Wednesday, November 22, 2006

Hey Joe! Me so pretty.

What I have to say won't take long:

Japanese stocks, excluding the whimisically thematic, the detritus, and the overly-glamorous, are remarkably cheap in comparison other assets. Factor in the embedded in-the-money currency appreciation option (for non-Yen-based investors since the BoJ will eventually relent), the oligopolistic, or in many cases, near-monpolistic nature of many of their edxport specializations, the low multiples to the hard (and increasingly scarce) underlying assets, as well as in relation to forecast earnings potential, free cash flow generated as well as relative to enterprise value, not to mention relative to replacement value, tossing in the meaingfully large dollops of accounting conservatism (i.e. significant R&D & Advertising that depresses current earnings in favour of future earnings), the benefits of industrial policies and corporate relief that result from national socialization of pensions & healthcare, and one has a compelling case for the shares of such enterprises hedging much monetary devaluation, whilst offering diminished risk should things not really pan out as currently expected.

Skeptics (and those who are, if not short, not long) will chime that there is no "catalyst", but this is untrue. The catalyst is rising asset prices, global relative valuation, continued global economic growth, and no pullback in China until after the 2008 Olympics. Yes, there remains issues for the really meek: transparency & accounting integrity, liquidty, stock supply overhangs in the hands of government, reduced shareholder rights and the cultural heeding of multiple constituencies that have profit-diminishing attributes during slack times, and the effect of dollar devaluation upon competitiveness.

All that and current index-price softness notwithstanding, relative to many other assets, they remain attractive, and if nothing else, will soon (and again) attract buyers - portfolio investors, pension funds, domestics, and petro-dollar earners - that will provide, at the very least, a quick turn with attractive risk v. reward to the bold, though probably larger and more sustained gains over the ensuing 12 months.

1 comment:

Anonymous said...


Your song is indeed sweet but I and the market? have blocked our ears "psyched out" by mythology. Should we lash ourselves to the mast or dive in? What for?