Japanese Numbers

Having recently tried to apply the long view of history to the "somber mood" on Wall Street, it seems appropriate to respond to today's news from Japan the same way. Here is the way the BBC introduced their report:

Japan's main stock index has fallen to its lowest close in 17 months after the strong yen and record-high oil prices worried investors.

For me this was an opportunity to continue my investigations with Yahoo! Finance Charts until I discovered that the new Yahoo! chart tool did not appear to provide a five-year window display of the Nikkei Dow index :-( ! Fortunately, I was able to construct the account through my Wachovia account, which made it relatively easy for me to find that point seventeen months ago below which the index fell. Since this was the bottom of a previous descent, there was something to reporting this as a this-time-is-as-bad-as-last-time story.

However, things got interesting when I plotted the Nikkei Dow index along with the Dow Jones Industrial index. Wachovia plotted this by beginning both indices at a common "zero point" and then using the vertical axis to plot percentage growth. From this point of view, the two indices grow at a roughly parallel rate for a little more than two years, after which Dow Jones proceeds at a somewhat slower but steady rate (which I had cited in my last analysis), while the Nikkei Dow takes off like a rocket, thus forcing a compression of the vertical scale with an upper bound of 150% (although the Japanese index never quite made it to 110%)! Within the resolution of the five-year plot, the Japanese index is far more turbulent after that rapid rise than the New York index is; and, as I previously noted, with the smoothing of that five-year plot, the Dow Jones Industrial is still on a steady rise. We thus may be seeing the sort of "correction" that may narrow the gap between the Japanese and New York indices. This will probably not make the Japanese feel any better; but investors who never want to think beyond short-term gain never want to hear that things are not as bad as they think.

Nevertheless, the really humbling view comes when we add the (Hong Kong) Hang Seng to the plot. This further compresses the vertical scale to an upper bound of 230%, with the index cracking the 200% mark last year, almost all of which was a year of far more rapid growth than that experienced by the Nikkei Dow when it took off from the Dow Jones Industrial. In that context the distance between the two indices does not appear as great, and the suggestion that they are headed towards convergence feels a bit more convincing.

Still, none of these data points are anything more than numbers. Those numbers may or may not reflect any "sense of reality" about living in today's world in either Japan or the United States. Most Americans are likely to be more concerned with another report on today's BBC Web site:

The US unemployment rate rose to a two-year high in December as hiring slowed, raising fears about a slowdown in the world's largest economy.

This is a "reality" about the ability of families on our country to provide themselves with food, clothing, and shelter, without the benefit of a "cushion" provided by a stock portfolio (or, for that matter, a savings account). Are Japanese families in similar dire straits; and, if they are not, are they likely to be there sometime in this coming year? That question is not addressed in today's financial news. For the sake of the Japanese population, we have to hope that it is not "off the radar" of their currently elected government, since here in the United States it seems to be more of a "talking point" for the coming election than an "action item" for our current government!