What Japan and gold could have in common

I know that there is a general consensus among MoneyWeek readers that I have an odd blind spot when it comes to Japan. And perhaps I do. But I remain convinced that, as one of the world’s only really cheap markets it will soon have its day again.

So I wanted to pass on the thoughts of Halkin Services’ Robert Brookes. Is it possible he asks, “that the 10 March 2009 low of 7,054.98 was the bottom of the great Japanese bear market?” The length of the country’s bear market and of its financial sector reconstruction have at this point been so very long that it has created a belief – a normalcy bias – that this is the “natural state of the Japanese economy.”

But it probably isn’t. It might have gone on for a while but it is still in the great scheme of things, unusual – a banking crisis that represents a once in a life time event in terms of duration and pain. If we look at it from another perspective we might say that Japan has been going through a cycle. And that right now it is “so low in the cycle that it is hard to classify the current stage as anything but the bottom.” Once it passes the bottom “we should expect the economy the banking system and the stock market to recover.”

Those who aren’t sure on this (and I understand this is almost everyone) might think about gold. The price peaked last time round in 1980 and then bottomed 21 years later in April 2001. But the moment of its low passed utterly unnoticed: “the world at large was no longer paying attention, assuming that there was no future for precious metals.”

The world has similarly stopped paying attention to Japan, “assuming that there is no future for the share prices of Japanese companies.” What if they are wrong? Not many bear markets last 20 years but gold does provide some proof that it is possible for them to do so and to then stage pretty impressive recoveries. It is, at least, something for those of us with our pensions heavily invested in Japan to hang on to.