10% return comes from a couple of great years. (The 1990's were an exception for the US, and the 1980's was an exception for Japan.)

If this theory holds water for Japan, we may not see any big gains for a while. Following on with the two or three big years a decade theory, Japan was up a lot in 1996, 1999, 2003 and 2005.

Further, if you buy into the notion that the stock market is a leading indicator of the economy it is possible that 2003 and 2005 were pricing in whatever positive might be coming for Japan’s economy that so many people have been talking about.

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There's a parade of people coming on TV saying they have been underweight Japan for x number of months. For months on end we had nothing but a parade of Japan bulls. Now today everyone is a bear?

The biggest bull I can recall is David Malpass from Bear Stearns. He was very right for a long time about Japan. I didn’t see him on anywhere to talk about it after this last bit of news (anyone feel free to correct me). Chances are he has his finger on the pulse of whatever is going on.

If I had been on TV anywhere today I would say, 'We don’t have exposure.' Someone would have said 'really, why not?' The truth would have been I was too dumb to see the rally coming because I never bought into the fundamentals behind the rally. Long term readers know this already.

Now is the time for the bulls to speak up. If I publicly got investors to buy into Japan at Nikkei 11000 and then took them back out 6% or 7% from the top I think I could never have to be right about anything again.

I’m speaking in hyperbole, but if now is the time to sell and you captured a big chunk of the lift you made a fantastic trade.