Rolling Stocks

Guns, ammo, foodstuffs, palladium, rare old photographs, P&G, cheap utilities, signed first-edition books, proficient food retailers with scale, a farm, water companies, TIPs, Norwegian Kronor, CRESY, RYN, Southern Queensland cotton farms, lowly-levered prime REITs in Paris, cheap big pharma, BDX, Gazprom, Lukoil, Total etc. I can think of many reasonable and liquid stores of value that may suffice over polarised outcomes. But Japanese private railways (outside JR East and West and maybe Keisei) fail to enter into the realm of (at least my own) imagination.

Perhaps, they are, through a certain lens "low risk" if one employs a myopic definition that includes beta, volatility, and market cap (but ignores debt, constantly depreciating assets, capex requirements, future demographic challenges, and the fact that they are denominated in a currency at the likely pinnacle of relative performance). But they ARE at least assets versus the alternative of a promise by a politically dysfunctional system (ignoring the premium one is paying for many given their bloated accumulated liabilities). But by this measure, prime Class-A real estate, arguably longer-lasting assets, or the cabled monopoly telecommunication backbone of Japan, can be had with much more attractive present (and potentially future) earnings yields, granting greater upside potential other things the same. Yes rents can (and do) fall, but so (one might posit) does passenger traffic in the advent of depression.

Nonetheless, Japanese private rails, particularly the least-attractive turds, have been vaulting ahead inverse-step-for-inverse-step to meaty riskier assets, irrespective of growth, earnings momentum, or prevailing value. Yes the Japanese rails are emblematic of global markets in general during the past two months of unraveling undoing the best-laid trading plans, or fastidious reasearch. For their rise is (IMHO) unlikely to represent a search for truly obscure alternative stores of value, but rather signifiy the deleveraging process itself. What was bought (if it can) must be sold. And what has been sold (short) evidently must be bought. And make no mistake: fundamental value, momentum, growth long vs. short investors have been short the rails. No need to be clever, or conjure improbable theories of how Tobu or Nagoya will (finally) extract value from its real estate holdings which in any event are on offer elsewhere at half of book. But just as every proverbial dog has its day, rest assured that once the scramble through exit subsides, there will be numerous days that will have their dog.