8,849: Has the world turned its back on Nikkei 225?

[LargoWinch]

The fall of this index is simply staggering. A contrarian play or the ultimate falling knife? Perhaps the entire index should do like GM...

Apr. 25, 2003; 7,699.50 (currently up 14.9% from low)

Mar. 6, 2009; 7,173.10 (currently up 23.4% from low)

Index Value: 8,845.39

Where can I find the index p/e?

I think I saw 5X (!) somewhere but I am not sure and cannot find this current data anywhere...

[c1ue]

Re: 8,849: Has the world turned its back on Nikkei 225?

The issue isn't directly the Nikkei or even the specific companies listed.

The issue is the Japanese economic model.

The entire post WW II model in Japan was a weak yen with strong exports to the United States, as well as the US contributing indirectly via assumption of primary defense responsibilities for Japan.

As the US is now very clearly on a path to dollar devaluation - specific timing and end values still in flux but sign and magnitude not in question - how will Japanese companies move forward? When they're being attacked at the higher end by the Koreans and the lower end by the Chinese?

Merely keeping up competitive devaluation isn't going to work - Japan simply cannot undercut these competitors via the blunt instrument of currency manipulation.

Until a clear path forward is embarked upon - Japanese companies as well as the nation as a whole will continue in limbo.

[LargoWinch]

Re: 8,849: Has the world turned its back on Nikkei 225?

Good points c1ue.

If you put a gun to my head and say: S&P500 or NK225, I would opt for the later in a heartbeat though (based solely on P/E valuations).

[blazespinnaker]

Re: 8,849: Has the world turned its back on Nikkei 225?

We are a world awash in deflation.. Is this the final ka before poom?

[Fiat Currency]

Re: 8,849: Has the world turned its back on Nikkei 225?

We are a world awash in deflation.. Is this the final ka before poom?

I like to say that "we are drowning ourselves in a sea of illiquidity"

You can drink from a fire hose ... until somebody opens it up fully

[mooncliff]

Re: 8,849: Has the world turned its back on Nikkei 225?

I'm not sure if some of the deflation will not continue even after the POOM.

It seems to me that a huge component of the deflation is due to technological progress going obviously exponential.

My international and domestic phone bill 1990 to 2004 was easily $2,500 a year (if you don't call your aunts and uncles once in a while to talk about nothing, one day, you won't be able to call them no matter how much you want to and no matter how much you are willing to pay); now, it is $200 per year with Skype worldwide. 90% reduction. Saved me say $10,000 in the last 5 years, which much better service (unlimited calling).

My $700 fax and copy machine died a couple of years ago, and I just threw it away and did not replace it. I now use a $70 scanner and the printer I already had. The phone/answering machine finally gave up after 20 years, but I use my computer to make calls, so no need to replace that.

My $6,000 48 inch HiDef TV finally died after 15 years, and I am thinking of replacing it. The replacement will be $1,000 or so.

My subscriptions have dropped somewhat, though I still get the daily newspaper, New Scientist, and Scientific American on paper to read on the train. Each one of them has brought so many valuable things to my attention over the years, they have more than paid for themselves. Considering what I read online for free, I guess I would have to shell out $10,000 per year if I were to actually get everything on paper like in the bad old days.

My CD and DVD purchases have gone to nearly zero because I am so busy with podcasts and videocasts. I guess that is saving a couple of thousand dollars per year.

100 yen shops (dollar stores) have made a huge difference in Japan, because while you could probably have found stuff for 100 yen 20 years ago, you would have had to know specifically where to go to get it. Now all the items are in one big store a 5 minute walk away.

The last time the yen was this high, around 90 to the dollar, around 1995, everyone bought two suitcases and brought a whole bunch of stuff, like jeans, back from the US. Now, probably no one would bother because most items are widely available in Japan at only slightly higher prices. The fad now is $10 jeans. Seiyu, a major chain, is WalMart, and many items are unbelievably cheap, often less than on Amazon.

Of course sometimes appliances can be poorly made and fail prematurely, but on the other hand, many things, like LED lights have 10 times the service life. My apartment is now lit for 35 watts instead of 300. I think this may be a major component of the deflation. I note how good plastics are now and how long plastic items last (especially in the Pacific garbage patch!). I realized the other day that the plastic cutting board I have had for 20 years looked brand new after I bleached it. I expect the paint on my house to last twice as long because I added a titanium oxide heat reflecting powder to the paint, so the walls will go through much less thermal cycling, and the paint is supposed to last twice as long before it starts cracking.

If Warren Buffet is, as I think his wife said, happy with a book and a light bulb, I am totally happy with a $20 a month broadband connection and a MacBook. I don't think it can get cheaper than that.

Oh, and the rents just dropped 20% or more.

I have been astonished how durable appliances can be. My Sharp air conditioner/heater heat pump was $1,000 and is still, after 16 years, cooling my 600 sq ft apartment, with the temperatures in the high 90s F (35 C), for $1.50 per day. Conversely in the winter.

The electrical makers want to reduce utility bills for a Japanese household of four from $4,000 per year to less than $1,000 by introducing superefficient appliances.

Eyeglass prices are crashing by half to minus 90% due to competition.

I wonder what the deflation/inflation would be like if we only had the credit bubble and if technology were not reducing costs so relentlessly. However, I have heard it said that tech-induced deflation is precisely the cause of the credit bubbles and deflations afterward. In the 70s, Japanese factories became so automated and efficient that, for example, a microwave oven dropped from $1,000 to $100. In order to avoid a deflationary spiral, the Bank of Japan blew a credit and real estate bubble.

[charliebrown]

Re: 8,849: Has the world turned its back on Nikkei 225?

Do you live in Japan?

Here in the states things are different. Here is my impression of things over the last 10 years, as a father with two kids in a midwestern town.
--technology is falling in price, however I need a 3GHZ machine to write a letter or open a spread sheet. I remember my sub $1000 25Mhz 386 being able to handle my office needs just fine.
-- food is up a bit, 30%??
-- housing may even be up from 10 years ago. Don't know about this I bought a home in 98. I think I still can sell for more than I bought.
--Medical is screaming out of sight.
--Fees and taxes are up sharply. My real estate taxes are up 60%, sales tax are up 30%, fed tax is down a bit, state tax is up 50%
Liscense plates, gvt fees, traffic tickets, toll roads all up.

-- Clothing prices I think are flat, if you buy clothes from a discounter.
- School prices are way up.
--Energy prices are way up gas was about a 1.20 a gallon in 2000, electric has gone up, nat gas up.
- It seems like the price of small household items, hand tools, kitchen appliances, is down, quality down too. They
have huge feature lists, but only last a few years.
-- Cars prices are up, but the cars are better quality. This may be a wash.

Overall I feel poorer over the last decade. I don't go to nice restaurants any more, I buy a lot of clothes at re-sale. My cars are 16 and 10 years old. I try and do a lot of home repairs myself. Price is always a major decision point. "Toys" such as sports equip, musical instruments etc." are bought used on e-bay.

[karim0028]

Re: 8,849: Has the world turned its back on Nikkei 225?

Technically from price action standpoint it looks close to bottoming if it hasnt already, PE of 5 is pretty darned good and prices dont necessarily always reflect current value... For instance, markets always go from undervalued to overvalued and this looks undervalued and will most definetly go to overvalued at some point due to human emotion, greed and market cycles, etc..... It will get accumulated, then marked up then distributed (ie. sold) to the masses; the same way every market in history has been..

[jpatter666]

Re: 8,849: Has the world turned its back on Nikkei 225?

I also live in the States. Comparing to 10 years ago?

1 ) Technology and the internet. Dirt-cheap new computers can still be had. Dirt-cheap software too *if* you know where to get it and how to use it. Software which requires support (this is more and more corporate software) is getting more expensive IMO. Internet connectivity prices have plunged. I pay the same for 30M/sec that I did for sub-1M 10 years ago (*if* you could get it)
2 ) Cell phones. Again plunging prices and quality levels up to the point where many of my friends have gotten rid of their land-lines.
3 ) Cars. I agree, higher prices but longer quality (this has been building since the mid-80s IMO). I think this trend will continue.
4 ) Clothing. Cheaper or the same price, but lower quality. There's a *lot* of junk sold.
5 ) Energy. Electric has stayed stable or dropped, but we installed new high-efficiency A/C and furnace and light bulbs. Gas/oil is tied more to currency and politics so it's been all over the place.

1 ) Medical. Up. Every year, without fail.
2 ) Education. Up. Every year, without fail.
3 ) Taxes. Tricky, but I'd also say the *total* is up. Some go up, some down but there are new ones and the trend has been up. I'd also just label this "Government". Lots of new rules it seems as well.
4 ) Food. Been interesting there -- in the cities, I'd say up. In the country, I'd say down. Not exactly sure why that's happening.
5 ) Furniture / Appliances. Definitely following EJ prediction of same price, lesser quality (for now). Some of the high-quality pieces I've seen disappear from stores. They are out there, but I have to order them on-line now.

I do quite a lot of shopping on Craigslist (sometimes Ebay) looking for high-quality whatever-it-is-that-I-want. I can then get it at a reasonable price and it still lasts longer than the junk currently on sale in the stores.

Anything to do with "services" costs a fortune. Mass produced is (usually) declining in price.

[c1ue]

Re: 8,849: Has the world turned its back on Nikkei 225?

I'm not sure if some of the deflation will not continue even after the POOM.

It seems to me that a huge component of the deflation is due to technological progress going obviously exponential.

The huge component of the deflation is the rising yen plus the effect of Chinese products in Japan.

What happens when the Japanese jobs go away - for real - like they are in the US?

Thus far it has mostly been early retirements and 'job time sharing' to spread out the pain; a yen below 85 is already making things really ugly for all those who import Japanese goods - like myself.

To compare: a product made in Japan by a Japanese which has clear in-person demonstrable differential (extremely rare in cosmetics). The previous shipment was 880 yen per unit at 108 yen/$, now the next shipment is going to be 960 yen at 84-ish yen/$ = 9% increase in price coupled with a 28% increase in currency exchange costs.

The main product probably will be able to pass through the price difference, but the remaining 7 other positions definitely will not.

Secondly almost all your examples involve electronics.

From my last trip there - it doesn't look like food prices are dropping.

Clothing prices can be lower, but then again while my Y2K UniQLo shirt is still quite presentable, my 2009 UniQLo shirt is crap and likely won't last another 6 months.

Transportation? Doesn't seem cheaper at all.

The official Japanese government statistics also don't show the massive price drops you seem to think are everywhere - mild deflation only.

For that matter the greater energy efficiency you point out doesn't seem to be translating into the rest of the populace:

http://www.google.com/publicdata?ds=...lectricity+use

Pretty much straight line up and higher than Germany, France, China - in fact higher than almost all non-oil exporting nations and the US.

5 ) Energy. Electric has stayed stable or dropped, but we installed new high-efficiency A/C and furnace and light bulbs. Gas/oil is tied more to currency and politics so it's been all over the place.

The DOE historical electricity data shows a lot of variability, but a clear upward trend in any of the 10 year, 20 year, or longer contexts for pretty much every state.

[mooncliff]

Re: 8,849: Has the world turned its back on Nikkei 225?

Originally Posted by mooncliff
I'm not sure if some of the deflation will not continue even after the POOM.

It seems to me that a huge component of the deflation is due to technological progress going obviously exponential.

The huge component of the deflation is the rising yen plus the effect of Chinese products in Japan.
Mooncliff: Yes, that is right. But what I mean is that there were no factories capable of producing large screen LED TVs 20 years ago anywhere. The unbelievable Sharp Aquos TV screens are manufactured in Korea, I think. These simply did not exist 15 years ago except in prototype. A comparable 48 inch screen TV was a projection TV. Same goes for computers. A $1,000 MacBook does so much more than my PowerMac from 1995, at 1/5 the price, that I dont even know how to compare them.

What happens when the Japanese jobs go away - for real - like they are in the US?
Mooncliff: A lot of those jobs have already gone, with only a few high end tech jobs that Japanese manufactures want to keep in house to slow the technical knowledge leakage a little while remaining in Japan.

Thus far it has mostly been early retirements and 'job time sharing' to spread out the pain; a yen below 85 is already making things really ugly for all those who import Japanese goods - like myself.
Mooncliff: Yes, I was trying to tease out just the tech developments without referring to currencies and financial and demographic matters.

To compare: a product made in Japan by a Japanese which has clear in-person demonstrable differential (extremely rare in cosmetics). The previous shipment was 880 yen per unit at 108 yen/$, now the next shipment is going to be 960 yen at 84-ish yen/$ = 9% increase in price coupled with a 28% increase in currency exchange costs.

The main product probably will be able to pass through the price difference, but the remaining 7 other positions definitely will not.
Mooncliff: I see, yes, my musings are completely within Japan, where I have lived for 20 years.

Secondly almost all your examples involve electronics.
Mooncliff: But the electronics have replaced nearly all the books and videotapes I used to have. I have thrown out about $10,000 in books... things like atlases and dictionaries because I just look the stuff up on the net. I threw out $10,000 in videotapes, mostly documentaries, because they are often free online. The videotapes served their purpose and circulated through a lot of people here. If I had had a MacBook in 1995 and access to the net the way it is now, I could have saved myself $20,000. I think this applies everywhere, not just in Japan. I see that textbooks that go for $300 are starting to be replaced with rental electronic versions. I expect that transition to be complete within 5 years.

From my last trip there - it doesn't look like food prices are dropping.
Mooncliff: If you are in the middle of cities, not much has changed, but if you just go out even 20 minutes to the suburbs, there are huge price wars going on at the supermarkets. There are many stores like Daiso that are basically really good dollar stores. These did not exist a decade ago. It takes quite some time to figure out where things might be found even if you live here, but once you get the idea, like from scanning newspaper ad inserts, you can make good guesses. Google searching in Japanese lagged searching in English, but is now quite good. I think the bargains existed before, but they were scattered and you had no way of practically finding them, but now suddenly those problems are solved.

Clothing prices can be lower, but then again while my Y2K UniQLo shirt is still quite presentable, my 2009 UniQLo shirt is crap and likely won't last another 6 months.
Mooncliff: Yes, some clothing quality like at Seiyu/WalMart has going too far down. Still, for decent quality things, prices have gone way down, which they did not do the last time the yen went to 90 to the dollar. The last time the yen was this strong in 1995, the price reductions did not trickle down, probably because there was no practical way to circumvent the retailing structure except by going on shopping trips to the US, so it is not just the currency appreciation. Improvements in information technology provide the means, like through online, to circumvent the retailers, so they are forced to reduce prices (although they still sometimes charge different rates way out of line with the currencies. Skype charges 10 euro for a month of worldwide service, but charges 1500 yen; at current exchange rates, that should be 1070 yen... I wonder if I can choose the euro rate and pay that...)

Transportation? Doesn't seem cheaper at all.
Mooncliff: Yes, prices have not changed in 20 years, but the quality of the train system has gone way up. But yes, nominally in yen, about unchanged.

The official Japanese government statistics also don't show the massive price drops you seem to think are everywhere - mild deflation only.
Mooncliff: The yen Purchasing Power Parity figures I have seen show PPP nearly tripling since around 1989. Yes, from looking at the stats, it might not seem that there is much change, but the range of choices has exploded. Twenty years ago, if you wanted to pound a few nails, you just went to Tokyu Hands and shelled out $30 for a hammer; now you can get one at a 100 yen store for a buck. This has put a lot of pressure on Tokyu Hands to lower prices.

For that matter the greater energy efficiency you point out doesn't seem to be translating into the rest of the populace:

http://www.google.com/publicdata?ds=...lectricity+use

Pretty much straight line up and higher than Germany, France, China - in fact higher than almost all non-oil exporting nations and the US.
Mooncliff: Yes, electricity use is going up, but that is in part because a lot more people have air conditioning and because the per capital floor space in Tokyo doubled. There is also a push to go all electric. A couple I know lives in an all electric 1,000 sq ft condo, and I am amazed that their total utility bill is $80 a month. This is in part because they have a super efficient heat pump water heater that goes on late at night when electricity is 10 cents a kilowatt hour.
So yes, overall consumption is going up, but it is not as if the level of services like air conditioning are the same as they were 20 years ago.

LEDs went from essentially zero sales in July 2009 to 65% of sales in July 2010. I expect nearly complete adoption in a few years, especially now that they have fallen under $20.

If I had a house, I would shell out just a few hundred dollars more for each appliance and get the most efficient ones available, potentially shaving about $3,000 per year off the utility bills. The options that are available in Japan are as different as Akihabara is from RadioShack. I keep waiting for things to permeate into the US, but it takes a long time. The thing recent visitors found amusing was the debit card/train pass I have in my wallet. You just pass it over a pad and walk through nearly any ticket gate in Japan. You can pass it over the same type of pad in a vending machine or in a convenience store to buy things. There used to be huge banks of ticket machines in train stations, and people would line up and squint at the map to figure out the fare. Almost no one buys a paper ticket now, and most of the machines are gone.

Speaking of jobs, do workers at the postal service still read zip codes in the US? In Japan, for more than 20 years, envelopes have 5 red boxes on them. You write the digits of the zip code in the boxes. A worker at the post office takes a bag of mail, dumps it in a hopper, and the entire bag is sorted by optical character reader in a few seconds. It is really amazing.
No one uses checks here. Bills have bar codes on them, so once a month on my way to the station, I take the bills to the convenience store on the way to work, a clerk scans them, and I pay. The entire process takes less than a minute. Of course there is automatic transfer, but there is a charge for that.

Much of Tokyo has and is being rebuilt at a much higher earthquake standard, so that is an example of a very complex comparison between the old and the new.

I am sure the yen appreciation is a large component of the deflation, but I wanted to mention that there are many things happening in addition to endaka (high yen) that are having huge effects on living standards in Japan.

[mooncliff]

Re: 8,849: Has the world turned its back on Nikkei 225?

From WSJ
"Tokyo was never cheap. But as the yen continues to pack on muscle against the dollar the neon-lit city’s soaring prices reached new heights this week for U.S. expatriates and tourists.
A one-day adult pass to Tokyo Disneyland is 5,800 yen, or $68.58 based on the paltry 84.58 yen to dollar rate Wednesday."

Reader's comment:
Well, a ticket to Tokyo Disneyland may cost $68 but in Anaheim a one-day adult ticket now costs $76!

[LargoWinch]

Re: 8,849: Has the world turned its back on Nikkei 225?

From WSJ
"Tokyo was never cheap. But as the yen continues to pack on muscle against the dollar the neon-lit city’s soaring prices reached new heights this week for U.S. expatriates and tourists.
A one-day adult pass to Tokyo Disneyland is 5,800 yen, or $68.58 based on the paltry 84.58 yen to dollar rate Wednesday."

Reader's comment:
Well, a ticket to Tokyo Disneyland may cost $68 but in Anaheim a one-day adult ticket now costs $76!

mooncliff, what is the cost of a taxi from Narita airport to say Asakusa these days? Hundreds of dollars-equivalent isn't?

[mooncliff]

Re: 8,849: Has the world turned its back on Nikkei 225?

I forgot to mention we have Costco now. Most things substantially cheaper. Delivery anywhere in Japan, up to 60 pounds, $6, within 2 days or so. I shop for friends and just send them a box.
They send me money electronically through the post office. The transfer fee is zero and takes at most one day.

[mooncliff]

Re: 8,849: Has the world turned its back on Nikkei 225?

Yes, I guess $200 to $300, but why do that when you can take a Keisei express train from downstairs in Narita, about 3 minutes from the customs exit to the ticket gate, for $11. That will get you to Ueno in about 70 minutes, which I think would actually be faster than the taxi. New Skyliner is about $28 and takes 40 minutes, but it is usually not worth waiting for, so I just take whatever leaves first.

There are many discount tickets for trains, like the pass that will let you ride any JR train in Tokyo all day for $8. That's an area about say 30 miles by 70 miles? I think these things are often difficult to learn about because the explanations are in Japanese or vague broken English, but very often even Japanese people don't know about them.