Issue: 452
Sent: 30-08-2011 10:30:12
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US Recovery: More on Lessons from JapanA How To Book Of Self Managed Super FundsPensions and Unitized FundsEmail Marketing For Planners
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US Recovery: More on Lessons from Japan

Click here to buy - A How To Book of SMSF's by Tony Negline
John Robertson

Investors face critical judgments about how quickly more normal economic conditions will resume in the USA. Japan's experience should not be ignored.

I wrote this introductory paragraph for Edition 54 of the monthly ATC Digest in October 2008 in an article which questioned whether the US economy was sufficiently different from the Japanese economy to be able to avert a similar fate to that suffered by Japan after its own asset price bubble burst 20 years ago.

In looking back at that article, I decided to take the easy way out this week and to simply quote some of its key paragraphs.

There is now one further piece of accumulating information that reinforces the similarities between the current US predicament and what happened to Japan. The blue line in the chart at http://www.thebigpicture.com.au/atc/jap_us.pdf shows the Nikkei 225 stock price index, adjusted for movements in the US dollar exchange rate, since 1984. The red line is the S&P500 stock price index since 2007. It has been repositioned so that the high point in the US market coincides with the peak in the Japanese markets.

On Friday, Ben Bernanke addressed his central banking colleagues at their annual Jackson Hole retreat painting an upbeat picture of the US economy. According to the Fed chief, the economic events of the past four year will not adversely affect the economic outcomes in the longer term.

Bernanke might be right. On the other hand, he might have simply been trying to do all he could to support an ailing economy having run out of policy instruments to prevent a repeat of the Japanese malaise.

Even casual observation suggests that the emerging US market pattern is becoming scarily similar to that which followed the Japanese asset price decline.

The evidence is not conclusive. There are still some critical differences between Japan and the USA that position the USA more favourably. Nonetheless, the Japanese trajectory is clear: a 20 year decline in market values punctuated by periodic but ultimately unsustainable rallies that confounded investor expectations of a return to more normal market returns.

Financial advisers are still confronted by the same judgement referred to in the 2008 ATC Digest article.


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