Recovery In Japan: Can We Benefit From Their Struggling Economy?

by | Mar 23, 2011 | Asset Management, Stock Market Comments

This is a transcription of the Mullooly Asset Management podcast from March 21, 2011.

Lauren: Hello and welcome to the Mullooly Asset Management podcast for Monday, March 21st. I’m Lauren O’Grady and with me today is Tom Mullooly, President of Mullooly Asset Management.

Tom: Hi.

Lauren: So, Tom, another week, another article by John Dorfman. This week Dorfman writes how the coming recovery in Japan will reward some savvy investors. Do you agree?

Tom: I don’t necessarily know, because Dorfman comes out and says that you can make a profit if you’re willing to wait two to five years. And the problem is, you know, two to five years in the US market, you had really good and really bad. Five years ago was 2006. If you bought the market, the Dow, or the S&P 500 five years ago in 2006, you haven’t made any money. And you’ve, you know, had a very scary ride through 2008. So I don’t necessarily know that going out two to five years is really a good plan for investing.

I know that Dorfman takes a good look at some of the well known companies, like Sony, and Mitsubishi, and Toyota, and he talks about how they are priced cheap compared to their price-per-sale ratios. Hey, look, just because these stocks are cheap, doesn’t mean that they’re going to go up. They can get cheaper, and as I’ve told people before, simple math doesn’t indicate you’re going to make money on Wall Street. It doesn’t mean that you’re going to be making money with some of these bargains, because these bargains can become even cheaper as things go on.

So does it present a buying opportunity? Maybe, but that’s pretty risky. I can tell you from the charts that we use at Mullooly Asset Management, that a lot of our international markets are out of favor right now and the international markets are struggling compared to other places where you could put money to work.

And just taking a step back and looking at what Japan has done over the last 20 years, you know, in 1989, the Nikkei, the Japanese stock market, was at 40,000. It has come down so far from there. Yes, it’s moved 55% over the last year and a half, but people, we’re talking about a generation where people have just gotten their clocks cleaned. So I don’t necessarily know that this earthquake is going to present the buying opportunity.

Lauren: So really, Dorfman is predicting a recovery for these stocks in Japan, right? What if his prediction is wrong?

Tom: Yeah, that’s really, I think what we really need to focus on, like all of these other folks in Wall Street media, and Dorfman’s one of them, because he’s a syndicated columnist at Blumberg, he has really boxed himself into a corner in terms of making predictions. And when you see these guests show up on CNBC, or people get interviewed, what the media really wants is a prediction. And I just think that’s a fool’s game.

And so it’s hard to say that Honda and Toyota and Mitsubishi are cheap and they’re going to go up, I don’t really know if they will or not. I can’t tell if their economy is going to recover, there’ve been stories that this is going to be the event that spurs Japan back into production. No one really knows for sure. They’re a completely different financial situation than we’ve got here in the United States, they’ve got a surplus, where we run a deficit. They seem to be sitting through a 20-year stagnant economy.

So it’s really hard to predict what’s going to happen over there, but I can tell you what is needed more than anything else right now in Japan is food. They’re discovering, and the stories are coming out every day now, that more and more of their food is now radiated. They now have a real problem with radiation getting into their food chain. And so Japan needs basic, daily stuff. They need food. They’re going to need some form of energy because nuclear power has been knocked offline in Japan.

So that helps to explain why commodities are a favorite sector right now on the charts that I use to manage your money. I can’t predict if some of these big companies in Japan are going to come back over the next two, three, four, five years. But I can tell you that people over there are hungry, and they need food.

Lauren: And Warren Buffet came out today and said, “Japan’s earthquake presents a buying opportunity.”

Tom: Yeah, and let’s talk about that because what Buffet does is something that you and I can’t really do, Lauren. What Warren Buffet can do is if he finds a company that he likes, he can buy the entire company. We just can’t do that. And sometimes it’s better to own the stock of a company, sometimes it’s better to just buy the whole company outright. He has the ability to do that, we don’t.

And so what we try and tell everybody is, look, if you are thinking about making an investment decision, you should always be consulting with your advisor. If you don’t have an advisor, you can certainly call us at Mullooly Asset Management. You can find us on the web at, or you can pick up the phone and call us at 732.223.9000.

Now, if you’re making investment decisions based on something you heard on a podcast? You really need to get your head examined, that’s not a good plan of attack. Speak with an investment advisor, nothing in this podcast should really be considered investment advice, that’s why we want you to pick up the phone and call. Call us with your questions, we’ll be waiting to give you some answers.

Thanks for listening and we’ll talk to you again next week.

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