DOW = NIKKEI...but the US is not JAPAN

With both indexes at roughly the same numeric valuation (10,500) it seemed like a good time to do a comparative analysis to see if its anything other than coincidence. For purposes of an historical perspective, the NIKKEI average rose from below 10,000 to 40,000 during its boom that ended sometime in the late 1980's. Following that came a period of nearly 20 years where the Japanese economy and stock market went into a tailspin where deflation and recession persisted till about last year. The NIKKEI bottomed at around 7,000 in early 2003 and has since rallied to its current level of around 10,500 up nearly 50% from its lows.

By comparison, the DOW peaked in 2000 at around 11,000 after rising for about 18 years from a starting point of around 1,000. Then the US bubble popped and it began a decent to around 7,000 before bottoming and beginning its own 50% move up to its current level of around 10,500. Since the US is not Japan, in any way shape or form, at least according to most economists and wall street strategists, our much more fundamentally sound and resilient economy halted the decline relatively quickly and rebounded in record speed.

Unlike the slow to react Japanese government, the US government responded to the economic problems with emergency tax relief, twice extended unemployment benefits, huge government spending, initiating wars in Afghanistan & Iraq, some more tax relief, pension funding relief holiday for large US corporations, and encouraged the Federal Reserve Bank to lower US interest rates 13 times to the lowest levels in 50 years with the promise of leaving them there for a considerable period of time. All of which kept and continues to keep debt laden US consumers spending and borrowing at unprecedented rates.

Japan's government opted for the long and drawn out process of economic repair by allowing for a painfully long recession including rampant deflation, bankruptcies, bad debt writeoffs and huge corporate restructurings and reorganizations. I will assume that the Japanese government was either unaware or unable to utilize the economic 'tool box' the US government used in order to repair our broken bubble in only 3 years while it took nearly 20 years to repair the Japanese economy.

The FED says that inflationary and deflationary forces are in balance and that due to the existence of "slack" in the labor markets, rates can stay put and the free money policy will remain...at least until President Bush is re-elected. Treasury Secretary, John Snow, claims we stand by a 'strong dollar' policy yet our dollar has fallen to record low levels vs. the yen, euro and sterling reflecting a sort of vote of "no confidence" in our twin deficit economic policy.

The fact our stock market has rallied sharply from its recent lows is a trophy to the FED chairman's liquidity campaign and to the Presidents political propaganda machine convincing the American investor that all is back on track for a new boomtime. False hope for sure as the biggest boom and bubble cannot be popped and restored in such a short period of time regardless of the words being said and policies being forced into the system.

In any other country, our reckless financial management and manipulation would have caused hyper-inflation and currency destruction. Yet here in the omnipotent US, it is seen as sound fiscal policy?! I think not, and shortly, our equity markets will realize this and resume the bear market and retrace the gains of the 2003 and much of the 1990's bubble valuations, just like Japan did, before it recovered.

One thing in the US economy that has gotten remarkably similar to something that happened in Japan during its long boom, is the prices and sales activity in the US real estate market, a lot like what happened in Japan prior to its longterm bear market. The fact that our stock markets are now at the same numeric valuation is some sort of fluke that will not remain for long. America is not Japan. The Dow is not the NIKKEI. The Dollar is not the Yen. The Bear market in the US is not over yet.