As Treasury bond yields tumble to record lows we’re hearing lots of talk the U.S. is following the economic trajectory of Japan. Not so fast! Take a look at the following chart.
After 990 days trading days from peaking, the S&P5oo closed today at 74.26 percent of its October 2007 closing high of 1565.15. On the 990th day from its peak, the NIKKEI was only 46.57 percent of its closing high made on December 29, 1989. The chart shows the S&P initially fell and rallied harder than the NIKKEI and how important it is the July 2010 closing low of 1022.58 holds.
It is also stunning to see that after 5,337 trading days from its peak, the NIKKEI currently sits at just 21.94% of the 38,916 closing high. We can’t fathom an America and its resultant social mood and political angst, not to mention our own capital, if the S&P500 is only 21.93 percent of its closing high twenty-two years after peaking. That, by the way, would put the index at 343.29 in the year 2029. No, that’s not a typo.
The Japanese are one resilient people and no wonder they have the world’s largest net international investment position, which is also one of the main drivers of the strong yen.
We remember the days of “peak Japan.” Many cash strapped sovereigns, such as Mexico, Brazil and Venezuela, hitting up the country that was going to dominate the next century for funds to finance their Brady Plan restructurings and to help restore confidence to their debt-ridden economies. Sound familiar?