11/14 Kelly Letter Topics
Weekly market review
The bottom holds
Big bounce volume
Recession projections
The magic midpoint
LevMark Timer holds
Crocs is dying
Hope for Goldman
Importance of retest
I'm still watching Japan for a good entry point, and am interested in Mizuho Financial (MFG) and ProFunds UltraJapan (UJPIX).
Like the Federal Reserve and other central banks, the Bank of Japan injected liquidity into the financial system during the credit scare. That stayed its rate-raising hand for the time being, but it will probably begin raising interest rates again later this year. That will benefit Mizuho, which reported an earnings shortfall of 50% at the end of July. The stock's down to less than $13 with a forward P/E of 12, a price-to-sales of 0.01, and a 22% profit margin. That price-to-sales is suspect, probably due to missing data, but regardless of the specific measurement the stock is cheap.
The supposed unwinding of the yen carry trade was blown out of proportion again, in my view. For all the bluster about the yen strengthening in a shocking manner against the dollar, it got down to just 113.11 from -- what do you think? By the coverage and cries of meltdown, you'd think 150 or 180.
Wrong.
It dropped to 113 from 124, a 9% strengthening that's already working itself back to the 120 level. The yen last Friday was 115.77, only 7% stronger than 124 -- almost exactly where it was a year ago, and no catastrophe has come from the fluctuations.
You've most likely read somewhere that the strengthening yen will kill Japan's "export economy" by reducing earnings of Japan-made goods sold elsewhere, like the U.S. Based on that, what percentage of Japan's economy do you think comes from export profits? At least half, you'd think. Maybe more.
Nope. Only 15%.
Thus, a quick rundown of the facts shows us that the crashing yen has reduced 15% of Japan's economy by 7%. That's a 1% hit overall, not much of a disaster.
Aren't you glad you read this site instead of all the other junk out there? If the world ended as often as it was predicted to do so, I never would have made it to junior high school and neither would you.
The general environment in Japan is good for stocks. The economy has done well for the past five years, with earnings coming in consistently higher than forecasted. That momentum is slowing a bit, but the environment for well-managed companies is better than before because there's more money available for doing business with them.
Factors for putting money to work in Japan are lining up.
