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June 16, 2006
Japan's GDP Report Supports Bull Case
Earlier this week, the 1Q06 GDP report in Japan was revised. Several statistics noted in this Bloomberg article article discussing the report support my bull case on Japan.
GDP grew by a healthy 3.1% in 1Q06, revised upward from 1.9%. Corporate spending rose at its second fastest rate since 1990. Machinery orders were up almost 11%. Inventory investment rose sharply. Bank lending has risen for four straight months. These datapoints all indicate that corporate confidence in continuing GDP growth is high. Modestly improving consumer spending shows that consumer confidence also supports future growth.
As is the rest of the world, inflation is up in Japan....
The GDP report showed prices rising 3.3%. In the US and Europe, inflation is big worry for investors. Japan is not immune to inflation risks but given that the country experienced deflation for the most of the last 15 years, the pickup in consumer prices is less of a problem.
Lastly, I have to say I found the fact that the current economic expansion in Japan is the second longest in the country's post-World War II history to be surprising. In fact, with GDP growth picking up to 3%, it has now reached its highest level in about nine years.
The bull case for Japanese stocks is if economic growth can hold at this new and higher level, operating leverage will kick in and drive corporate profit growth. Additionally, moving from deflation to inflation can help the Japanese economy as long as inflation does not accelerate too far. Put these two ideas together and the pickup in GDP growth can be self-fulfilling, extending the current recovery in GDP and putting it on plane that supports higher stock prices.
Posted by Steve Birenberg at June 16, 2006 09:28 AM in Japan
1.DO YOU FEEL THAT THE EMERGING MARKETS AND JAPAN WILL REBOUND AT THIS TIME?
2.HAVE YOU RECEIVED ANY RECENT UPDATES ABOUT CETV AND/OT NTLI?
I think it will be a tough summer and I wouldn't expect a huge rebound in the emerging markets and Japan to start soon. This is consistent with my long held view that we would make a high in late spring and then pullback inthe summer and fall before making an important low in late fall leading to good gains in 2007 and 2008.
I think this declien cuaght a lot of people by surprise and thus there are lots of folks who want to sell any strength. This is why rallies have been so poor in the past month. I think that will limit rallies over the next few months as well. I do think that sentiment is starting to stabilize and that we won't get another period of sustained and steep downward momentum in the near term.
On CETV, the stock has rebounded nicely as the Czech market has rallied. I heard indirectly that the company has said that nothing has changed intheir business and that they see the stock as influenced by the emerging markets meltdown. If CETV hits their guidance, all will be fine and the stock can separate form emerging markets. Not completely but to a good extent. $60-61 has been the recent high end of the trading range so we mgiht expect the recnt advance to slow.
On NTLI, I listned to a conference call with the CEO yesterday. He seems very confident they will hit the numbers. Lots of questions were skeptical, fearing the competition woul eorde susbscribers and reduce pricing. He also indicated that he is indifferent to a private equity bid and that it is not his area of resposnibility. I think some my people may have taken that as indicating that bid is less likely. I'm not really sure and have no insights beyond the fact that NTLI fits the private equity profile perfectly. I think the shares are really cheap and will find support in here.
Posted by: Steve at June 20, 2006 09:42 AM