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Another Lost Decade?

Is the US facing circumstances that are eerily similar to those of Japan’s Lost Decade? And if so, how should you position.

The Lost Decade refers to the period from 1991 – 2001 when Japan experienced a disastrous ten years of economic stagnation and deflation.

And Wall Street is starting to worry that the same series of events that triggered Japan’s woes are falling into place again – this time here in the US.

For example, the Lost Decade followed a sharp run higher and then subsequent collapse in both Japan’s stock market and its its real estate market. Then, in the wake of the collapse, Japan reduced interest rates sharply, initiated large stimulus packages and faced a blossoming debt.

Sound familiar?

Of course we realize that events of today are not identical to those of Japan in the 1990’s but they’re similar enough that they could provide some clues to trading in a 'deflation nation.'

From the Tokyo market we learned companies that performed better had a few shared characteristics, explains David Rieldel of Riedel Research.

They include:

- they all had a lot of cash on the balance sheet,
- they generated revenue from a product that people bought even when cash was tight
- they provided basics

"Looking back historically, brewery Kirin and Tokyo Electric outperformed during the Lost Decade. Both stocks were down but they outperformed by 10-20% over the period,” says Riedel.

Of course, we'd be remiss not to note that the price of wheat has surged lately. That suggests inflation not deflation and presents a big difference between the US in 2010 and Japan in the 1990's.

It's a difference Riedel is watching closely.

"In the commodities we could still see inflation," he explains. "However, in services and high end products and discretionary we'll probably see deflation. Investors will have to position their portfolios accordingly."

*Hear more from David Riedel. Watch the video now.



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Trader disclosure: On Aug 12, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova owns (AKAM), (BAX), (FCX), (MOS), (OXY), (PFE), (POT), (SU), (XBI), (GLD); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Finerman owns (AAPL); Finerman owns (GOOG); Finerman’s firm owns (HPQ); Finerman and Finerman’s Firm owns (BAC); Finerman and Finerman’s Firm owns (JPM); Finerman's firm is short (IJR); Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Finerman’s firm owns S&P 500 puts; Finerman’s firm owns Russsel 2000 puts; Jon Najarian owns (CSCO) short calls; Jon Najarian owns (VIX) Call spread; Jon Najarian is short (SQQQ)

For Patty Edwards
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Anthony Scaramucci
SkyBridge Capital owns (LO)

Stephen Weiss
Weiss owns (MRK)
Weiss owns (VZ)

David Riedel
***No Disclosures***

Colin Gillis
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Brian Stutland
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CNBC.com with wires.