Curiosity@Intelsense
I have always been fascinated by Japan. Maybe it has something to do with the fact that my first foreign trip happened to be to Tokyo. Having seen the country firsthand, I have always been intrigued by the collapse of the Japanese markets in the early 90s. I still recollect the dominance of brands from Japan - Sony, Panasonic, Sharp, Toyota, Honda, Suzuki and many others. How can I forget the TDK blank cassettes which I used to record my favourite Kishore Kumar songs!!
The story of the rise and fall of Japanese economic dominance and the Nikkei is worth studying and learning from.
I had written a summary of Richard Koo’s fantastic book on this topic, The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession.
Richard Koo’s main premise is as follows. Asset prices got inflated during the bubble years and corporates took on large debts to either acquire assets or fuel growth. Once the bubble burst, corporates were straddled with the debt and much less valued corresponding asset value as the market prices of the assets they owned had crashed. The initial tendency of the corporates was to save from their cashflow to repair their balance sheet. Central bank step in to bolster growth and starts by reducing rates. But there is no demand for debt as the corporates (and households) are trying to reduce their existing debt burden and are in no mood to add on to debt even at ridiculously low rates. This results in economic growth to falter and slacken and it continues in this manner till the corporate balance sheets are repaired. Richard Koo termed this as a “balance sheet recession”.
This week I read another very interesting long-form article on this topic. This is a long article going into how things panned out during and after the crash.
As Japan's economic bubble burst, one of the biggest roadblocks to recovery was the staggering amount of non-performing loans held by Japanese banks.
These loans had become uncollectible, with the lenders essentially bankrupt and in the process of legally liquidating their assets.
But here's the twist: when the banks went to collect, they found that many of the insolvent companies had few assets left to seize.
Thought of the Week
Seth Klarman on "How much research and analysis is sufficient?"
First, no matter how much research is performed, some information always remains elusive; investors have to learn to live with less than complete information. Second, even if an investor could know all the facts about an investment, he or she would not necessarily profit…
Information generally follows the well-known 80/20 rule: the first 80% of available information is gathered in 20% of the time spent. The value of in-depth fundamental analysis is subject to diminishing marginal returns.