For the last 12 years we have seen the Japanese stock market slowly sinking from a high of 38,000 to about 8,000, more than a 75% loss and very close to the price of the Dow Jones Industrial Average. Why should we care about their stock market?

Please understand that the stock market price is a reflection of the overall economy of a country. Every major country has a stock market index related to their economic health. Today almost every one of them has been in negative numbers for the past 3 years. If you believe the numbers we are in a worldwide recession and the trend is still down. That means we can see further slowing of the world economic health. So what? Well, it could be the difference in your having a job or not having one.

Japan used to think that an unemployment number of 2% was terrible. It is now running about 5%. So, fewer people are working. Why should you care? Japan is our second largest customer for U.S. produced goods. If less people are working than there are less yen to buy American goods. Japanese businesses won't have as much money to buy new equipment much of which is purchased here. What happens there could be a reflection of what could happen here.

Why has their market dropped so horrendously? The bankers made mortgages and loans to companies. Most bank do. However when a loan went bad (collateralized by stock of the company) they did not charge it against their books. When the stock went down they did not revalue it on their books. In the U.S. the banks are required to 'mark to the market' every reporting period. That means they must say what it is valued at at that time, not when they bought it. Japanese banks (and Argentine banks) are not required to do that so they show on the books a fictitious valuation for loans and stocks many of which are worthless. The investment community knows this so they keep selling Japanese stocks.

Can we do anything about it? Probably not because it is political and there seem to even fewer 'honest politicians' in Japan than we have in Washington. But we can learn a lesson that you must above all be honest with yourself. When you have a stock in your portfolio or 401K that is going down you should sell it so that the loss will not become greater. Most Japanese banks are broke and you don't want to end up that way.

Brokers will tell you you don't have a loss until you sell which is so much hog wash. How much is your portfolio really worth? And in what direction is it headed? Don't let your investments become another Japan.

Al Thomas

Albert W. Thomas has spent most of his life in the field of finance. In 1965 he founded an insurance holding company, Security Dynamics Investment Corporation, after having been an agent and General Agent for several life insurance companies. In 1970 he became cofounder and president of Real Life Estate, Inc., that marketed a unique real estate and life insurance package.

After he became interested in commodities he bought a seat for his personal trading on the Chicago Open Board of Trade, which is now known as the MidAmerica Commodity Exchange. Later he became a full time trader and also acted as a commodity broker for a few select clients. By fellow floor traders Al is considered to be an excellent technical analyst much of which is outlined in his book IF IT DOESN'T GO UP, DON'T BUY IT! It became a best seller on Amazon.

In 1981 he sold his membership on the Exchange and with his wife, Carolyn, lived full time aboard their 41' ketch, the Aumakua (which means guardian angel in Hawaiian). They sailed in Florida and the Bahamas for two years.

He founded World Trading Group in 1984 that grew to the seventh largest introducing commodity brokerage firm in the U.S. with 35 offices from coast to coast, Alaska and Canada. It was sold in 1992.

Al is a graduate of Northwestern University with a B.S. degree in Commerce and is a member of MENSA. He is now president of Williamsburg Investment Company that syndicates his weekly financial column since 1999 to more than 300 newspapers and writes a financial market letter called Over My Shoulder that is quoted in Barron?s and many other publications. A 3-month trial subscription is available on his web site. He is a regular guest on several financial radio talk shows.

His favorite pastime is fishing.

Mr. Thomas is available for speaking engagements. Please call 321-453-5300 for more information.