You know serious drama is going down when stock jocks around the world nervously watch and wonder about the first 15 minutes of trading in a stock market. The headlines rang across the world that the Nikkei opened up and did not sell off, much less crash. The extrapolation from the massive selling of the previous two days is a natural one - it is part of the psychology of despair. I do not mean to speak with hubris or be glib, but in all the frightful news and scenarios, I have yet to read or hear any suggestion that the very economy of Japan is in trouble. I have not even seen anyone lay out a case for danger signs for the Japanese economy. So, until then, I remain a buyer of the dips in Japan. Let the hot money be-gone, and let's get back to business!
Just for review, here are the array of reasons I have uncovered explaining why we should fear the Japanese stock market:
Japanese Internet portal Livedoor may have misstated earnings. The company is being investigated. My take is that the hot money immediately conjured up flashbacks of Enron and the like, corporate disasters that marked a steep (but short) bear market in the U.S.
A swarm of sell orders toward the close of the market Wednesday shut down Japan's ancient computer system that runs the stock exchange. I can understand the resulting panic and lack of confidence in the market. However, if you have been doing more than chasing letters in the alphabet, you know that Japan is not some backwater country. Sure it is unsettling to see how far behind their financial systems are from modern standards, but do you think that the Japanese cannot solve the problem? I will vote with the Japanese on this one.
After seeing #1 and #2, hot money hedge funds are hitting the exits before asking questions. These institutions have been the primary drivers of the sharp run in Japanese stocks. Japan became the hot market to ride given the languishing equities in the U.S. My take is that this may very well be true, but it would be all the more reason to summon the Yen to buy while others are selling. Panic is never a justification for devaluation of a financial instrument. I sure cannot tell you when the madness will end, but I can tell you not to join in on the madness! (Also see my disclaimer here about investment advice).