Saturday, February 19, 2011

Living in Japan Can be an Advantage for Investors!

The situation in Japan as of today, Feb. 19, 2011 is very uncertain. Japan's financial house is in serious disorder. Our debt is not sustainable. Rumors abound of the coming yen crash. The current prime minister of Japan has an approval rating of a mere 19.9% - a new low - and both the old-school political parties in Japan are teetering as they have been beaten in landslides in recent elections.

What's an investor to do to protect his/her self and their family? Well, incredible as it may seem, my good friend Mish Shedlock tells me that there's a great opportunity for those of us living in Japan to capitalize on this uncertainty.

If the yen drops, and, in turn causes a huge rise in stock and precious metals prices, how can those of us living in Japan benefit?

In his blog of Wednesday, Dec. 22, 2010, Mish lays out Ten Economic and Investment Themes for 2011. About Japan, Mish wrote:

On a relative but not absolute basis I like the US. On a currency adjusted basis I especially like Japan. Here is a hypothetical example: Should foreign equities drop 20% and the US dollar strengthen 10% the loss to US investors would be 30%. Should Foreign investors buy US equities and face a loss of 20% and a 10% rise in the dollar, they would see a 10% loss. US investors of course would see the full 20% loss. Japan looks attractive in nominal terms but strengthening of the dollar compared to the Yen could negate some if not all of that. Equities in general, with the possible exception of Japan do not look attractive.

In a later article, Mish wrote about an Interactive Map of Global PE and Price to Book Ratios:

Except for Japan with a price-to-book value near one, with most corporate debt wiped off corporate books, I see little "absolute value" elsewhere.

The problem with Japan is the Yen. To invest in Japan one needs to hedge that Yen exposure or a declining Yen could wipe out most equity gains.

Aha! I see. So I can take advantage of the yen's problems because I am living in Japan!  I asked Mish to elaborate further and Mish was kind enough to add “Someone living in Japan with expenses in Yen and wages in Yen does not need to hedge Yen exposure as does someone outside Japan. A good currency hedge for someone in Japan, any country really, is gold.”

Mish mentioned that he is now in plays on Japanese equities, the Yen, and gold, adding “There are lots of opportunities in Japan and those opportunities should be easier to find and execute for someone living in Japan than someone living elsewhere.”

Now, do I ever feel better!

Thanks so very much to Mish Shedlock for the great insight. You can read much more at Mish's Global Economic Analysis Blog.

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