the Lost Decades
Today, I’m going to expand on yesterday’s post by writing about features of the “Lost Decades” in Japan that I think might be repeated in similar circumstances elsewhere.
Before I start, however, I want to make two points:
–I don’t think the US is the new “Japan”; the EU would be a better candidate, in my opinion, based on its behavior toward its banks, its money policy regime and the way many countries intrude into the workings of their equity markets. But I don’t think it’s anywhere close to being another Japan, either.
Instead, I’m reading the current downdraft in world markets as an adjustment to two realizations:
that economic growth in the US and EU will potentially be much slower in the next two or three years than in 2009-10, and
that no more government support for markets is forthcoming.
The removal of the implicit safety net is the bigger deal, to my mind. I’ve been thinking–and writing–for a long time that the slow growth/high unemployment problem is a social and political one that won’t affect corporate profits much. I still think so.
–To (my) Western eyes, the Tokyo stock market was a very peculiar place twenty-odd years ago. Back then, the government was actively involved in controlling the stock market, in much the same way that governments typically control their bond markets.
For instance:
at times, Japanese brokers were not permitted to accept sell orders for domestic commercial banks–at least from foreigners.
Large amounts of trading were done in specially segregated trusts, to make it clear that the parties were not disrespecting one another by liquidating stockholdings established to cement business relationships. These tokkin “portfolio managers” typically worked in large smoke-filled rooms that housed scores of them, all trading off price movements posted on large electronic “scoreboards” erected along one wall. No research, no portfolio planning–just trading on hunches or “hot” tips.
Women were legally barred from purchasing warrants (don’t ask me why).
If you want to see something really weird, read my post on tobashi.
Despite these unique quirks, I think there are aspects to the Japanese experience that I think would apply elsewhere. And, of course, it’s always good to think out alternate scenarios, just in case they become more probable, or because you find your initial assessment was wrong.
Three factors stand out to me: