Active Investing in Japan

December Nikkei 225 futures dropped 790 points in Chicago today to settle at 8,215. Minutes ago in Singapore, N225 futures gapped down 465 points to 8,200 and futures in Osaka fell 440 points to 8,220. Intra-day in Chicago, the low was 8,080. That leaves just 450 points, another sell-off, from hitting the once unthinkable low of 7,630 (set on 10/10 taking us back to the post-bubble trough days of spring-2003). Seems at least for today that the 8,000-level will be held. We haven’t seen very heavy volume in equities. That suggests it is mostly traders with a dearth of sellers and the rest on the sidelines or heads buried in hands. Pay attention to the bickering over a new/modified government stimulus. Interestingly, the government had been selling off equity positions it had acquired years back and had to recently put a halt to that activity. Now, it may be buying again. Don’t agree with that measure, but it may be a necessary evil.

Japanese stocks “rallied” a spectacular 14% last Tuesday, but in spite of that (and being surrounded by massive days of selling), I lacked the broader market’s bullish conviction and explained why in “Trying not to rain on the Tokyo stock parade.” Overnight, the Nikkei sold-off about 6.8% to fall back below 9,000 again to 8,674, erasing the gains from a three-day rally. During that period there was a spooky appearance of bullish stories on Japan, particularly advocating banks. In fact, it is a recurring theme: whenever there’s page space to be filled, a couple days of higher closes in Tokyo, or the desire to sound smart and talk about valuations. Unfortunately, it is easy to be misinformed and fooled. continue reading…