Japan

I’m still there, though the ‘story’ is long in the tooth. And far removed from where it started at 7000/8000 on the Nikkei. Whereas Wall Street ‘technicals’, going back about a year, suggest that topping out may slowly, slowly be occurring, this is not the case re Japan technicals (yet anyway). Yet another US amber light: per John Hussman 08/07/15 – over the last six months a record 80% of new issues were loss makers. The previous record: near 80%, at the top of the 2000 tech bubble, then 65% at the top of the recent credit bubble – 2007.

Relative profits performance, shown by the BCA Research graph below (and to which I have previously drawn readers’ attention), simply underlines the rationale for the current investment preference.

At actual valuation, only on price to cash flow (OK, actually the most important measure) can one use the word ‘cheap’ now.

A word of caution – profits don’t grow to the sky. There has been an explosion recently.

In the poor year, 2008, corporate profits came out at ¥3tn; in 2010 ¥12tn±; and now are running around ¥18tn p.a. (Source: BCA Research)

Assisting retained corporate profits has been the decline in (large company) corporation tax from 53% in 1990 to about 36% now. 30% is targeted along with the next VAT rise, supposedly in 2017.

The tight labour market – unemployment about 3½% - should necessarily and at last help wages, but of course these have to be paid by corporates (inter alia). Maybe or maybe not tax cuts and productivity can mitigate the effect on profits. Productivity could kick in.

David Fuller's view

Here is Peter Bennett's Letter.

Peter Bennett is always a good read and a refreshingly candid value investor. 

Please note: I will be away on Wednesday.