Why Is Japan's Stock Market Rising During Recession?

On today’s show we are talking about market fundamentals. Our listeners are real estate investors. But that means they’re investors first. The investor mindset is based on fundamentals.

When we assign value to a corporation, that translates into a share price if that stock is publicly traded. All other things being equal, the stock will trade at a multiple of net earnings.

The conventional wisdom is that in times of economic boom, net earnings tend to swell and the share price of the company will increase to reflect the higher earnings of the company.

In times of recession, revenues fall, and earnings usually take an even bigger hit. The share price of those publicly traded companies get punished accordingly.

So we have a strange situation going on in Japan at the moment. The economy is clearly in recession, and has been for some time.

We have a Japanese stock market index that is up by 30% over the past six months during a time when the economy is limping along.

There’s nothing like a good old Wall Street style share buyback to wallpaper over weak corporate earnings.

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Host: Victor Menasce

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