Thursday, January 12, 2006


Wackiness abounds in the Japanese stock market. Just when you think yesterday's silliness cannot be outdone, you need only at today's prices and action to see clearly that many partipants have quite literally lost their minds. But sanity is not the only thing that's been lost. MIA is the integrity of the stock market's price mechanism as an allocator or scarce economic resources. While I'll admit that the past two decades remarkable manufacture of liquidity may reasonably lead one to question as to whether resources are indeed scarce, we'll ignore such a possibility for the moment. My prior post on
  • Stock Split Anomalies in Japan spilled the beans, and since then recent changes in settlement will do away with this. But not before a few last wicked games are played out.

    Take SEI Crest (Ticker Code# = 8900) which began December as a humble YEN100,000 stock. Since then, little has changed except it's price (today YEN 500,000) following a Dec 9th announcement that they'll split their shares 5-for-1 providing a two-month window for shenanigans. The stock peaked at YEN700,000, sufficient jack for any successful punter to upgrade his on-line trading machine and his high-speed internet connection, Interestingly, volume spiked 10-fold three days before the public declaration indicating at least friends of someone in the know profited from the material non-public information.

    Equally spectacular is Digital Arts (Ticker# 2326) which also began Q3 as humble YEN450,000-priced stock. Having doubled through Dec31 closing the year at a local maxima, it vaulted to a YEN1,300,000 per share, making it a clean triple in the six trading days of the new year until lo-and-behold they announced today and 3-for-1 stock split. And once again, a 10-fold increase in volume was seen three days prior to the split announcement - a sure telegraph of foul play and deception (or at least an information leak).

    One might suspect Philby except he's dead. But someone has the info and is acting upon it. In the case of Digital Arts, that probably amounted to about YEN 1.6 billion in illicit trading gains. Perhaps if we are unsuccessful as exporting manufactured goods to Japan, we can reduce our trade imbalance by exporting Eliot Spitzer to provide some needed help in financial oversight.

    Just in case you doubt my original assertion about the recent market as an efficient allocator, take a look at these other recent split-induced "moves" in Backs #4306, or Toho Titanium #5727. One would hope that some rational investors will be selling into it. Except of course that most rational or prudent investors wouldn't be caught dead holding these securities at these prices.....
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