Toshio Masuda

Toshio Matsuda, Commentator & Intl Economist

Straight from the Shoulder No.477

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"Straight from the shoulder " by Toshio Masuda July 17 , 2008
( Free of charge to the people I met)

The Finale of this U.S. Bear Market

The current U.S.-based financial crisis, which grew prominent from the summer of last year, has turned the corner. Big name investment banks have evaded failure, while falling housing prices are showing signs of bottoming out. Home sales, which had continued to languish for some time, are beginning to pick up. The U.S. auto industry, which had issued excessive predictions of 20 million unit sales from 2008, has dodged what was once feared to be a crisis by downsizing and unloading their assets. Although ballistic missile tests by Iran, political instability in oil-producing countries and other factors continue to keep the price of crude oil high, as I predicted, crude recoiled into a lower range as soon as it edged close to $150. I believe it is safe to say that the rise in the price of crude has played out for the time being. All markets have their limits. This holds true for the New York Stock Exchange as well, where bear markets never drag on forever. The bulls, in other words, are poised on the sidelines and building up their strength. The longer and darker the tunnel, the more dazzling the sunlight will be upon emerging from the other end.

Political and Economic Scenes in Lockstep

The ties between politics and economic affairs are akin to the proverbial gchicken and eggh relationship. When it comes to which came first, that is, you can have it both ways ? the chicken having hatched from the egg, or the egg being laid by the chicken. Todayfs U.S. economy has descended into a state of gstagflationh ? a mix of stagnancy (recession) and inflation. Turning to politics, U.S. troops continue to be bogged down in Iraq, sapping the ability to stand up to Iranfs mounting military challenge. Washington has also failed to display leadership in dealing with global environmental problems, with the approval rating of President George W. Bush at an all-time nadir. The economy is in the doldrums, with U.S. politics also at rock bottom. Like the market, however, we must never forget that once hitting the floor, the political scene will also stage a comeback.
The key turning point for U.S. politics and economics will come in the wake of the presidential election this November. Presumptive Democratic Party nominee Barack Obama has been quite smart in professing a commitment to gchange.h Though he may be riding high in the popularity ratings, however, Obamafs lack of intent to change the U.S. with war makes him unfit to serve as the next President. In much the same way that the Bush administration altered the direction of U.S. political and economic endeavor following the 9/11 terrorist strikes, I see no real opportunity for change in America other than a Middle East war. With tensions between Iran and Israel already heating up, the political current is moving toward a conflict in that part of the world. The odds are high that the signs of Middle East hostilities will appear before the November ballot, a development that would dash Obamafs White House hopes.
The market, meanwhile, thinks ahead. The expected prolonged Middle East war will escalate after the presidential election and from 2009 on. From last year I have been saying that such predictions would begin from this August, with the situation in the U.S. proceeding right on course at present. Despite the previously mentioned descent of politics and the economy into dire straits, the reason that both the Federal Reserve Board and the Treasury Department are doing little more than mount lukewarm, makeshift measures to deal with the crisis is that they have their eyes set on November. News in bits and pieces, whether being good or bad, will exert little lasting impact. In his attempt to pass the baton of power to Republican Party presumptive nominee John McCain, Bush is eyeing the slot just prior to the election to wrap up preparations for war, in the name of a Middle East peace treaty. Then once again, as was the case with the 9/11 attacks, the flow of global money will turn back to U.S. shores. The current declines in financial and real estate assets can be considered the preparatory stage for smoothing the path for global money to buy America.

The Japanese Economy as a Refuge

As the U.S. carries on preparations for war and a war economy in the name of stagflation, what is the state of affairs in Japan? Well, Japan is literally awash with companies with solid fiscal conditions that make it no exaggeration to label the country a debt-free paradise. Japanese banks, meanwhile, have been largely untouched by the subprime loan debacle, with the countryfs inflation rate the lowest among the developed countries. The financial assets of the Japanese people are sufficient to buy up the U.S. GDP for a year and a half. Japan is No. 1 in the world in manufacturing technology and has forged a solid growth base. Government fiscal and monetary policy is for all practical purposes nil, with corporate autonomy unshackled by regulation and business able to do pretty much as they please on the global scene. Within the chaotic conditions that continue to plague the global economy, only Japan stands out with few conspicuous problems. Today, the Japanese economy itself is moving in the direction of becoming the gbond holdingsh of the world. Until 2009, when the United States can be expected to once again become the locomotive of the global economy and political scenes, Japan will flourish as a risk hedge refuge for the world.

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