Turning Japanese...

...I think I'm turning Japanese, I really think so.

Below is a chart of the MSCI Japan and the MSCI US Indices except for lagging the US by 11 years.

It's striking of well the general shape of these two indices matches up. Could it be that the US is about to repeat the history of Japan? The chart gives a bit of a roadmap where the US equity market might head. In 1993 Japan found itself with a stagnating economy that forced it to cut interest rates eventually close to zero and keep them there for the next two decades (unless something changes drastically in the next two years.) Zombie banks were stalking the land and debt reached new highs.



Of course that's kinda where the similarities stop. The Japanese banking system was even more closely intertwined with the government than the US banking sector. The Bank of Japan shied away from drastic policy action that the Fed has not shied away from (for better or worse), and the US debt burden is less than half of that of Japan in multiples of GDP.

And when we substitute the Nikkei for the MSCI Japan and the S&P500 for the US the chart, while still retaining similarities, doesn't look quite as strikingly the same.

Nevertheless, the fact remains: As David Rosenberg of Gluskin Sheff has pointed out many times, the Nikkei has experienced four rallies of 50% or more since its peak in 1989 (one of them over 136%) and yet it is about 78% off since its high.

Bob Farrel's 8th of his 10 Rules for Investing is "Bear markets have three stages – sharp down, reflexive rebound and a drawn-out fundamental downtrend." The verdict is still out whether the US is in a secular bear market or whether we are facing headwinds that we will overcome and finally put an end to the zip-zag that has left the US allocation in my 401-K essentially unchanged over the past 10 years.