HOW IS THE JAPAN NIKKEI DOING?

How is the Japan Nikkei doing?  Amazing well.  Since Shinzo Abe became Prime Minister six months ago, the Nikkei has jumped 80%.  While you got to give him a lot credit, I've continued to be mystified as to why.  Surely enough, recent freefalls (dropped 6.4%, or 844 points yesterday) and the general volatility certainly are worrisome.  Reassuringly, there was a 2% recovery today to 12,687.

Yet, you need to gaze from a grand perspective, and to do this, let us return a few decades back:

At the end of 1989, the Nikkei just about reached 39,000, so using the real value of money, the 12,687 today only has a relative value of 6858 (the divisor for this period is 1.85).  In other words, the current Nikkei is worth around 17% of the all-time high.

The recent record-breaking high (15,409) of the Dow Jones Industrial Average is in the range of truly being all-time.  The following charts are inflation adjusted, but only miss the past few weeks:

The Dow would need to break past 16,000 to beat the end of 1999 high.  The Dow slipped 106 to 15070 today.

Worse for Japan, the Nikkei price these days is in the region of what it was forty years ago.  Using the Consumer Price Index (you would need to divide by 7.5) as the gauge, 12,687 today would only be worth 1691 in real Yen.  In other words, if you had invested 1691 Yen forty years ago, this stock would be worth 12,687 today, but you would have only broken even.

A good part of the trials facing the country is the cataclysmic Great Tohoku calamity ($150 billion estimated damages and economic loss as much as $300 billion), with the Fukushima nuclear catastrophe the vexing long-term problem. From all indications, it will take 40 years to clean up the area.  Earlier estimates feared a cost of a trillion yen ($10 billion).  But recent analysis indicates that the contamination was not as bad as thought.  On the other hand, this reference felt the job could be accomplished, at the low end, in a decade.

I particularly worry that the current leadership is not ideal.  Prime Minister Shinzo Abe is pro-nuclear (although his wife, Akie, is not), continually pissing off China and South Korea, and will expand their defense budget, the first time in eleven years.  This mostly has to do with being better able to defend Senkaku (or Diaoyu) Islands.  It would be cheaper to just return those islands to Taiwan and China for some concessions, like retaining or sharing any potential oil and manganese nodule rights.

Shifting into energy, I'm a solar guy, but I wonder how wise it is for Japan to plunge too quickly into solar energy.  Yes, the situation is desperate, but to provide 53 cents a kilowatt-hour feed-in tariff, will raise the cost of selling Japanese products abroad at a time of rising yen, while expanding the tax burden of citizens.  Remember, the money got to come from somewhere.  Germany (beginning in 1990, but amended in 2000) did exactly this, became the #1 solar photovoltaics nation and remains economically viable.  Japan might actually have more sun and winds than Germany, but might not have the solid fundamentals to repeat this trick.  Germany, incidentally, significantly lowered this benefit and there continue to be annual declines.  In any case, you would think Spain, with all that sun, would do fantastically.  Not so, and Japan should carefully observe what went wrong there.

What is the long-term solution for Japan?  It has to be the ocean around them, as I reported two years ago in the Huffington Post:

     The Blue Revolution is the Optimal Solution for Japan

Blue Revolution Hawaii offers to help.

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