The opposition has different ideas about what the Japanese economy looks like. That means you should be buying different Japanese stocks, not the well-known names.

The Liberal Democratic party (LDP), in power since 1954 except for 11 months in the 1990s, hasn’t done a bad job. After all, Japan is hugely richer than in 1954. However, after a successful period in 2001-06, the country has had three prime ministers in three years. The current leader, Taro Aso, believes in heavy government spending, particularly on infrastructure. That reflects the party’s traditions, which have favored exporting companies and the construction sector. Those traditions and priorities have also made Japan’s public debt 180% of gross domestic product (GDP).

The opposition Democratic Party of Japan includes the Socialists, and favors higher social spending. However, it also wants to encourage domestic consumption, and to kill the big construction projects on which the LDP has spent so much. Economically, the Democratic Party’s platform makes sense, certainly given its shift in emphasis away from the programs focused on in the last few years. Politically, voters are tired of the LDP and badly want a change. Hence the DPJ is likely to win a majority in next month’s election.

That probable victory has major implications for investors.

• For starters, let’s consider the big exporting companies. Such players as Panasonic Corp. (NYSE ADR: PC), Sony Corp. (NYSE ADR: SNE) and Hitachi Ltd. (NYSE ADR: HIT) – may become less prominent, as they won’t have such strong backing from the government bureaucracy. The construction companies – Komatsu Ltd. (OTC ADR: KMTUY), Kajima Corp. (OTC ADR: KAJMY),Sumitomo Realty & Development Co. Ltd. (OTC: SURDY) and the like – will do less well.
• On the other hand, domestic-oriented companies, particularly in consumer products, should benefit. Low-end consumers may do better than high-end, so we’ll look for basic goods.

The Japanese market is still down more than 75% from its 1990 high, although it has rebounded about 30% from its March lows. Japan had a bad recession: The Economist expects 2009 GDP to be 6.1% below 2008. Nevertheless, the economy looks poised for recovery. If that happens, the market will do well, and consumer-oriented stocks will do especially well. Many Price/Earnings (P/E) ratios look high – as is common in Japan – but Japanese accounting is conservative and a real economic recovery could bring rapid earnings growth. Still, in searching for the most-promising profit plays, I will look for P/Es of 20 to 22, or less, to keep values reasonable. How to buy them: Most Japanese companies these days trade as American Depository Receipts (ADRs), that trade only on the “Pink Sheets.” Those are not very liquid in New York. However, some brokers – such as E-Trade (Nasdaq: EFTC) – now allow you to trade directly on the Tokyo stock exchange. So I’ll give you both the Tokyo symbol and the OTC ADR symbol, and you can choose which way to go. Here are the seven ways to play Japan’s election (with one bonus pick for good measure):

• Kao Corp. (4452; OTC ADR: KCRPY) is a classic consumer-products company – kind of like a Japanese version of The Procter & Gamble Co. (NYSE: PG) here in the United States. Kao produces cosmetics, laundry and cleaning products, making it a domestically oriented company that should do well as Japan’s consumer spending improves. Stock stats: The company’s stock trades at 17 times earnings and yields 2.7%.

• Kirin Holdings Co. Ltd. (2503; OTC ADR: KNBWY) produces beer, soft drinks, food products, whiskey and pharmaceuticals. In addition to its strong position in Japan, Kirin is a major player in the East Asian market. Stock stats: P/E ratio 16; stock yields 1.6%.

• Circle K Sunkus Co. Ltd. (3337; PINK: CLKSY) is a nationwide convenience store chain that sells food, beverages and gaming software. Stock stats: P/E ratio 13; dividend yield 2.7%.

• QP Corp. (2809; OTC ADR: QPCPY) produces mayonnaise, salad dressing, egg products and health foods. Stock stats: P/E ratio 17; dividend yield 1.5%.

• Showa Sangyo Co. Ltd. (2004; OTC ADR: SHSGY) produces and sells flour, cooking oils and confectionary products. Stock stats: P/E ratio 19; dividend yield 2.4%

• Seven and I Holdings Co. Ltd. (3382; PINK ADR: SVNDY) is a merger of Ito-Yokado, 7-11 Japan and Denny’s Japan. It operates convenience stores, food stores and fast food restaurants.Stock stats: P/E ratio 22; dividend yield 2.5%.

• Eisai Co. Ltd. (4523; OTC ADR: ESALY) produces and sells prescription drugs and medical equipment in Japan and overseas. Stock stats: P/E ratio 19; dividend yield 4.2%.

Check the companies carefully before investing (most have Web sites), but the above are some suggestions of companies in interesting sectors that appear solid and not overpriced. If you don’t feel confident about investing directly in Japan, you could also consider investing in the largest Japan-focused exchange-traded fund (ETF), iShares MSCI Japan index (NYSE: EWJ). The EWJ ETF currently has a P/E ratio of 15. 

Source: Eight Ways to Profit From Japan’s Game-Changing Election

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Despite the disturbing news from Japan – the world’s second largest economy – some analysts are optimistic that the record gross domestic production (GDP) decline may be the low point, with business activity picking up from here.

“There was a collapse across the board,” Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo, told Bloomberg News. But there’s “light at the end of the tunnel,” he said, adding that he believes the economy will rebound this quarter as companies replace inventories and stimulus plans begin to take effect.

Prime Minster Taro Aso has set forth the largest stimulus plan in Japanese history, promising to pump $160 billion into the economy, mostly geared towards lifting consumer spending, which accounts for about 55% of GDP.

Japanese consumers were the biggest factor in the decline. Consumer spending fell 1.1%, trimming 2.6 percentage points off GDP – the most since 1974, Bloomberg reported.

Analysts say that declining exports are a big reason for the decline in consumer spending.

“The export plunge is spreading to domestic demand,” BNP Paribas SA (OTC: BNPQY) economist Hiroshi Shiraishi told Reuters. “As such, the Japanese economy may return to growth temporarily but it could suffer a contraction again afterwards.”

Net exports – the trade gap between exports and imports – shaved 1.4% off overall economic output.

Toyota Motor Corp (ADR NYSE: TM), Hitachi Ltd. (ADR NYSE: HIT), and Panasonic Corp. (ADR NYSE: PC) all projected mounting losses for fiscal 2009. Panasonic said last week it plans to close about 20 factories this year and cut 15,000 jobs. Hitachi will slash spending by $5.2 billion this year and shed 7,000 workers, Bloomberg reported.

Still, there are faint signs of recovery in both exports and consumer spending, triggering cautious optimism among some analysts and government officials. Consumer confidence jumped to a 10-month high in April and exports increased in March over the previous month.  Factory output also jumped for the first time since September as companies cut inventories.

The Wall Street Journal reported last week that Honda plans to increase production in Japan this quarter as dealers have begun clearing inventories.  Car sales may have “bottomed” in Japan and the U.S., Fuji Heavy Industries Ltd. (ADR OTC: FUJHY) President Ikuo Mori said in Tokyo, according to Bloomberg.

“While the economy will continue to be in a severe state, I expect less pressure from inventory adjustments and the stimulus package to provide support,” Economy and Fiscal Policy Minister Kaoru Yosano said after Wednesday’s report, Bloomberg reported.

Source: Japan GDP Falls to Record Low but May Have Bottomed

According to the usual N.Y. commentator…”Overall estimated volume however, was light…only 66,458 lots net of switches.”

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Friday’s big spike down in gold at the Comex open, was probably fresh short selling by the three [or less] American bullion banks, as gold open interest rose 3,172 contracts…while silver, which finished on its high of the day, showed an o.i. increase of another 1,140 contracts. None of this is terrific news. There could have been some switches added as well, but we won’t know until the next COT this Friday.

A couple of things in gold news yesterday. Gold fund manager Marc Gugerli said that the New York Commodities Exchange’s paper gold market is dominated by a few traders connected to the U.S. government and that he expects that market to default soon. Haven’t we heard that default story before? Last time I checked, the Comex was still there. And here’s a gold story by Peter Brimelow over at marketwatch.com. It’s entitled “Something new stirring in precious-metals pond” and the link is here.

In the GLD ETF (NYSE:GLD)…another new record was set yesterday as 14.5 tonnes [470,000 ounces] were added. That’s 1.2 million ounces in the last six business days. I guess Ted Butler’s estimate of 1.0 million ounces owed, proved to be a little on the conservative side. And in the SLV, another 2.5 million ounces were deposited…and if Mr. Butler is right about the SLV (NYSE:SLV)…then there’s around 15 million more ounces yet to come. Across the Atlantic at the Swiss ETFs…they just added another 199,946 ounces of silver and 126,665 ounces of gold.

In other news, it appears that the Manas air base in Kyrgystan that the U.S. was using to supply troops fighting in Afghanistan is now officially closed to them. “The decision has been made” a government spokesman said. Closer to home, Nissan (NASDAQ:NSANY) just cut 20,000 jobs and forecast a $2.9 billion loss. In a Bloomberg story on Sunday was this additional info out of Japan…”Panasonic (NYSE:PC), Hitachi (NYSE:HIT) and NEC — all of which are forecasting losses for the current fiscal year — have announced a combined 39,000 job cuts in the past two weeks.” And lastly, in another Bloomberg story with the headline “U.S. Taxpayers Risk $9.7 Trillion on Bailout Programs”, is this eye-popping paragraph…”The $9.7 trillion in pledges would be enough to send a $1,430 check to every man, woman and child alive [on the planet]. It’s 13 times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office data, and is almost enough to pay off every home mortgage loan in the U.S., calculated at $10.5 trillion by the Federal Reserve.” But if you think that’s scary…this is far worse…click here!

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It was a newsy weekend and I have four stories this morning. The first two are from The Telegraph out of London…and both are written by their international business editor…Ambrose Evans-Pritchard. The headline of the first [and very short] story reads “Europe ambushes Germany on debt bail-out”. Europe has huge problems that are growing by leaps and bounds every week. “The European Union has called an emergency summit of national leaders this month to halt the drift towards protectionism and stem the risks of a debt crisis as the slump deepens.” The link is here.
The second article by Ambrose is slightly longer…more substantial…and even more ominous. It’s entitled “Bond market calls Fed’s bluff as global economy falls apart”. The piece looks at the bond market from a world perspective…not just an American one. This will keep you up at night. The link is here.

The third story is from worldnetdaily.com. It appears that as the Obama administration tries to push through their $1 trillion dollar rescue package….”a rebellion against the growing dominance of federal control is beginning to spread at the state level.” The article is entitled “Lawmakers in 20 states move to reclaim sovereignty”. I thank the “Charleston Voice” for bringing it to my attention…and the link is here.

And lastly, here is silver analyst Ted Butler’s latest commentary. As I mentioned in my rant on Saturday [after a long chat with Ted], the combination of the release of the Commitment of Traders report and the Bank Participation Report on Friday, proves absolutely that the three [or less] traders in gold…and the two [or less] traders in silver…have an iron grip on gold and silver prices. We at GATA thank him for his work in this area. The article itself is a GATA release with a comprehensive introduction by our secretary treasurer, Chris Powell…and the link is here.

Keynesian economics, and socialist central planning, have trapped the Western economies into a slow death. – Wayne N. Krautkramer

So Obama’s bailout package is upon us…but it matters not one iota. The catastrophe that is about to be visited upon the U.S.A…and the rest of the world…is now unstoppable. As I’ve said a couple of times before…last week being the latest…the world’s central banks only have one option left. Print, or die! No wonder the Fed, The Treasury and the President’s Working Group are trying to keep gold and silver prices under wraps. But in the end, that too will fail. But it won’t be for lack of trying.

See you on Wednesday.

Source: And Then There’s This…Tuesday, February 10th, 2009

The merger would create Japan’s second-largest electronics manufacturer behind Hitatchi Ltd. (ADR:HIT), as Panasonic is the world’s No. 1 plasma TV maker and Sanyo is one of the world’s largest rechargeable battery makers, Reuters reported.

Should the deal clear regulators, Panasonic said one of its intentions is restructuring both companies. It targeted three “primary synergy” areas:

• Solar: The combined company plans to expand its silicon solar cells and batteries and accelerate development and commercialization of next-generation solar cells. Panasonic expects “a significant increase” in solar sector sales.

• Rechargeable Batteries: In addition to fusing Sanyo’s lithium-ion rechargeable batteries business with Panasonic’s black box technology, the companies plan to make “active investments” in batteries for hybrid electric vehicles and electric vehicles. More practically, the deal would nearly quadruple Panasonic’s share of the rechargeable-battery market.

• Financial and Business Position: Panasonic believes the combined enterprise will produce cost cuts in procurement and logistics.

“Panasonic and Sanyo recognize that existing strategies must not only be accelerated, but also that drastic action is now required for further strengthening initiatives to achieve potential revenue and profit growth in the global economic recession stemming from the financial crisis as well as in the midst of intensified global competition,” Panasonic said in a statement.

The company added: “Combining the accumulated technologies and manufacturing knowledge of both companies, Panasonic and Sanyo believe that together they will evolve into a corporate group which will be highly admired globally by enhancing the quality of life for the people worldwide and becoming a business entity coexisting in harmony with the global environment.”

The deal cleared a major hurdle Thursday when Goldman Sachs Group Inc. (GS) agreed to share its 29% in Sanyo to Panasonic for at least $6.4 billion, Reuters reported. Goldman had previously rejected two other offers from Panasonic.

“A merger would supply much-needed funds for Sanyo to maintain its position in the solar-battery market,” Yuuki Sakurai, general manager of investment planning at Tokyo’s Fukoku Mutual Life Insurance Co., told Bloomberg. “It’s difficult to imagine Sanyo succeeding by going it alone, and in that sense the offer is progress.”

Sanyo was founded by Toshio Iue, who in 1946, quit his job at Panasonic’s former entity Matsushita Electric Industrial Co. to form Sanyo the following year, Bloomberg reported.

Source: Panasonic Offers $9 Billion for Controlling Stake in Sanyo

The venture – Areva Newport News LLC – will emanate from a $360 million investment, and will lead to the construction of a 300,000-square-foot production-and-engineering facility, the two companies said yesterday (Thursday). It will employ 500 workers when completed in 2011, according to an MSNMoneycentral report.

Mike Petters, president of Northrop Grumman Shipbuilding, the unit that has signed on to work with Areva, told The Wall Street Journal that “we’ve watched manufacturing wane in shipbuilding and we’ve watched for other opportunities to go into adjacent areas…We think a nuclear renaissance is coming and we have the work force.”

The facility will promote U.S. market sales of Areva’s “evolutionary power reactor,” or EPR. Areva is seeking to get the reactor design certified by the Nuclear Regulatory Commission (NRC) for use in the U.S. market, The Journal reported.

The deal is also the latest illustration that commercial nuclear power – which has been on a more or less permanent hiatus in the U.S. market since the 1979 near-meltdown at the Three Mile Island nuclear powerlant near Harrisburg, Pa.— may finally be making a comeback in the energy-starved U.S. market.

There hasn’t been a single new nuclear plant built since the Three Mile Island accident; this new manufacturing facility will be the first of its kind built in this country in 35 years, the Newport News Daily Press reported.

The state-run Areva is trying to compete in an industry in which Japanese firms – such as  Hitachi Ltd. (ADR: HIT) and Toshiba Corp. (OTC: TOSBF), have come to play a large role. No surprise, too, that China is building up its nuclear capabilities, and has global objectives for that business.

“Our target is 80% U.S. content” for U.S. nuclear power plants, Anne Lauvergeon, chief executive of Areva, told  The Journal. Lauvergeon believes Areva’s linkup with Northrop will give the French company a competitive advantage over rivals that are more reliant on imported goods. That’s why she said that she’s emphasizing the need to have 80% of the content for U.S. reactors to be built domestically.

Orders from U.S. nuclear operators could top $100 billion in coming years, and some are hoping that a wave of nuclear construction could also bolster the U.S.’s ailing manufacturing sector.

Areva’s Lauvergeon said her company’s existing heavy manufacturing facility at Chalon/Saint Marcel, France, is operating at capacity with a five-year backlog of orders. Nucelar plants built with Areva’s design are under construction in France, Finland and China. Three U.S. utilities have selected Areva’s design including Constellation Energy Group Inc. (CEG), PPL Corp. (PPL) and Ameren Corp. (AEE).

With its decision to invest so heavily in the U.S. market – and to involve a partner – it’s clear Areva is highly confident that plans to build new nuclear plants in North America will move forward, The Journal reportedSource: French Nuclear Giant Areva Links Up With Northrop in Groundbreaking Production Venture