Last night the Nikkei gained 556 points, or 3.6%, this was its biggest one day move in four years. The closing number of 16,460 puts the Nikkei at a 5 year high. Investors were encouraged by positive economic data and a number of Japanese industreal leaders, for example Sony (SNE) posting better than expected gains. So here is were I get to break my arm patting myself on the back! In August of 05 the Nikkei broke out to new 3 year highs. This occured after a long period of sideways trade. The technicals were as good as they could be, which is what got me to explore the fundamentals of Japan. I am first a technician. Every evening I spend several hours going over stock charts, trying to find a couple that stand out as worth further exploration. Once I find these stocks I then look at the fundamentals, and this is the final determining factor in if and how I will enter a position. Japan's fundamentals are as solid as any market in the world at this time. Since August when I first bought I have said that I expect Japan's market to be the global leader among industrealized nations, and that over the next 3 to 5 years I expect the market to double several times. This should come with the caveat that I do not know what I am eating for breakfast when I finish writting this piece, so long term forcasts may or may not be my thing, but lets have a look at what I see as the fundamentals in Japan. In the late 80's and early 90's everyone knew that the Japanese were taking over the world. They even bought Rockafeller Center. This growth in Japan, however, came on the back of shoddy lending, aggressive accounting and other shenanagins that would be familiar to anyone who has looked at Enron, Global Crossings, Worldcomm and their contemporaries closely. When they Nikkei finally fell apart it did so in a way that made the Nasdaq decline of 2000 to 2002 look nice. Over a 10 year period Japan remained locked in a brutal bear market that not even the global boom of the late 90's could shake. So by this point everyone has given up on Japan. In fact there are leading analysts, investors and magazines that have written it off as dead and declaired that everyone should just stay the hell away from Japan. In the meantime though corporate earnings started to improve in Japan. Not only did earnings improve, but the prices of shares continued to move lower. Eventually this will always create VALUE, and after all the mojo BS passes VALUE is what ultimatly determines the direction of a stock, sector or even an entire broad based index. Back in the early 80's everyone had written off Wall Street too. In fact Business Week ran a famous cover story about the death of equities as an asset class. Shortly there after the most powerful secular bull market in several generations was ignited. I feel that Japan is currently in the same situation the US was in in the early 80's. The only differance is that they have even more powerful fundamentals to drive them higher. Right now Asia is going through a massive industrealization the likes of which has not been seen since the 1800's. An entire quarter of the globe is finally waking up to the 21st century and is eager to be a part of it. For the last several years all anyone can seem to talk about is China and the vast opportunities that are to be found there. The major Chinese equity markets have put together stellar gains, real estate prices are up sharply and China has been a significant reason that global commodity markets (Steel, OIL, Aluminium, Grains, OIL etc) have been making new high after new high. China is certainly the big story, but ALL of Asia is experiancing rapid growth, not just China. Indonesia, Malaysia, INDIA, Thailand, Vietnam etc: They have all started to come up and claim a seat at the global economic table. Japan, and to a lesser but still powerful extend Korea, is going to be the major market that will get the most benefit from this process. I feel that Japan is going to play the roll in Asia that the United States has long played in global markets: A major provider of capital, technology and other types of support. This is going to fuel some major gains going forward for Japan. Not only does Japan stand to benefit from the changes in Asia, but in a very powerful way it stands to benefit (at least in terms of earnings) from a shift in the way Japan's Industreal powerhouses approach employees. In the past there has been a very close relationship between employee/employeer, and most Japanese would stay with the same company for their entire life. Companies would keep people on board long after their usefulness had expired simply because that is how things are done there. Recently though Sony brought in an English CEO to shake things up. They did this because they knew that powerful changes needed to take place, but that a Japanese person would never be able to put them through. Enter Sir Richard. Sony is now working towards becoming a lean and competative company, closing non performing factories and laying off un-needed laborors. Corporations in Japan are watching this closely, and others will soon follow. This will lead to further earnings gains in Japan, and further stock market gains. Finally we have the psychological point of "missing the train". For a long time institutions and individuals have simply written off Japan as a has been in terms of investing. They have been missing a lot of upside, but they, just like anyone else, do not like to stand aside and watch as others make money they could "just as easily" be making. Recently a lot of institutional money has started to flow into Japan again, but nothing near the levels that will be in place down the road. This will add further fuel to stock market gains. Currently I have 12% of my client capital (based upon points of purchase) commited to Japan in the form of the EWJ, various mutual funds and a couple of individual Japanse shares. I would like to have more, but the diversification rules I follow for my managed accounts do not allow me to much more room to buy Japan, so I am doing so only on major pullbacks like we had last week. I am very bullish on Japan thuogh, so much so that I took some of my own money out of my managed accounts so that I could put it into Japan. I have 1/4 of my own investment capitital commited to Japan based upon points of purchase and am willing to have up to 40% of it there. I feel that Japan has just started to enter a secular bull market. It should last for the next 5 to 10 years and will produce very nice profits for anyone invested in Japan. One last note, often I go back and forth between being invested and being in Cash. I do this, even intraday on occasion, simply to clear the slate and allow myself to have a "clean" view of everything. In most cases with in 10 minutes I am working my way back into the positions I closed - but not always. In any case, when I say this the cash position DOES NOT include Japan. I am holding that in a seperate, long term account. When I finally do get out of Japan bells and alarms will sound, I will make it very clear that the Japan trade is done, however I don't expect that to occur for several YEARS.
Currently I do not have a very large stable of stocks I own, I am however even thining that down and going to cash (exception: JAPAN). Again I am going to cash. I do have an order in to buy TRID above 26.50 and in IRIX on a breakout higher.
Why cash?? Right now that really has less to do with the market and more to do with me. While I do think the market is due for a pullback here, and I will be very happy to see one, there are definatly still a lot of stocks offering opportunity out there right now. However, I am having some MRI's and whatnot tomorrow and will be gone all day, and then on Thursday morning I am having a spinal tap. I have never had one, so I do not know what the after effects are, and given that I am just playing it cautious and going to cash so I dont have to worry about anything business wise after the LP.
YHOO is offering a nice potential short setup under 34.50. Its a good chance to use an intraday setup to get into a swingtrade, maybe even a position trade. This puts you in a nice risk to reward type of situation. Brandon
I'm going to make this pretty quick since I'm not feeling all that well. Yesterday I had a spinal tap at about 3pm, the spinal tap itself was not bad at all- which was a major relief. However this morning my back is killing me, Im sick to my stomach and I have a really bad headache. I called and they said this is fairly normal though, so not anything to worry about. Nothing to worry about, but for the next 12 to 24 hours I can expect to feel like junk. Anyway, right now the market is looking rather iffy. A lot of stocks have started to report bad earnins and, MOST IMPORTANT, reacted badly to it. We are starting to see some leading names break down rather sharply, think GOOG and AAPL and also seeing signs of froth in China..that is worthless companies are rallying like crazy. This has me taking a very cautious stance. THere is no need to be crazy aggressive. If you have been following along with us here you are up 10% + for the year, now is the time to play it close to the vest and DONT GIVE IT BACK. A few names I do like on the short side would include YHOO, MMM, INTC- but as I said Im not likely to do anything new today. Current position is EWJ and CASH.