|
Dear ,
Tokyo Hits 28 Year Low Amid Global Rout!
 | | (Click to read article) |
For any of you who have been following our writing for any amount of time you know that Japan is one of the themes that we have written about. We first started warning about this back in 2007. For those that have not read this before, let me bring you up to speed.
From 1984 to 1990 the Japanese stock market, the Nikkei, went from approximately 10,000 points to almost 40,000 points. If you remember those years, the whole world was looking to Japan with awe. American companies were bringing Japanese companies over here to show us how to run things more efficiently, etc.
Well then in 1990 a funny thing happened. The Nikkei went from almost 40,000 points down to 7,831.42 in April of 2003 and has never fully recovered. Take a look at this chart.
 | | (Nikkei from 1984 to present) |
What Caused the Drop?
That's a great question. Think about it. Back in 1990 Japan was the second largest economy in the world. And who was their biggest customer? We were. The United States, the largest economy in the world. And if you recall things were going pretty well in our country back then.
So if you are Japan and you are kicking tail, and your largest customer, the US is also kicking tail, why would their market crash and fail to recover? Why are they below the level that the Nikkei started at 28 years ago? You know how conventional wisdom says "hang in there, you're in it for the long haul"? How has that worked out for the Japanese.
The Baby Boom or Lack Thereof
One of the causes, and the major cause in my opinion, was simply a demographic trend. Japan lost World War II. They experienced a Baby Boom just as we did after WWII. The difference was that they put a lid on theirs within about 5 years of the end of the war. They had a country to rebuild and couldn't afford all of the children that they were having so they put a heavy tax on kids. That stopped their baby boom dead in its tracks.
Now fast forward to 1990. What we know from demographic studies is that in industrialized nations, the average family spends the most they are going to spend as a family unit between 46-50 years old. After that the kids are gone and we start saving more for retirement. When we save more we spend less. The largest part of the economies of most industrialized nations is driven by consumer spending.
Japan is no different in this regard. Their baby boomers passed through those peak spending years back in 1990 and they have seen continuing declines in that demographic. When you add on top of that the fact that Japan has one of the lowest birthrates in the world which further exacerbates the problem you can see why it is unlikely that they will ever recover.
They currently have a birthrate of 1.37 children per family when it takes a replacement birthrate of approximately 2.2 children per family to maintain a stable population. There are many demographers that think Japan has actually passed the point of no return as a race. What I mean by that is that their birthrate has been so low for so long that the Japanese people will die out because they are not even close to having enough children to maintain their population.
Thanks for the trivia lesson but who cares?
Well there actually is a point to be made. That is the comparison to what Japan has been going through for the last 20+ years. The Baby Boom in the US has also gone through those peak spending years. Unlike Japan, we have an Echo Boom coming along behind us to drive spending. Unfortunately there is a bout a 12 year gap before they will be into those peak spending years that drive our economy. In the meantime we have about twelve years where this recovery will have to continue to swim upstream.
What does that mean for your investments? If you're not sure, give us a call and we'll give you our take on it!
Until next week , Protect Your Wealth!
Sincerely,
  
| 
