a non-consensus thought

The market I’ve had past experience in that, to my mind, most resembles the US during the pandemic era is Japan in the late 1980s. The essence of both places/periods, as I see them, was wildly speculative behavior spawned by, and taken to considerable excess as a result of, near-zero domestic interest rates.

There were three key elements to success in the Japanese market in the 1990s, as it struggled to recover:

–avoid the companies, many of them real estate-related, whose main attraction was either a “story” not backed up by earnings and earnings growth, or extreme sensitivity to interest rates

–avoid companies with hidden losses, created by managements’ imprudent stock, bond and/or real estate market speculation and covered up by refusal to mark to market. This was a decade-long public company issue in Japan, but my guess is that it’s more likely a hedge fund/private equity problem in today’s US

–recognize the continuing power of the backward-facing traditional industry conglomerates, to shape local politics to their benefit, as China-based competitors began to take market share away from them. This implied a negative overall view on Japan’s GDP growth prospects, and therefore looking more for smaller “maverick” companies, like Uniqlo, rather than the largest and highest profile, zaibatsu-linked, names

For the US today, it seems to me the first is a given and the second is more likely a private equity/hedge fund/endowment issue than a public market one. The third suggests that traditional US growth stocks (i.e., better than expected earnings growth, for longer than expected) will do fine. Many of the zaibatsu-equivalents in the US are privately held, so they’re not an issue for stock market investors. Although traditional value stocks are not really my thing, I suspect that the contemporary relevance of the assets they hold will be a more important issue than has typically been the case.

Maybe summing this all up in one sentence, the boat we’re in will likely be much more crucial than the state of the tide.

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