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Posted by on Jul 31, 2009 in At TMV | 3 comments

Kimono Traders—The Real Desperate Housewives

At the time of this writing the Dow is again on the rise. Why? The U.S. economy shrank 1 percent in the last quarter, beating analyst expectations (now there’s a surprise!).

But let’s forget for the moment that our economy has been shrinking for four straight quarters, the first time this has happened since records started to be kept on such things; and that the only reason this latest 1 percent shrinkage beat the 1.5 percent expected was because of a huge drop in the quarterly trade balance, a drop largely due to a decline in oil imports, which in turn was the product of a lousy economy. Let’s forget that. Let’s also forget that this 1 percent shrinkage will likely be revised upward, which usually happens with these initial quarterly number reports, which is why the previous quarter’s shrinkage was increased upwards today from an originally reported 5.5 percent to horrific 6.4 percent.

Let’s forget all that, and all the other wackiness that has been inflatulating the U.S. stock market, and focus instead on the Japanese economy and its own stock market, which astonishing as it may seem, is actually behaving in a even more whacko manner than our own.

Our Dow, for example, is up a mere 40 percent since this March while the economy it is supposed to mirror has been sinking like an ice cube in July. This 40 percent hike, however, has yet to put the Dow above its 2007 pre-recession highs.

Compare this with the Dow’s Japanese equivalent, the Nikkei Index. While the Japanese economy has shrunk even more than our own since the start of this year, the Nikkei has nonetheless risen to a 6-year high. This surge, it should also be noted, comes at a time when Japan’s real estate market is worse off than our own (yes, that’s possible); when Japan’s unemployment rate, while not as high as in the U.S., is at an historic high in a nation that until recently boosted endlessly about the lifetime employment guarantee it offered its over-worked, highly stressed, after hour plastered workforce.

Oh yes, there’s also the matter of Japan’s inflation. there is none. In this country many economists (I speak here of economists not employed by banks who only exist to have their expectations exceeded and fear nothing) are worried about deflation, which can have even worse consequences than inflation. In Japan, they already have deflation. Prices there declined 1.7 percent just in the last quarter.

So then. Why has the Nikkei risen to such exalted levels when the Japanese economy is so deeply mired in the economic doldrums? In large measure because of who invests in Japan’s stock market.

In most Japanese households, only men (those still employed) work outside the home, while women stay home and do the family investing. These so-called “kimono traders” aren’t spending the stimulus money their government is feeding them in various ways because of falling prices, because when prices fall as they have been doing in Japan people hold off buying, waiting for even lower prices. Worries that hubbie might soon be out of work also make kimono traders anxious to boost family assets in the only way that seems to provide a quick and easy way to do so—investing in stock.

So there it is. A stock market actually whackier than our own. One even more detached from the reality of its national economy than ours. A casino filled with desperate Japanese housewives.

But maybe not. Maybe the Nikkei is really undervalued. Maybe the Dow is, too, and is only a few exceeded expectations away from 15,000. Oh, brave new world that has such markets in it!
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