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Tuesday, September 13, 2011 3:59:29 PM
The U.S. Is Not Japan
* Tuesday, September 13, 2011
The U.S. is not heading towards a Japanese-style secular bear market.
The sharp fall in U.S. Treasury bond yields looks eerily similar to the JGB market after the 1989 Great Crash, and many have started to wonder if the U.S. is following in the footsteps of post-crash Japan. Interestingly, the U.S. stock market seems to have been tracking the post-crash Nikkei closely. However, according to our Global Investment Strategy service there are several key differences between the two markets. In Japan, the stock market crash occurred in 1989 when P/E ratios were above 60, and the stock market had to spend the next two decades working off the excess. Second, falling prices have kept Japanese nominal GDP flat since the early 1990s. A protracted period of deflation is much less likely in the U.S. Finally, in Japan, the balance sheet recession occurred in the corporate sector, which forced companies to minimize debt rather than maximize profits. In the U.S., however, the balance sheet recession has taken place in the household sector, while the corporate sector is in fine shape. This explains why the corporate sector profit recovery has proceeded at lightning speed and companies have been able to push margins to record highs on the back of soaring productivity, subdued wage gains and a swollen pool of unemployed workers. Going forward, companies will try to sustain their margins by squeezing out more productivity growth at home and expanding their operations overseas. Bottom line: A Japanese-style secular bear market in stocks is not the most likely outcome in the U.S.
http://www.bcaresearch.com/public/story.asp?pre=PRE-20110913.GIF
George.
Click on "In reply to", for Authors past commentaries.
* Tuesday, September 13, 2011
The U.S. is not heading towards a Japanese-style secular bear market.
The sharp fall in U.S. Treasury bond yields looks eerily similar to the JGB market after the 1989 Great Crash, and many have started to wonder if the U.S. is following in the footsteps of post-crash Japan. Interestingly, the U.S. stock market seems to have been tracking the post-crash Nikkei closely. However, according to our Global Investment Strategy service there are several key differences between the two markets. In Japan, the stock market crash occurred in 1989 when P/E ratios were above 60, and the stock market had to spend the next two decades working off the excess. Second, falling prices have kept Japanese nominal GDP flat since the early 1990s. A protracted period of deflation is much less likely in the U.S. Finally, in Japan, the balance sheet recession occurred in the corporate sector, which forced companies to minimize debt rather than maximize profits. In the U.S., however, the balance sheet recession has taken place in the household sector, while the corporate sector is in fine shape. This explains why the corporate sector profit recovery has proceeded at lightning speed and companies have been able to push margins to record highs on the back of soaring productivity, subdued wage gains and a swollen pool of unemployed workers. Going forward, companies will try to sustain their margins by squeezing out more productivity growth at home and expanding their operations overseas. Bottom line: A Japanese-style secular bear market in stocks is not the most likely outcome in the U.S.
http://www.bcaresearch.com/public/story.asp?pre=PRE-20110913.GIF
George.
Click on "In reply to", for Authors past commentaries.
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