Toshio Matsuda, Commentator & Intl Economist

Straight from the Shoulder No.479

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It appears that certain pains continue to linger in the struggle to realize a respectable summer market.
Not long ago I predicted that if the price of crude oil rose around $150/barrel, it would sharply decline thereafter. As projected, crude did move close in on that level, and then fell back to the $120/barrel range. At present, the stock, commodity and bond markets are all moving right along the paths that I envisioned. Last year, I advised investors to sell all their stocks and stash the cash as far from the market as possible. Early this year, I told everyone to stick to the general rule of buying issues that are down, and holding onto them even if they go up.
So, as the month of August rolls around, what should you be doing? Well, on my CDs and tapes (“Summer Strategies”) on sale right now, I list what stocks to buy and which ones to strictly avoid.
The leading group of stocks to steer clear of consists of the automobile-related issues. This naturally includes complete vehicle automakers, along with parts suppliers and affiliated firms. The reason, meanwhile, is not the soaring price of crude. Rather, it is the “misreading of demand trends” three years ago. Around that time, the U.S. Big Three automakers, along with Toyota and other Japanese motor vehicle manufacturers, all established production systems based on projected annual sales of over 20 million units from 2008.
But now the year 2008 is here, and it is already certain that total unit sales for this annum will finish at fewer than 15 million vehicles. From there on, therefore, dilemmas will emerge vis-a-vis efforts to maintain these production systems under the impact of the auto industry’s worsened financial footing. With the heavy influence wielded by automobiles on other industries in Japan and the U.S. alike, a slump in the auto sector will immediately slow economic activity.
With the U.S. exerting a major impact on the global economy, and also shouldering heavy responsibilities in this area, under the current conditions it is no longer feasible to continue to entrust the entire future of the U.S. economy to the market. Being promoted with that truth in mind, therefore, is the policy of converting the auto industry from a so-called “peacetime industry” to a military sector that will act as the locomotive of the economy.

I have explained, from the beginning of this year, how the economy from here on will not be driven by fundamentals but rather by politics. Behind this prediction is the principle that 2009 will witness “wartimes.”
Over the centuries, every war has had its own particular background and reasons. Whatever those outward factors, however, in reality these are the only occasions or motives for war, and not the genuine reasons. Wars, in essence, “occur because they are inevitable.” This leads to the question, then, of in what types of times wars actually tend to occur?
The answer, in a nutshell, is that wars break out during times in which economies will collapse if they simply continue to follow the market.
It is as plain as day, for example, that if the current U.S. economy is left to the mercy of market forces, it is bound for failure. This, then, is why wars occur. At times when there is no need for war, conflicts will not break out regardless of that potential triggers may surface. In times like these, however, in which there is a need for war, almost any plausible motivation will be sufficient to set off the fighting.

In retrospect, we can see that at times throughout the post World War II era that the Japanese economy has recorded rapid growth, there has always been a war underway. This nation’s economy, in other words, expanded hand in hand with the waging of the Korean War, the Vietnam War and the Cold War standoff led by the United States and the Soviet Union. From 1991, which marked the true end to the Cold War between the Eastern and Western blocs, the Japanese economy entered a tunnel of recession.
A decade later, the September 11, 2001 terrorist attacks in New York and Washington D.C. were quickly followed by the launching of the U.S.-led war on terrorism, with the Japanese economy suddenly taking a turn for the better. In fact, Japan entered a period of prosperity and economic expansion that ended up being longer than the famous “Izanagi boom” of the late 1960s.
Now, over five years from the launching of the U.S. offensive in Iraq, and with the Middle East military situation at a deadlock, stock prices have slipped and the winds of recession are beginning to gust through Japan.
At such a point in time, while genuine politicians in positions of responsibility would never state the facts in so many words, what they desire, deep in their hearts and minds, is a full-blown world war. Let me simply say, therefore, that all upcoming aspects of the fate of the world economy, and specially the economy of Japan, will be determined by war.
I am referring to the arrival of a war that is shaping up as being long awaited for Japan. This is a dynamic that is particularly ironic in view of the fact that Japan is a country renowned for its “peace constitution.”