This week, as everyone talks about what went wrong at Lehman Brothers; think instead about what went wrong with Japan.
Photo: Bryan Jones
Japanese Flag
Twenty years ago today the Nikkei 225 Index was at 25,075 and consensus on Wall Street was Japan had bottomed.
The index had hit its all-time high on December 29, 1989 at 38,957, but many symptoms were already rearing its ugly head: faltering banks, a real estate swoon and government uncertainty over policy, which all contributed to the index lowering.
I was at JRO Associates in September 1990. I recall how picking the Japan bottom had become an obsession for many. There were no ETF's (exchange-traded funds) back then, so we positioned ourselves to short Japan by buying various synthetic contracts created by Solomon Brothers betting on the correction.
Others in the business will remember huge Japanese purchases made on American soil. It was in late October of 1989 that Mitsubishi bought New York's Rockefeller Center. And yes, twenty years ago this month, a Japanese business bought California's jewel, Pebble Beach, in its entirety.
Why does this all matter? Is it to point out that those who bet on a Nikkei bottom two decades ago were wrong? The Nikkei 225 index, after all, currently stands at 9,321.
The answer? Only partly.
Actually, for a very short period, the Nikkei rose to levels over 26,000 in 1992. While many thought they had called the bottom, those short had to show tremendous fortitude to remain against the grain. The latter eventually reaped the rewards. An important note: technical analysis that proclaims stocks can not go lower are often wrong.
Most importantly there is an eerie parallel between Japan in 1990 and America today. Bank troubles, real estate price drops and government discord over fiscal legislation are all problems shared between the two economic powers—two decades apart.
With tremendous amounts of money sitting on corporate balance sheets, I worry that the U.S. could see a proliferation of spending in the near-future and make the same mistakes that Japan made.
So while Wall Street's most fervent historians are marking this week with the two year anniversary of the Lehman Brothers collapse, instead look at the bigger picture. The lessons from Japan could help us here at home.
Programming note: "The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.
DISCLOSURE:
Gary Kaminsky does not hold any equity positions.
DISCLAIMER:
The content of this blog is published in the United States of America and persons who access it agree to do so in accordance with applicable U.S. law.
All opinions expressed in this blog are solely the opinions of Gary Kaminsky and do not reflect the opinions of CNBC, NBC UNIVERSAL or their parent company or affiliates, and may have been previously disseminated on television, radio, internet or another medium. You should not treat any opinion expressed by Mr. Kaminsky as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Mr. Kaminsky’s opinions are based upon information he considers reliable, but neither CNBC nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Kaminsky, CNBC, its affiliates and/or subsidiaries are not under any obligation to update or correct any information provided on this website. Mr. Kaminsky’s statements and opinions are subject to change without notice. No part of Mr. Kaminsky’s compensation from CNBC is related to the specific opinions he expresses.
Past performance is not indicative of future results. Neither Mr. Kaminsky nor CNBC guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed on this website or on the show. Strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested. Investments or strategies mentioned on this website or on the show may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned on this website or on the show. Before acting on information on this website or on the show, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.