Private Investor: Dot.com disaster or investment opportunity?

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It hasn't been a good week for Japan. A dead whale dumped outside its embassy in Berlin (the sort of political protest I can agree with). The Tokyo stock market bouncing around like a drunken Sumo.

A chap named Takafumi Horie had a lot to do with this. He was raided by the police, with the allegation flying around that he had been falsifying the earning of his big internet company. The Nikkei collapsed in a fit of vapours and the Tokyo Stock Exchange had to suspend trading.

I suppose the effect on the market in New York would have been the same if it had been found that something really outlandish like, say, the mighty Enron had been on the fiddle. Oh yes, something like that did happen didn't it? Silly old me. The point, I suppose, is that the knockabout in Tokyo proves that the Japanese rally is both a bit more modest and a bit more fragile than has hitherto been assumed, even though the market righted itself somewhat towards the end of the week.

The long-term problems with the Japanese economy, well publicised over almost two decades now, will ensure that is the case until some more radical restructuring of that economy takes place.

The second thing it demonstrates, like the Enron affair, is how quickly confidence can be eroded by a story such as this. Yet in retrospect economic life went on after Enron flopped and it will go on after Mr Horie becomes the subject of "whatever happened to"articles and the answer to a question in a trivia pub quiz.

Far worse news, I fear, comes form the bond market and the astonishingly low long-term interest rates that are now emerging there. The reason for these, it seems, is all those pension funds piling into bonds as a "safe" haven to match their future liabilities. Maybe they have to do this, for reasons of prudence or because the regulator makes them, but I can't help feeling that these great columns of professional investors have served their public, on the whole, quite badly.

It's like this. When the great tech bubble started, what did they do? They bought into the very stocks that were running so far ahead of rational valuation it beggared belief. Then their friends and colleagues encouraged the rest of us to invest in those very stocks through collective funds devoted to the new technology. The bubble grew larger and larger, with the lure of easy, fast money. Only the sage of Omaha, Warren Buffet, stood out against the wave of conventional wisdom about the "New Paradigm".

Then the tech-media-telecoms bubble burst. So what do the funds do? They sold, sold, sold. Then the market went into a tailspin so the regulators told them to sell more, simply because the market was down, so adding another twist to the downward spiral.

The FTSE was at 3,600; blue chip shares such as Shell were just being dumped on to the market for whatever they'd get. There was was a fire sale of equities.

Amateurs like me could spot that that was a fine moment to buy, but the big men of the game it would seem did not. When the pompous know-it-alls in the City declared that the stock market was down and out for 20 years there was no better buy signal. So it has proved. Somewhere out there there is an analyst clever enough to tell us how much better off our pension funds might now be if they hadn't panicked and sold all those equities a few years ago at the bottom.

How much less acute would the "pensions crisis" now be? How many occupational schemes would still be operating ? Over the past few decades the market has shown group think and the herd mentality at its worst. Still, wasn't it always thus?

s.ogrady@independent.co.uk

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