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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 740198  
Subject: Japan/Bonds/It Can't Happen Here? Date: 3/26/2000 12:13 PM
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Very interesting article in Friday's Wall Street Journal on Japanese Postal Accounts (i.e., the Japanese equivalent of a US Savings bond or bank CD)

<snip>

Japanese Economy Could Face Bonanza
As Nearly $1 Trillion in Savings Mature

By BILL SPINDLE
Staff Reporter of THE WALL STREET JOURNAL


TOKYO -- A tsunami of cash will soon begin washing over Japan, and where it flows could determine whether the Japanese stock market -- up 37% last year after an abysmal performance overall in the 1990s -- will continue to rise this year.

Market seers usually look to economic growth, earnings prospects and interest-rate movements in trying to forecast the direction of stocks. But this year, none of those may matter as much as the tidal wave of money pouring into investors' pockets from one of Japan's all-time strangest financial events: the great postal savings rollover of 2000-2001.

On April 1, tens of thousands of 10-year time-deposit accounts, in which hundreds of thousands of Japanese hold almost $1 trillion of yen in savings, begin to mature over a two-year-long period. That's an amount equal to 20% of Japan's annual economic output, and one-twentieth of all the wealth owned by the supersaving Japanese people.

<snip>

Where the flood of money winds up could make a huge difference in Japan's efforts to transform its economy and financial system. If savers choose to withdraw even half of their money -- rather than putting it back into savings accounts -- and then spend half of that, consumer spending would rise 9% over two years and Japan's economy would be well on the way to recovery, notes HSBC securities economist Peter Morgan.

Or, figured another way, if just a quarter of the funds being freed up flow into mutual funds, the industry in Japan would more than double in size. If Japanese individuals' appetites for stocks and equity mutual funds grew to 9% of total financial assets from 8% -- compared with 43% in the U.S. and 20% in the United Kingdom -- more money would flow into the stock market than came all last year from the net purchases of foreigners.

And that burst of foreign buying made Japan's market among the world's best-performing last year. So far this year, the Nikkei 225 Index, which Thursday closed down 28.99, or 0.2%, at 19704.60, is up just 4.1%. With investment inflows from abroad plateauing, an infusion of more local money may be needed for the Nikkei index to have a second consecutive strong year.

Where the money goes is in the hands of people like Tetsuo Mochizuki, a 54-year-old employee of a manufacturing company. He plopped six million yen ($56,046) into a 10-year postal-savings account a decade ago and figures he will get about 10 million yen back when the account matures next month.

What will he do with it? He's wavering. "Interest rates are low, so I'm tempted to invest in higher-risk products," says Mr. Mochizuki, a married father of three who is nearing retirement. "But at the same time, I really hesitate to jump into such products. I don't really know what to do ... "

Like many others, Mr. Mochizuki chose the postal-savings account a decade ago because interest rates were soaring and the stock market was falling in Japan. The Japanese pounced on one of the best savings deals around: time deposits -- with guaranteed returns of 6% or more -- at the post office, which runs a vast deposit-taking institution in addition to delivering mail.

But interest rates on comparable postal-savings accounts today are a tiny 0.2%, which is why the post office estimates that as much as half of the money could flow out of postal savings in search of a new, higher-yielding home -- such as stocks.

In April, the amount of money in maturing accounts will jump fivefold from this month, to about 11 trillion yen. For the next 20 or so months, the amount will bounce between about three trillion yen and seven trillion yen monthly, except for another banner month of about 11 trillion yen in July 2001.

<snip>

Of course the standard "Foolish" wisdom is to ignore fixed income investments, but the lowly Japanese Postal Account has been the "play" in Japan over the past 10 years. The stock market is currently about 50% off it's 1990 all-time peak of about 40,000, while you could have earned 6% per annum in a 10-year Postal Account over the same period. The 10-Year "Terminal Values" for a hypothetical investor with a $1 million account is quite telling:

Investor "A" put $1 million in the Nikki 225 in 1990 - today's value $500,000.

Investor "B" put $1 million in a Japanese Postal Account at 6% in 1990 - todays value $1,791,000.

The big question is what will an investor with a 6% account do when it matures. The current rate for a 10-Year Japanese Postal account is 0.20% (that's not a typo.) How many folks will rollover their account at that rate? If they don't rollover where will the money go?

Harry Dent's demographic analysis doesn't see much happening in the Japanese economy until 2005, so it may be to soon to get into the Japanese stock market. However, the bigger lesson from Japan is that US investors shouldn't assume "It can't happen here." In that situation the big winners will be those that ignore the conventional "Foolish" wisdom and buy bonds.

intercst




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Author: ariechert Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6943 of 740198
Subject: Re: Japan/Bonds/It Can't Happen Here? Date: 3/26/2000 3:56 PM
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Japanese Economy Could Face Bonanza
As Nearly $1 Trillion in Savings Mature
By BILL SPINDLE
Staff Reporter of THE WALL STREET JOURNAL


Can the average Japanese person invest in mutual funds and stocks in the United States? Could be a bonanza for us if they can. - Art




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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6944 of 740198
Subject: Re: Japan/Bonds/It Can't Happen Here? Date: 3/26/2000 4:02 PM
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ariechert asks,

Can the average Japanese person invest in mutual funds and stocks in the United States? Could be a bonanza for us if they can. - Art

Yes they can. The parts of the article that I "snipped out" described what the big investment houses like Fidelity and Morgan Stanley are doing to sell their wares in the Japanese market.

However, I suspect few Japanese will venture overseas with their funds. As a group, the Japanese are probably even less interested in International investing than Americans.

intercst






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Author: rjstanford Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6946 of 740198
Subject: Re: Japan/Bonds/It Can't Happen Here? Date: 3/26/2000 4:34 PM
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Can the average Japanese person invest in mutual funds and stocks in the United States? Could be a bonanza for us if they can.

How so? We already have more than enough capital at the venture capital level. IMO, this would tend to make the popular large-cap companies go from seriously overvalued to staggeringly overvalued -- worsening the crash or stagnation when people finally realize that if the company can't generate excess cash then they'll never get money out of the deal.

Just like in a Ponzi scheme, finding a new source of investors will prolong the current state of affairs. I'm not disagreeing with this -- I just don't think that that will be good for the long term economic health of the country.

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Author: tqmbill Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6956 of 740198
Subject: Re: Japan/Bonds/It Can't Happen Here? Date: 3/26/2000 11:17 PM
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However, I suspect few Japanese will venture overseas with their funds. As a group, the Japanese are probably even less interested in International investing than Americans.

- - - - -

In June, the Nasdaq/Japan will open for trading. Many US companies will be cross-listed there, making it much easier for Japanese citizens to invest... period... and to invest in US companies if they wish. Just in time for this 2 year flood of unleashed ca$h. (i.e. Mone¥)

Softbank (SFTBF) has masterminded this new venture.

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Author: jpkiljan One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6961 of 740198
Subject: Re: Japan/Bonds/It Can't Happen Here? Date: 3/27/2000 2:40 AM
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intercst wrote:

[ Can the average Japanese person invest in mutual funds and stocks in the United States? Could be a
bonanza for us if they can. - Art ]

Yes they can. The parts of the article that I "snipped out" described what the big investment houses like
Fidelity and Morgan Stanley are doing to sell their wares in the Japanese market.

However, I suspect few Japanese will venture overseas with their funds. As a group, the Japanese are
probably even less interested in International investing than Americans.

intercst

Perhaps not in the future. I have heard that the Japanese are big investors in US bonds because of their own low interest rates. I also recall that when they were flush with cash in the 80's they were investing heavily in real estate and collectibles in the world markets. When their equities markets started to dive in the early 90's, I remember reading some very weird stories about how equities had been frequently sold door-to-door Amway/Tupperware style. The story line was that the people placed a lot of value on personal trust as a part of a business relationship and that was the way to sell equities in those countries. After 10 years of falling markets and a lot of Japanese investors feeling let down by the people who sold them stocks in the past, and by the huge gains in Europe and the US, they may now be willing to take a fresh look at those international equities markets.

Fidelity and MS may have the right idea. Time will tell.

-- John


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Author: jpkiljan One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6965 of 740198
Subject: Re: Japan/Bonds/It Can't Happen Here? Date: 3/27/2000 3:07 AM
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rjstanford wrote:

[Can the average Japanese person invest in mutual funds and stocks in the United States? Could be a
bonanza for us if they can.]

How so? We already have more than enough capital at the venture capital level. IMO, this would tend to
make the popular large-cap companies go from seriously overvalued to staggeringly overvalued --
worsening the crash or stagnation when people finally realize that if the company can't generate excess
cash then they'll never get money out of the deal.

Just like in a Ponzi scheme, finding a new source of investors will prolong the current state of affairs. I'm
not disagreeing with this -- I just don't think that that will be good for the long term economic health of
the country.

I think I know how it can be good--and it all has to do with timing. If the Japanese all start buying big-name US stocks at the same time we do, it will indeed create more demand and make that market overvalued with the consequences you outlined. However, according to Dent, when the US baby boomers start to retire at the end of the decade and cash in their retirement chips and buy 'safe' bond with their equities gains, the US stock market will go into a 10-year decline just as the Japanese equities market just did. If the Japanese investment climate picks up at the same time (Dent again), and if they decide to enter the US stock market (two big if's) they may be the ones who end up 'floating' our equity's markets for us in face of reduced demand. I heard that they tollerated an average PE ratio of 70 in their market before it began to fold.

The real irony is that if the interest rates on US bonds start to fall because of too much demand (Dent still again, and that's how it is supposed to work, anyway), we may be shopping overseas for our retirement bonds in places like Japan where the economy may be much more active since they have no post-war baby boomers.

Take all this with a grain of salt--an awful lot can go wrong, but it certainly makes you think. In Dent's first book, he must have gotten half his predictions wrong. Still, the ones he got right were pretty inciteful and like nothing else I have seen--that is what has made his reputation since.

Stay healthy and check back in 2015 and see how it all turns out!

-- John

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Author: bettypeterson One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6976 of 740198
Subject: Re: Japan/Bonds/It Can't Happen Here? Date: 3/27/2000 9:27 AM
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However, I suspect few Japanese will venture overseas with their funds. As a group, the Japanese are probably even less interested in International investing than Americans.


In the eighties I was taking a graduate course in economics during which the prof pointed out that a large percentage of US Treasuries were owned by the Japanese - and that this was very dangerous to our economy because the Japanese could pull their money out and leave our economy floundering. They did pull their money out when their economy went south - but it didn't have the predicted effect. I don't know if this was all investment by Japanese businesses or if some of it was by individuals. Our treasuries look alot more attractive (interest-wise) than theirs do. Perhaps our investment firms over there will be able to sell our treasury bonds even if they don't want to invest in stocks.



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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6983 of 740198
Subject: Re: Japan/Bonds/It Can't Happen Here? Date: 3/27/2000 11:03 AM
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bettypeterson wrote,

<<<<<However, I suspect few Japanese will venture overseas with their funds. As a group, the Japanese are probably even less interested in International investing than Americans.>>>>>>


In the eighties I was taking a graduate course in economics during which the prof pointed out that a large percentage of US Treasuries were owned by the Japanese - and that this was very dangerous to our economy because the Japanese could pull their money out and leave our economy floundering. They did pull their money out when their economy went south - but it didn't have the predicted effect. I don't know if this was all investment by Japanese businesses or if some of it was by individuals. Our treasuries look alot more attractive (interest-wise) than theirs do. Perhaps our investment firms over there will be able to sell our treasury bonds even if they don't want to invest in stocks.


I agree regarding US Treasuries. People the world over see United States debt securities as a "safe haven."

However, I'm not convinced the same status is bestowed on US equities. When the Japanese were flush with cash in the late 1980's, I think they favored US real estate over US equities by a wide margin.

Maybe this will change if Fidelty and Morgan Stanley start selling Cisco door-to-door in Japan, "Amway-style."

intercst





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Author: xebec Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7009 of 740198
Subject: Re: Japan/Bonds/It Can't Happen Here? Date: 3/27/2000 3:36 PM
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However, I'm not convinced the same status is bestowed on US equities. When the Japanese were flush with cash in the late 1980's, I think they favored US real estate over US equities by a wide margin.

In the 80's it was the common wisdom in both the US and Japan that the US was doomed as an economic power with Japan the clear successor. So much for the common wisdom!

As for the Japanese buying US bonds, I once read a book in which the writer wondered why the Japanese would lend so much money to a multiracial, impatient and heavily armed people.



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