Coxe predicts Nasdaq will follow Nikkei pattern

(July 14, 2005) The fall of the Japanese stock market in the 1990s has striking similarities to the performance of the Nasdaq since 2000. But Wall Street continues to ignore the warning signs, argues Donald Coxe, chair of Harris Investment Management.

When the Nasdaq began tumbling from its peak in 2000, Coxe noted that the Nikkei had already tread the same path — only the Japanese index had a 10-year head start.

“History suggests that the Nikkei should complete its version of hari-kari between 2008 and 2010, with the Nasdaq’s agony ending a decade later,” Coxe says in his July research report published by BMO Nesbitt Burns.

The Nikkei fell 80%, but took 14 years to reach its lowest point, with four strong rallies between its first bottom in 1992 and last low in 2003, he points out.

“The Nasdaq’s strong rally from its 2002 low came exactly on schedule — 10 years after the Nikkei’s first resting place. If it remains a clone with a 10-year lag, the Nasdaq would rally until next year, at which point it would enter a renewed two-year decline that would take it to a new low.”

Wall Street remains largely in denial over the technology debacle, says Coxe. “There have been a few public purges, but the Street still swarms with tech analysts.” Look no further than Google’s recent meteoric rise for evidence of America’s continued obsession with tech stocks.

Still, a tech crash would revive the entrepreneurial spirit, Coxe suggests, and, perhaps surprisingly, points to Google as the new model. “Google’s innovation extended to its public offering, which denied the Street the egregious profits that had been the norm for tech offering. That Google is one of Nasdaq’s most-valued stocks shows that the true entrepreneurial spirit lives.”

“If the 1990s were the decade when Japan started out as the richest nation on Earth, then the 2000s are the decade in which the U.S. moves from a similar position, in terms of financial assets, and moves downhill to points as yet unknown,” he concludes in the report.

Coxe suggests investors build exposure to high-quality long-term bonds to protect against a possible economic downturn and remain overweight in oil and gas stocks. “Long duration in commodities is like long duration in bonds, it’s right for the kind of global economy we’ve entered.”

He says U.S. markets are moving sideways and expects only modest returns from the major indexes, stating that the S&P 500 remains overweight in tech stocks and underweight in commodities.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com