That’s what I’m thinking.

endaka = high yen

Japan’s recovery after the destruction of WWII became a model for emerging markets everywhere. The general idea was keep the currency deeply undervalued, concentrate on export-oriented manufacturing, build the industrial base. Keep wages low, domestic consumption to a minimum. The current generation would have miserable lives but their children and grandchildren would reap the benefits, in the form of living in a developed economy, of living in the advanced economy their families would have built.

The Plaza Accord of 1985–around the time I began managing my first global portfolio–forced Japan to revalue the yen very substantially. This launched the “high yen” era.

It also changed the character of the stock market, both for domestic names and for exporters into Japan very substantially. Up until then, the stars of the market were the export-oriented industrials, like Toyota, Nissan and Honda, to domestic names, like department stores, specialty retail and property companies. There was even a story back then that the grounds of the imperial palace in Tokyo were worth more than all the property in Manhattan.

So what experienced Japan investors had cut their teeth on (exporters) was now portfolio death and the discard pile (domestic names) was now gold.

Something following the same structural form has been happening in the US today, I think. The administration has chosen, it seems to me, to enact policies that, whether intended or not, structurally weaken the US economy and the US currency.

So this is the environment we as investors have to deal with–one where firms with costs in $US and revenues in foreign currency are worth their weight in gold, and those in the opposite situation are open to continuing negative earnings surprises.

Hard to know how long this situation can last. In the case of Japan, the first negative shock to the market came when the central bank began to raise interest rates. The second came a few years later when, due in part to Japan’s aversion to permanent foreign residents, the working population peaked.

My guess about the US is that what we mostly have to keep on the alert for is that tech valuations (our export sector) become very stretched. My tendency for some months has been to want to rotate out of tech and into domestic names, if for no other reason than that strong brand names might make good acquisition targets. But I also think that ICE violence makes us look too much like 1940s Berlin or Tokyo for our brands to hold the appeal they had once had.

So that has me for now anyway rotating within tech rather than into other sectors.