Economic Growth Scare Continues to Ripple     

• The economic growth "scare" triggered by worsening US unemployment continues to ripple through financial markets, exerting selling pressure on stock prices, commodities and the USD. This could well continue until economic data clearly show more than "second-derivative" bounces (green shoots). By S&P sector SPDR, energy, materials, industrials and finance (i.e., the more economically-sensitive sectors) have already sold off between 23% to 14% from recent peaks.
• On the other hand, gold prices have also been weak as stocks, commodities and the USD sell-off, indicating a lack of geopolitical and/or financial sector viability concerns that had investors flocking to safe havens last October.
• While the Japanese government (Cabinet Office and BOJ) continues to make noises about a bottoming in Japan's economy, recent exports and machinery orders indicate, as with the disappointing US employment numbers, that the recovery from the most serious recession in our lifetimes will be neither quick nor easy.
• Consequently, we see a better probability of the Nikkei 225 seeing 8,000 than 10,000-plus by the September Labor Day weekend in the US, even though the Nikkei 225 is technically better positioned than the S&P 500 in terms of its 200-day and other longer-term moving averages. The recent JPY as a "haven" movement in currency markets will only exacerbate weakness in Japanese stocks.
• Moreover, with China's economy poised to overtake Japan's (heretofore the world's second-largest economy) early as 2010 and the share of Asian market capitalization now three times that of Japan's, the Tokyo Stock Exchange is in danger of permanently losing growth-oriented investors to Asian markets generally expected to recovery faster than Japan.  
• Conversely, foreign value investors are already returning to Japanese stocks offering good value in terms of returns on invested capital and/or EV/EBIDTA, buying in lots large enough to trigger large holding filings (holdings of over 5%). The JASDAQ (small cap stocks) is also now more buoyant than the large-cap indices, reflecting renewed individual investor activity in Japanese stocks.

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