The Nikkei Commits Seppuku

The situation here in Japan has finally become so bad that non-financial people are chattering about it. That’s a bigger moment than it is in America, because a much smaller percentage of Japanese than Americans follows markets and the economy.

Almost every Japanese person’s assets are in (1) a depreciating house, (2) a depreciating car, and (3) non-appreciating cash. Mention stocks to them and they barely know what you mean.

They do now.

Today, the Nikkei collapsed almost 10% to 7649, a level even lower than its dot com bust bottom at 7700 in April 2003. To see today’s level on the historical chart, we have to go all the way back to the early 1980s when the index was on its ascent to the bubble top of 39,000 in 1989. It looks like Sony’s bad earnings report shamed the Nikkei into committing seppuku.

The news here has been overwhelmingly bleak:

  • Japan’s trade surplus fell 94% last month.

  • For the second quarter in a row, Sony (SNE) cut its profit forecast and the stock dropped 14% today to a 13-year low.

  • The yen hit 95 per dollar, the strongest it’s been in 13 years.

What to do?

One thing I did when the exchange rate hit 95 was rush to my favorite financial clerk and file the transfer form I had pre-filled for the once unthinkable opportunity. I moved one quarter of my target cash transfer amount to my bank in California. I remember people saying 100 was out of the question, and here we are at 95!

But if this year has taught us anything, it’s that crazy can get crazier, and I want to feel good no matter what happens. If 95 is the low, I can say I pounced on it. If we get down to 90, then 85, then 80, I can be happy to have kept some cash for the better bargains on greenbacks. If we get to 80, by the way, ritual disembowelment swords will sell by the 10-pack.

There’s always an opportunity.

What this means for U.S. stocks is that bad news is making progress. The flaying of confidence worldwide is well underway. When even Japanese housewives know the Nikkei’s closing level, the name of the U.S. Federal Reserve chairman, and that the yen better stop strengthening if their export economy is to have a prayer, you can be sure that better informed Americans are close to maximum pessimism.

And you know what they say about that moment.

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