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The Money Map Advantage
Thursday, September 29, 2005
By Horacio Marquez
#11
** The Sun Rises Once Again in Japan: We Add More Fuel to the Fire
The former “Empire of the Sun” is getting hotter by the day, the Money Map shows. Japan lost an entire decade of economic growth under the burden of the explosion of its real estate and stock market bubbles, which saddled its banking system with bad loans. The economic pain was exacerbated by lack of economic reform and over-regulation, which prevented the economy from adjusting quickly.
But the situation has changed dramatically for the good. The Junichiro Koizumi bold move to call elections, which he resoundingly won, has put Japan decidedly in the path to higher sustainable economic growth. The Japanese, known for consensus and slow decision-making, have overwhelmingly made the sea-change toward more open and efficient capital allocation. Most notably with the privatization of their postal system, which will unlock 25% of their enormous personal savings into market-driven private investment… instead of low-return government projects.
The economy is already showing accelerating strength, even though the bold reforms have yet to be implemented. This should be confirmed Monday with a stronger Tankan survey of sentiment amongst Japanese manufacturers. Japan’s economy is already benefiting from its unique geographic position next to its red-hot emerging giant: China. As a consequence, our iShares Japan Index Fund (AMEX: EWJ) , which we bought only a couple of weeks ago, keeps making 52-week highs day after day and accumulate almost a 7% gain. And this is the very beginning of a multi-year expansion.
As the country’s economic fortunes turn, the banks, which by nature are pro-cyclical (their level of profits amplifies changes in economic activity), will see their fortunes improve more than proportionately. Economic growth causes loan growth with improving margins and a decreasing proportion of bad loans. In addition, economic growth leads to a steeper yield curve, improving the differential between the short-term rates at which the banks fund themselves, and the longer-term rates at which the banks lend.
If we add the huge leverage that banks carry, the result is a dramatic change in profitability. Japanese banks had a positive swing of $54 billion in profits last year. Let’s put this to work for us.
Mitsubishi Tokyo Financial Group (NYSE: MTF) , as Japan’s second-largest and healthiest bank, and eight-largest in the world, has the muscle to take full advantage of the nascent opportunities. The economic expansion could easily triple the return on assets of Mitsubishi Tokyo over the next year and a half. Loan losses, which are dropping fast, could drop even faster (maybe by 45%-50% this fiscal year), while the rise of the stock market will boost its investment and trading income. MTF’s stock could easily rise mid-double digits in a few months. Japanese companies and banks close their fiscal year typically in March, making the first quarter traditionally very strong for Japanese equities.
**Action to Take***
Buy Mitsubishi Tokyo Financial (NYSE: MTF) at market. The shares are currently trading for $12.71. Place a sell stop at $10.20 for protection. For the aggressive investors, I suggest that you buy the MTF November $12.50 calls (MTF KV) at no more than $0.80.
Enjoy and profit,
Horacio Marquez
If you have any questions, feel free to call one of our VIP Trading Services representatives at 888.570.9830 (toll-free) or e-mail: viptrader@oxfordclub.com , or Mt. Vernon Publishing at 888.384.8339 or 410.230.1200.
Stock
Current Price
Comments
Mitsubishi Tokyo (NYSE: MTF)
New
Buy at market. Place a sell stop at $10.20.
iShares Japan Fund (AMEX: EWJ)
$12.37
Buy. Sell stop is $10.
Cerner Corp. (Nasdaq: CERN)
$87.00
Buy. Sell stop is $62.25.
Tenaris (NYSE: TS)
$136.55
Buy. Sell stop is $95.
MSCI Austria Fund (AMEX: EWO)
$27.13
Buy. Sell stop is $20.90.
Copyright – 2005 Mount Vernon Publishing. Mount Vernon Publishing does not act as an investment advisor or advocate the purchase or sale of any security or investment. Mount Vernon Publishing expressly forbids its writers from having a financial interest in any security recommended to its readers. All of our employees and agents must wait 24 hours after an Internet publication prior to following an initial recommendation. And for hard-copy-only publications, 72 hours after the publication is mailed. Investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Mount Vernon Publishing provides its members with unique opportunities to build and protect wealth, globally, under all market conditions. The executive staff, research department and editors who contribute to recommendations are proud of the reputation Mount Vernon Publishing has built since its inception in 1984. We believe the advice presented to its members in our published resources and at our meetings and seminars is the best and most useful available to global investors today. The recommendations and analysis presented to members is for the exclusive use of members. Copying or disseminating any information published by Mount Vernon Publishing, electronic or otherwise is strictly prohibited. Members should be aware that investment markets have inherent risks and there can be no guarantee of future profits. Likewise, past performance does not assure future results. Recommendations are subject to change at any time.
Market Watch
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As Of 6:11AM 3/26/2009
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