Chart Of The Day: U.S Stocks Retreat in ‘Japan 2.0′ Pattern

click for larger graphic


From Bloomberg UK:

This year’s tumble in U.S. stocks mirrors the Japanese selloff that began 11 years ago, an indication to hedge fund TTN AG that American equities may have further to fall.

The CHART OF THE DAY shows the pattern of gains and losses in the MSCI USA Index has followed the dollar-denominated MSCI Japan Index with an 11-year lag since 1990. While the U.S. gauge has retreated about 15 percent from this year’s high in April, the Japanese measure sank more than 50 percent during the slide that started in April 2000, data compiled by Bloomberg show.

“We may see a Japan 2.0 scenario,” Trung-Tin Nguyen, founder of Zurich-based TTN, said in an interview. “If U.S. markets continue to fall we might drift into recession, which led to deflation in Japan.”

Like Japan a decade ago, the U.S. is grappling with an expanding debt burden and slower economic growth. Standard & Poor’s cut America’s top AAA credit rating for the first time last week, while the Federal Reserve pledged on Aug. 9 to keep interest rates at a record low through at least mid-2013 to counter a weaker-than-anticipated economic recovery.

There is a bounce in here, but my best guess is that there is more downside work to come.

Note: Where our Fed stepped up and flooded the system with liquidity, the Japanese central bank did not.Whether that means the US avoided a Japan like decade plus long recession, or merely delayed it, has yet to be determined . . .


UPDATE: Angry Bear posted a similar chart a week ago

Category: Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

28 Responses to “Turning Japanese: SPX vs Nikkei Index (10 Year Lag)”

  1. MikeDonnelly says:

    No causation, no correlation, but still creepy.

  2. wally says:

    Perhaps this pattern of no growth and deflation is simply the normal course for a country with an aging population.

  3. JohnnyVee says:

    Not even Japan’s herculean capital expenditures could pull them out of the dive and there is no evidence that if the U.S. also engages in a massive road/bridge/tunnel spending that it will have a different outcome. Although, it is nice to have pristine roads, even if you don’t need to drive anymore—that’s what Japan has.

  4. vader says:

    Unlike Japan the US has a higher birth rate and immigration.

    It may be the result of a bubble collapse.

  5. klhoughton says:

    “Our Fed stepped in and flooded the system with Excess Reserves.” There. Fixed.

    (As a side note, Spencer was discussing this five days ago.)

  6. [...] Past as prologue.  Japan vs. the USA.  (Big Picture) [...]

  7. nofoulsontheplayground says:

    Since the Tulipmania bubble more than 400-years ago, we have seen more than a dozen major market bubbles. The one thing bubbles have in common is they retrace in a bell curve. However, there has been one major exception.

    The Nikkei.

    9-years ago when a few of us were following the Dow 1929 bubble retrace pattern on the Nasdaq, we wondered what the eventual path would be off the anticipated 2003 lows. There were two choices, the continuation of the classic post 1929 Dow pattern, or what we called “Sushi”, which was the Nikkei bubble aftermath pattern.

    While it appears we have a Sushi pattern to date on the MSCI USA index, our rising population ought to eventually get us out of this pattern faster than the Nikkei, which has had to contend with falling Japanese population and tougher demographic trends. Cycle bottoms suggest the end of the post 2000 US equity bubble should come around the year 2016 or 2017.

  8. wally says:

    “Cycle bottoms suggest the end of the post 2000 US equity bubble should come around the year 2016 or 2017.”

    Is there precedent for overlaying a credit collapse atop an equity bubble collapse?

  9. as long as we’re speaking of ‘Japan’..

    Ted C. Fishman’s Book, “Shock of Gray”, speaks to the ‘Gray’-ing of the Western “Industrialized”-Economies..

  10. nofoulsontheplayground says:

    BR has previously mentioned 70-year cycles. Long wave folks also have similar cycles. The sub-cycles are roughly 17.5 years in length, putting the end of the current cycle somewhere in the 2016-2018 time frame, ideally in 2016-2017.

  11. Joe Retail says:

    Shows once again that most natural systems respond to external stimuli with underdamped oscillations.

  12. BennyProfane says:

    The Japanese oldsters saved well, and have something to live on during the end game. Our oldsters, AKA the Boomers, will have hardly anything besides Social Security to live on. Many of them are carrying stupid levels of debt into old age, too, trying to pay for expensive homes and silly lifestyles. This will differentiate us from the Japanese in history, and not in a good way.
    Let’s not even mention the cultural differences. I would guess most Japanese would be quite shocked at how we discard our old people like so much trash, especially in the new age of austerity around the corner.

  13. 4whatitsworth says:

    Seems to me like supply and demand would trump tea leaves and there is an election coming up.

    Money supply up:

    Population up From 1990 – 2009, US population increased by 23% whereas the Japanese population increased by just 3%.

  14. franklin411 says:

    Japanese unemployment has never even gotten close to cracking 6% over the last 20 years. If that’s stagnation…give me stagnation!

  15. AHodge says:

    eleven years lagged or 20?
    regardess the story right on-tho not bettin on a big downcycle now
    since 2000 we have big cycles but the average has/ will only go up not much maybe 6% per year next 30–if lucky

  16. constantnormal says:


    I think you’re being a little disingenuous with the 6% Japanese unemployment limits over the past 20 years — you also realize that those are twice the levels they enjoyed over the previous 20 years … so if that’s what stagflation does — doubles the “normal” unemployment — then we are right on track …

  17. [...] Ominous chart of the S&P 500 vs. the Nikkei, with a decade lag — Big Picture [...]

  18. Bill Wilson says:

    Are the demographics of Japan really that much worst than in the United States? The U.S. population is growing, but we also have a generation of baby boomers retiring. It seems to me that will be a drag on asset prices as they lower their consumption and shift their investments to the “risk off” variety.

    I do think we have an advantage over Japan. We can almost only improve our trade balance. I saw an interview with Meredith Whitney, where she talked about the U.S. shifting from a “financialized” economy to an agriculture based economy. Between the growth in world population, and the effects of climate change, it’s a real opportunity for the U.S. to increase it’s agricultural exports.

    In the next few years, I think the U.S. stock market will look like Japan in the 1990s. It’s the same basic problem, not enough income to service the total debt, and an unwillingness to write it down.

  19. jswap says:

    The Angry Bear chart is a lot better because it’s not artificially using two different scales in a blatant attempt to make the curves match.

  20. [...] From Barry Ritholtz @ The Big Picture $(function() { $( "#content-pagination-prev a" ).button({ icons: { primary: "ui-icon-circle-triangle-w" } }); }); Impediments to Growth Both Home and Abroad $(function() { $( "#content-pagination-next a" ).button({ icons: { primary: 'ui-icon-blank', secondary: 'ui-icon-circle-triangle-e' } }); }); icBrokerWidget('ibankcoin', 600, 55); [...]

  21. jbutterfill says:

    there are many asset classes which show a similar trend to Japan, such as JP Land prices and the Case Shiller with a 14yr lag, Earnings yields vs bond yields with a 5 yr lag – the biggest difference between the US and Japan is that Japan never managed to depreciate it’s currency, something the US has been doing quite sccessfully so far..

  22. DeDude says:

    No Japan is a mercantile economy with a large trade surplus. Wouldn’t that make it impossible for them to depreciate their currency?

  23. endorendil says:

    The US should be so lucky. Japan’s debt to government income is a lot less. Its deficit is self-financing, which means the interest paid is a redistribution of tax money to those willing to lend the government money. Not great in social terms, but in principle sustainable. Its standard of living was already very high when it entered stasis, its population growth small, its ways set and largely sustainable. The US has none of this. It has pretty low standards of living, its population growth is tricky – large growth rates in fundamentalist and poor communities, low growth rates in rich and educated once, but added to by a large influx of the best and brightest of the rest of the world, and its culture in a deep state of flux. It is very difficult to see why anyone would expect the US to be able to enter a Japan-like stasis at this point.

    Above everything else, the US has to deal with one thing that Japan never did: a much larger debt, with those able to influence decisions at corporate levels both willing and able to leave the country to any of a dozen countries that have similar cultures. Many other “deciders” have no ties to the country to speak off anyway – they are the ones that go “home” to get married, or whose kids are being raised by grandparents outside of the US. And no, I’m not just thinking of US residents with Chinese, Indian, Mexican, Indonesian or Cuban roots. There are people with French, Belgian, Canadian, Australian or German roots that are never that far away from the thought that they “might as well go back”.

  24. [...] by looking at what’s happened in Japan since 1990. Barry Ritholz at the Big Picture has a great post comparing the Japanese and US stock markets from their great boom peaks. Take a [...]

  25. dlyulkin says:

    As an investor, the US/Japan comparison haunts me every day. But the chart you show seems to be more data mining than reality. The Angry Bear chart isn’t just data mining, it’s borderline artwork! I discuss this exact topic here: There are many valid reasons to compare and contrast our economic past and future with those of Japan. The MSCI Japan Index in USD is not one of them. The Nikkei 225 and TOPIX indices predate MSCI Japan. More importantly, pricing Japanese stocks in Yen is a better guide to the past. Currency fluctuations should not be part of the equation since the specific perspective of a US investor in Japan’s stock market is as relevant as that of someone from France, Russia or Australia – why not look at the index in those currencies?

    Simply put, the 1990s Japanese stock market in Yen looks vastly different from the S&P 500 chart in USD with the lag used in the Bloomberg chart used by this site.

  26. [...] First, a chart from Bloomberg U.K. (hat tip to Mike Darda at MKM Partners, image hosted by Barry Ritholtz): [...]

  27. [...] The Big Picture blog Share this:TwitterFacebookLike this:LikeBe the first to like this [...]