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The 16 Year Bear Market Is Finally Over

By Dr. Steve Sjuggerud
Friday, October 13, 2006

If you’ve heard me speak this year, you’ve heard me talk about Japanese real estate... I think it’s the best investment opportunity for the next 15 years...

Until just a few months ago, property prices in Japan had been falling – for 16 years straight. The Bank of Japan (Japan’s equivalent of the U.S. Federal Reserve) even went as far as lowering short-term interest rates to 0% – and it kept interest rates there for six years.

Amazingly, property prices continued to fall, even in a 0% interest world.

Long-term interest rates are around 2% in Japan. Think about this for a moment... what do you think would happen to U.S. real estate prices if mortgage rates went from 6% to 2%?

Real estate prices would soar...

Most people don’t shop for homes based on the sticker price. It’s nearly irrelevant. Instead, most people buy based on what they can afford in a monthly payment.

You see, at 6% interest, a $1,500 monthly payment will get you a mortgage of $250,000. Yet at a 2% interest rate, a $1,500 monthly payment will get you a mortgage of $400,000.

In the U.S., we take it for granted that if mortgage rates fell from 6% to 2%, prices would soar.

Americans believe that “you can’t go wrong in real estate.”

However, after 16 years of falling prices, the Japanese now believe that “you’ll never make money in real estate.”

From 1990 to 2000, real estate prices in Japan fell between 50% and 90% (depending on where in Japan we’re talking about, and what type of real estate we’re talking about). And they’ve stayed down.

Put simply, the Japanese are afraid of getting burned. Their stock market is also down 60% since 1990. So the Japanese simply don’t invest. They sit on cash, earning literally no interest. “At least cash doesn’t go down in value,”they thinkIt’s completely opposite from the American perspective of, “I can’t sit on cash, I’ve got to put it to work.”

Now – finally – the Japanese are starting to buy real estate once again. Prices are just starting to rise. The bear market is finally over.

The thing that kicked off the bust back in 1990 was the Bank of Japan raising interest rates too fast. (Of course, prices had gotten ridiculous.)

The government will do everything in its power to prevent going back into bust mode. It will NOT get in the way as property prices start to rise. And it will do everything possible to keep prices from falling.

Therefore, right now, we’re set up for a ridiculous bull market in Japanese real estate. It’s cheap, hated, and the uptrend is just beginning.

Good investing,

Steve





Market Notes


THE BEST FRIEND THE REPUBLICANS HAVE RIGHT NOW

Three months ago, our elected officials had $80 crude oil and a plunging stock market to explain. Things are getting easier… thank the stock market.

Back in July, we pointed out how record levels of investor pessimism served as a screaming buy signal for contrarian speculators. So far, we’ve been dead on… but the quick 17% rise in the tech-heavy Nasdaq 100 is amazing. That’s a year’s worth of gains in less than three months.

One notch above falling gasoline prices, this surging stock market is the best friend Republican candidates could ask for.

Up 17% in three months… the Nasdaq 100 (1-yr chart):


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