The Dow has about quadrupled in the last eight or nine years. The Nikkei Dow has been cut by almost two-thirds. A dollar in the Dow is now $4. A dollar in the Nikkei is now about 40 cents. There’s been, therefore, about a tenfold shift U.S. stocks are now about ten times as expensive relative to Japanese stocks as they once were.
Of course, Japanese stocks were wildly and I mean wildly overpriced back then, when the Nikkei peaked at 40,000. A lot of the decline was warranted. Indeed, maybe it is still overvalued. But a tenfold relative shift is pretty big. Maybe Japan, which a decade ago appeared poised to rule the global economy, is not entirely done for. (Have you seen that amazing new handheld Sony video camera? The new 1.2-mile suspension bridge they just built that dwarfs by a factor of four our own Brooklyn Bridge?) And maybe the U.S. which now appears to own the next millennium lock, stock, and barrel could face competition. (Did you see the report recently on CBS that 80% of our high school kids now readily admit to cheating? Something like that. It was probably overblown, but awfully depressing.)
I had to laugh when, at the height of the Japanese insanity, they began making 100-year mortgage loans. (Truly they did!) Today I see that here in the U.S., mortgage loans remain limited, so far as I know, to 30 years but some lenders are advertising loans on up to 150% of the value of your home.
I’m not saying the U.S. stock market, though it sure seems overvalued, is remotely as overvalued as Japan was. (And for all I know, those 150% mortgages are only granted to people with trust funds. I haven’t researched the offers yet.)
Still, a tenfold shift in relative values is enough to get my attention. If 100% of your stock-market money is in U.S. stocks and none in Asia … or if you’re in the stock market on margin (or in the stock market but still have a car loan, say, which amounts to much the same thing) … maybe it’s a good time to reconsider your strategy.