Citi: Here's Why We're NOT Turning Japanese


If you look at the graph on right, it’s easy to see why everyone’s worried America’s on track for its own two lost decades. Anemic bank profits are another sign we’re turning Japanese.

But here’s why that’s not going to happen, says Citi strategist Robert Buckland (via FT Alphaville): de-equitization.

Western businesses are already on track to buy back stock and keep earnings high. Even in a period of economic stagnation, America’s equity market can keep rising.

This is what we want to avoid: two decades of declining equity markets.

First the bad news: the past decade looks Japanese

Western bond yields are also following Japan

Japanese and Western markets both suffered from de-rating. BUT the Nikkei suffers from continued weak earnings

The key restraint on Japanese earnings was share dilution -- which would be ameliorated by buy-backs

Here's the key chart: Japan has plowed ahead with equitisation, while Western companies de-equitize (except right after the financial crisis)

Good news for the stock market, but we're not out of the woods yet. Don't miss...

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