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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: of 749152  
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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