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A Limited-Time Opportunity to Make Money in Japan
By Jeff D. Opdyke, Editor of The Sovereign Individual
Dear Sovereign Investor Subscriber,
"I must apologize. I was in a road accident. I drive a motorcycle and a car hit me."
Thus began my meeting with one of Japan's few economists writing about the local economy for an English audience. We'd arrange to meet for a 7 a.m. breakfast at Girondole, a wood and glass restaurant on the 41st floor of the Park Hyatt, the über-chic Tokyo landmark hotel made famous in the film, Lost in Translation.
He'd texted me early Thursday morning to say he was on his way. By 7:45 he still hadn't arrived. When he showed up, he noted that the accident ultimately was minor, but that "unlike in the U.S. where you just part ways when there's no damage, in Japan the police want to know everything about every road accident, so you have to stick around until they arrive."
Japan is a very apologetic nation. It's a country where manners and decorum rule society.
But it's also a country on the cusp of a radical change. And that change will usher in a unique, limited investment opportunity.
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Japan has spent so many years – more than two decades now – disappointing investors that just about everyone writes off any story that exclaims, "It's different this time." Because, ultimately, Japan has proven it's the same story, different day.
But more so than with investors, Japan has spent more than 20 years disappointing itself … and that's an entirely different level of disappointment.
A Psychological Sea-Change Japan is in the throes of a psychological sea-change. During my time in Tokyo, I met with a friend and former colleague from my days at The Wall Street Journal. He was born in Japan, educated in the U.S., and returned to Tokyo where he's now an executive at a major financial-services firm.
He told me something that, I am confident, most Western investors and analysts looking at Japan don't yet realize: "For the first time in 20 years or so, I can really say that the animal spirits have returned." Wherever he travels in the country, in private conversations and in the various meetings he attends, "there is a real sense that something is different this time."
That explains the Mt. Fuji-sized victory that in December lifted Shinzo Abe into the Prime Minister's post. Though many Japanese disagree with Mr. Abe's ultra-nationalist politics, "the Japanese have reached the point where they're saying, 'What do we have to lose? We have to try something different now.'"
For that reason, I think Western commentators and currency traders made a mistake last week when they reacted to news that the Bank of Japan, the country's central bank, said it would not begin to flood Japan with yen anytime soon. That was one of Mr. Abe's key election platforms – he is taking a page from the Bernanke playbook and wants to dump as many trillions of yen as it takes to generate inflation of 2%.
The BoJ agreed in principal to the 2% target – a major change in policy in and of itself – but said money printing, if it happens, would not occur until 2014. The markets freaked out, the yen rallied and Japanese stocks sank.
But that's a reaction with zero foresight.
In three months, Mr. Abe gets to replace the head of the BoJ as well as a couple of underlings. What do you think the chances are that he finds central bank officials that share his view on printing unlimited amounts of yen?
I'm going to say the odds are quite high.
Couple that with the mandate victory Mr. Abe was handed and it's clear, beyond a doubt, that the Japanese government will absolutely succeed in papering the country with currency … that it will weaken the yen substantially by the end of the year … and that it will revive the export sector, which, in turn, will boost consumer sentiment.
But – and this is key – the opportunity in Japan is entirely in the short-term. Up 85% Already … and More to Come Two years ago this month, I told subscribers to my monthly newsletter, The Sovereign Individual, that the time had come for the yen to finally weaken after a multi-year-long, extended period of strength. In some ways, that strength was unnatural – the byproduct of falling interest rates in the U.S. and Europe, and the earthquake/tsunami/nuclear disaster that temporarily altered currency trends.
I was early in calling for the Year of the Yen in 2011, largely because of the unforeseeable impacts of the earthquake that occurred just a few months after my prediction. But it's all coming together now …
At the time, I told subscribers that the stock to own for a weak-yen trend was Fuji Heavy Industries (Japan: 7270), the parent company behind the Subaru car brand. As an export-dependent company with a great deal of its production inside Japan, Fuji is well-positioned to benefit from a weaker yen – which turns sales in foreign currencies into larger and larger sums of yen that drop to the bottom line.
Fuji shares today are up more than 85% since my original recommendation, and they're going higher.
Over breakfast at the Park Hyatt, my economist friend and I talked about the direction of companies like Fuji Heavy. He agrees that a particular subset of exporters is primed to move strongly in the Japanese stock market. The move, however, will occur over a limited period of time – after which Japan could face a crisis as serious as the one that rocked Europe.
But that possibility is still a couple years away. In the meantime, a unique opportunity is shaping up to profit in Japan. I've begun researching the companies that will be the next Fuji Heavy and will share them soon with my Sovereign Individual readers.
It very well may be the last great opportunity to make money in Japan before the rising sun sets.
Until next time, stay Sovereign …
Jeff D. Opdyke P.S. There's a landmark event set to soon rock the economy… and it's not the "debt ceiling" Washington is distracting us with. Consequences of this event will be so dramatic – most middle-class Americans will not even be able to imagine them – let alone believe them. If you haven't seen it yet, I urge you to click here now.
Chart of the Day
Why Apple Could Go to $375 59.63 billion!
That's the market cap value that evaporated when Apple plunged 13% yesterday.
I wrote about Apple twice before.
In an October article, I wrote a violent drop in Apple's stock would be bad for the whole market. It turns out the market doesn't give a damn about the stock. And that's actually a good sign for the overall stock market.
Apple had led the stock market higher for the past few years. So I thought the market would struggle to move higher without Apple. But the market keeps moving higher, even without it. The money has simply rotated out of the stock into other sectors, such as energy, materials and industrials.
Last week I wrote another articlein which I talked about the head and shoulders pattern, a bearish pattern that indicates the end of an uptrend. I mentioned there was a possibility of a "bear trap" because Apple completed this bearish pattern, but failed to follow through.
Well, the stock did follow through yesterday after the company announced earnings.
I mentioned in that article that Apple would need to close above $520 to confirm the bear trap. But that never happened. There was no bear trap.
Instead, the head and shoulder pattern is now very clear… and it's very bearish for Apple.
See larger image In head and shoulders, the stock tends to drop by the same distance between the top of the head and the neckline. In this case, that distance is 150 points (675-525). If we project that distance from the breakout point (525), we get a target of $375 for Apple.
I wouldn't touch the stock until it reaches that target, or until it moves above $520. Investors who're buying Apple now are facing a big risk of catching a falling knife.
The good news is the drop in Apple isn't really impacting the market like I expected. And this is bullish for the stock market.
Regards,
Evaldo Albuquerque
Editor, Pure Income
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For his Emerging Market Strategist subscribers, Jeff is always looking for companies in position to benefit from the rise of a growing global middle class.
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