Monday, September 15, 2008


Oil is down to $94 this morning. There should be no need to mention obvious winners such as airlines, truckers, mortgage holders, etc. When I mention Japan, I sometimes get a why? response. Again, Japan, as a country that must import almost all of the oil it uses, Japan benefits greatly from lower oil prices.

EWJ is a Japanese exchange traded fund. Back in 1999, when the US market was out the roof, EWJ made a high but not an extraordinay high of $16.30. At the April 2003 bottom, it made a low of $6.50. It rebounded to $15 by May of 2006, but has since fallen to $11.06. Today, the Yen is soaring on the news that oil is down $5 a barrel. Japan is going to see a good market run. The next EWJ peak will be 3 or 4 years from now. It is likely to be higher than $35.

The story for Japan is not much different than the story for other "opposites of oil". Of course, the "opposites of gold" will also enjoy the decline in commodity prices. A small amount of earnings, grown relatively steadily, discounted by bond rates of 3.5% becomes more and more valuable as the years pass. We are set up for a great market run. The "market bottom" late in the contraction phase will not be the bottom for all stocks. The bottom for many companies was made in January or March of this year. The broad market averages, which is heavily influenced by big cap oil and basic material stocks, will bottom soon.

Investors should buy relative strength. The pundits are talking about a consumer lead recession just as consumers are getting a huge break in the price of fuel and a huge break in the price of money. The break-out leaders will run a long way.