Tuesday, July 31, 2012

A bull market for Tokyo?

On my last night in Tokyo, I was invited by old friends to dinner at their home, right in central Tokyo, in a lovely apartment near the Hotel Okura. Their apartment is full of antiques and it's very nicely decorated, but the main selling point is probably its large terrace that's just lovely to use in the summer. In the middle of the living room is a small Persian carpet which I though all along was some kind of decorative accent.

But the husband said: "Nope. That's where my wife practices her putting." Yes, the wife is golf mad and tennis mad, while the husband is in finance.


When we walked in, George Michael was playing on the stereo, and it was all the mellow songs I liked rather than the Wham kind of songs he became famous for. Actually, "FastLove" was playing and I really like this song. This probably set the stage for us to think about the late 1980s and early 1990s.

That night we were a group of people who were all somehow related to Tokyo's financial industry, and all of us had been around Japan long enough to fondly reminisce about the bubble era, to talk about a couple of short-lived bull markets after that, and to think about the future of Japan from hereon, having seen its Golden Age and what happened to it afterwards.

Over champagne, we joked to ourselves: "Yes, there was actually a time when Japanese stocks went up. It's not a myth, although some people find it hard to believe it ever happened."

We'd all seen the best and worst of times of Japan and so we had the luxury of laughing about its currently never-ending recession. Yes, this isn't a never-ending Travelife unfortunately, but a never-ending recession.


Over the last 20 or 25 years, lots of people have fallen on the wayside because of this most unexpectedly long recession and bear market. When the markets started falling in Japan, no one imagined that the drop would last this long. I think I can say that we were all unanimously unprepared for the severity and length of this bear market.

Many people have had a rough ride although a couple have been spectacularly successful; while still some have survived comfortably enough to live well and carefree. But I think we all long for those days when we used to sprinkle gold flakes in our miso soup and not even glance at restaurant bills in fancy restaurants; but we're also sensible enough to know that times have sure changed since then, and those carefree days will probably never come again in Japan.


Everything is very different then and now. Foremost are the compensation packages for finance industry professionals in general, save for a few lucky ones. These days, the compensation for most people in Tokyo's finance industry is much lower, and it's a mixture of cash and shares in the company they work for, with the shares taking three to five years to vest -- meaning you can't actually access these shares during this period.

One of our friends was still sober and comfortable enough to laugh at himself, in spite of the champagne and wine. He's done okay and he heads a very well known firm, and he was talking about his own pay in company shares, which is not bad, I'm sure.


He said: "The trouble with getting paid in company shares is that this only works if you actually know your company has a competitive edge against the rest and so it's worth owning the shares or holding these for the long term. In my case, I actually know that my company has absolutely zero competitive edge against the rest. But I'm stuck with my shares. That's really sad."

We all laughed when he said this, and I think I laughed the hardest. I can't tell you which company he works for, unfortunately.


In spite of it all, some people we know have managed to reinvent themselves with great panache in spite of having little talent.

One guy in particular made a spectacular mess of heading several major companies, so we all couldn't believe that he was back in Tokyo with another game plan.

Tokyo in the late 1980s and early 1990s was a magnet for geniuses, gamblers, bounty hunters, the reckless, the mad, the hungry and ambitious -- just about everyone who wanted to conquer the world or who thought they could conquer the world was here.

Anyway, this guy who had made a mess of several big firms and who was now back in Tokyo with a different strategy was one of them. One of the guys at the table was his classmate at Harvard Business School, so we all asked him about this guy: "Is he really smart or is he smart because he went to B School?"

We all knew what he meant with this question. The guy at the table replied: "I have to think about this carefully, just in case it applies to me as well."

We all laughed.


Then we took turns giving our opinions about the future of Japan, as three of the guys are or were fund managers and the others were CEOs. Two of us -- I was one of the two -- were bearish on Japan but two guys had very strong feelings for a bull market in the making. This really interested me as I'll be happy to be wrong if it means another bull market for Japan.

"Why bull?" I asked. He replied: "Think of it purely in aggregate terms. There was a baby boom in the 1970s and the products of this are soon going to be the income-producing segment of society. This means that until around 2018, the working and tax-paying population of Japan will continue to increase. If you look solely at numbers, this has always meant a rise in the stock market."

But I was unconvinced. I'd seen so many people lose their jobs or have to downgrade to lesser-paying jobs if they were lucky enough to still be employed; and few people in Japan these days are being insensible enough to loosen their purses and spend.


But then we started to think about cyclicals. Someone said: "Well, the last bull market in Japan was about 2006-2007."

We all knew what he meant by this. If you think about the cyclicals, Tokyo is due for another bull market sometime sooner rather than later, even if it's a short-lived one.

We all became lost in thought. Finally someone said: "It sure would be nice to have one last nice run."

Yes, it certainly would. One for the road, as they say. And just another evening in our never-ending, and never-endingly eventful Travelife.


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