need help understanding the NIKKEI 225 (^N225)

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gold5050
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need help understanding the NIKKEI 225 (^N225)

Post by gold5050 » Thu Dec 27, 2012 6:09 pm

Good afternoon. I will start of with IM NEW TO INVESTING. I was looking at the NIKKEI 225 (^N225) and i noticed it dropped around 1990 and never recovered. Could that happen to the Us stock market? Would anyone point me to a good place to read and learn.

NYBoglehead
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Re: need help understanding the NIKKEI 225 (^N225)

Post by NYBoglehead » Thu Dec 27, 2012 6:30 pm

It definitely COULD happen to the US Stock Market.

While we need to remember that the stock market is not the US economy, the market is greatly effected by the economy. An extended period of dismal economic growth will undoubtedly lead to a period of reduced stock market returns. The past few years have been good as the market recovered after being cut in half during the financial crisis, but we shouldn't kid ourselves into thinking that markets will go up in perpetuity. One of Japan's problems is that the population is much older (the US is heading there as Baby Boomers retire) and their economy is hampered by an extremely high debt to GDP ratio (US is heading there too!).

Obviously a lot can happen and a period of robust growth will wipe out many of our short-term fears and may dampen some of our long term problems, but you should be aware that anything can happen when investing in the markets. That said, invest you must!

livesoft
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Re: need help understanding the NIKKEI 225 (^N225)

Post by livesoft » Thu Dec 27, 2012 6:35 pm

Another Japan problem: Japan recently pissed off China [again], so that Chinese consumers stopped buying Japanese cars, TVs, electronics, and other stuff.

The Japanese have been digging themselves a hole for quite some time. It's slow digging, but it is not digging out either.
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Karamatsu
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Re: need help understanding the NIKKEI 225 (^N225)

Post by Karamatsu » Thu Dec 27, 2012 6:44 pm

What happened was the bursting of a "bubble" that had a lot in common with the current US/European financial crisis: bankers, brokers, government, and investors all too busy chasing what looked like a perpetual profit machine to realize that it's a house of cards that will inevitably collapse. The reason the market did not recover is more complex, involving economic policy, politics, psychology, world events, demographics, and significant differences in the role of the equity market in Japan versus the US. It certainly could happen in the US but I expect it would happen for a similarly complex, yet unique set of reasons that are unpredictable and largely uncontrollable. Nobody here expected this to last so long, either!

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Liquid
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Re: need help understanding the NIKKEI 225 (^N225)

Post by Liquid » Thu Dec 27, 2012 7:36 pm

What happened to Japan was NOT bursting of a bubble in the way we think of it (ie regular market cycle), rather it was the realization that tremendous wealth simply did not exist secondary to pervasive and systemic corruption. There was no recovery because much of the climb was a fabrication.

Common practice in Japan at that time made Gordon Gekko look like a choirboy. IMO there is very little in common with the current crisis.

plats
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Re: need help understanding the NIKKEI 225 (^N225)

Post by plats » Thu Dec 27, 2012 7:51 pm

Looked like a bubble to me. The PER of the Nikkei was up around 100 compared to the current S&P PER of 15/16. And real estate was similarly overpriced.

livesoft
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Re: need help understanding the NIKKEI 225 (^N225)

Post by livesoft » Thu Dec 27, 2012 9:52 pm

News from tonight: http://www.bloomberg.com/news/2012-12-2 ... -case.html

Japan worse than expected; Korea better than expected. This is partly because of consumers moving from Sony/Sharp to Samsung and from Toyota/Honda to Hyundai/Kia.

Note how Nikkei 225 is up on the hope of stimulus measures helping. This highlights the disconnect between the current recession in Japan and the Nikkei.

(Remember when having a Sony Walkman was all the rage? Does Japan even design/make cellphones or tablets?)
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Karamatsu
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Re: need help understanding the NIKKEI 225 (^N225)

Post by Karamatsu » Fri Dec 28, 2012 12:56 am

Yeah, I'd say it was a pretty classic bubble. It has all the hallmarks, and to me, at least, seems quite similar to the pattern of the CDO disaster. Corruption is common wherever there is money to be made, and is in the eye of the beholder to some extent, but in any case it veers into the political so we probably shouldn't go there.

The lack of innovation among Japan's dinosaur corporations became a popular topic after Sharp announced it's gloomy future outlook. I really don't know. There's lots of innovation going on but it remains to be seen if it captures world markets the way things did in the old days. Perhaps we will see a changing of the guard as the old companies settle into decrepitude and new, younger ones take the lead, though with the LDP back in power it will probably be back to the same old same old. The DPJ failed because they couldn't get a handle on the powerful bureaucracy that the LDP had put in place during its 60 years of one-party rule. It's hard to believe the LDP would be any better at it dismantling its own Frankenstein. I doubt they would ever want to.

Volatility in the Japanese stock market is usually driven by foreign speculators. Perhaps they don't realize that the LDP is the same party that was in power when the problem was created, and the same exact people who did nothing during the first 19 years of Japan's economic stagnation. Why anyone would look upon their return to power as positive for the economy or the equity market is a mystery, but at this point who cares? Positive momentum is good, but I can't help thinking we'll look wistfully back on this as a brief honeymoon period and nothing more.

gold5050
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Re: need help understanding the NIKKEI 225 (^N225)

Post by gold5050 » Tue Jan 01, 2013 7:59 pm

Thank you for the info...

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Phineas J. Whoopee
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Re: need help understanding the NIKKEI 225 (^N225)

Post by Phineas J. Whoopee » Wed Jan 02, 2013 8:06 pm

NYBoglehead wrote:It definitely COULD happen to the US Stock Market.
Absolutely correct.
NYBoglehead wrote: ... One of Japan's problems is that the population is much older (the US is heading there as Baby Boomers retire) ...
I'm coming across this sentiment more and more, but it's not comparable. Japan has very little immigration. The US has a lot, and the people are often young to middle-aged economic migrants coming to work hard to make more money. The US does not have to reproduce above replacement levels to counteract the greying of America.

PJW

gold5050
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Re: need help understanding the NIKKEI 225 (^N225)

Post by gold5050 » Fri Jan 04, 2013 9:37 am

I never thought of immigration as a factor. interesting point.

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