What companies might do well during the depression? I know it's a tough question, but what if one were to look at businesses and industries (as opposed to financial investments) that have done well in Japan over the last ten or twelve years in spite of the deflationary depression there?

Responder: Tom Denham Date: 1/7/2005
For an answer to this question we turned to Mark Galasieski, one of our subscribers with experience in Japan, and to JohnH, another subscriber. - Tom Denham.

(Tom Denham provides Mn.-Wd.-Fri. forecasts of the FTSE, DAX, CAC, SMI, Euro Stoxx 50, Bund and Special Opportunities (Euro vs. Dollar, individual European stocks, and smaller European stock market indices) in his European Short Term Update and the monthly European Financial Forecast Service, both of which are part of the European Financial Forecast Service.)

"The idea of applying the Japanese template to the American situation is an interesting idea, and it might work in some cases, but I would argue that most of the template will not fit because:

A. Over the period Japan had a strong global economy to keep its export industries on life support, while this time the U.S. won’t.

B. Japan had only just begun to outsource its manufacturing offshore en masse during the period, leaving a lot of room for first-movers to improve margins, while the U.S. is much closer to scraping the bottom of the barrel in that area.

C. Japan had just begun to deregulate certain industries in the 1990s that the U.S. had already opened up in the 1980s. For example, Big Box stores became possible in Japan only after zoning regulations, which had earlier restricted the size of retail stores, were changed. Like in Vermont, it took long battles before the chains were able to overcome the voting clout of the Mom & Pops, but now the genie is out of the bottle.

But, to answer the question, during the 6 years that I lived in Japan (92-93, 94-96, and 97-2000), I did notice some counter-cyclical businesses that seemed to sprout up "like bamboo shoots after a spring rain." For the record, they were:

1. Internet: Softbank, Yahoo Japan, Trans Cosmos

2. Wireless: NTT Docomo, and wireless retailers

3. IT Providers: Intelligent Wave

4. Niche Semiconductors: Tokyo Electron, Tokyo Seimitsu

5. Video Games: Sony, Sega, Nintendo

6. Big Box and Discount Retailers: D2 (DIY chain like Home Depot), Don Quixote (imported casual wear like T.J. Maxx), "100 Yen Shops" (like Ninety-Nine-Cent Stores), discount air ticket sellers (were doing well even before the internet became widespread), Autobacs (like Autozone), Yamada Denki (like Best Buy), and even Toys ‘R Us for a time

7. Regional and national supermarket chains: Daiei, Ogino, etc.

8. Convenience Stores: Seven Eleven Japan, Lawson, Circle K, etc.

9. Credit Providers: Promise, Lake, Orix, etc. But the more shady, regional competitors of the above national companies, charging interest rates often greater than 20%, initially behaved in some cases like loan sharks. In the early 1990s, newspapers even frequently reported on the relationship of certain such companies with Yakuza (Japanese mafia) groups.

My hunch is that the Japanese "lost decade" merely stretched the inevitable pain over a long period, and that the U.S. will go through a similar process much quicker. For example, look at how quickly our last ditch consumers - teenage girls - capitulated. Spending in that demographic increased 9% per year for the four years through 2001, only to fall by double digits in the first half of 2002. Yet Japan’s last wave of consumer soldiers - single women in their 20s and 30s still living at home practically rent-free ("parasites," as they are affectionately known)- only began to buckle after 2000. But there is always a phoenix somewhere... - Mark Galasieski, Subscriber."

JohnH writes: "In a depression there's a shortage of capital and an abundance of labor. You don't want to be in competition with most minimum-capital-needed types of businesses, e.g. the number of bakeries rose sharply in the 1930s. If you want to own a business, consider (a) movie theatres and/or ( restaurants that serve spicy food (when folks DO go out to eat they will want to make the trip worthwhile). Instead of working, consider taking your capital and investing it in short positions in the CRB futures index. It's not unusual for commodity prices to fall 30% in a standard recession; they would obviously go much lower in a depression. Does EWI offer a service that regularly tracks the CRB? You should also consider location. New York City, for example, would be a disaster area. Therefore a great place to pick up bargains very late in the cycle, but you don't want to be there DURING the down cycle. --JohnH"

(Tom Denham provides Mn.-Wd.-Fri. forecasts of the FTSE, DAX, CAC, SMI, Euro Stoxx 50, Bund and Special Opportunities (Euro vs. Dollar, individual European stocks, and smaller European stock market indices) in his European Short Term Update and the monthly European Financial Forecast Service, both of which are part of the European Financial Forecast Se

Interesting Concept:
last ditch consumers - teenage girls - Spending in that demographic increased 9% per year for the four years through 2001, only to fall by double digits in the first half of 2002.

Yet Japan’s last wave of consumer soldiers - single women in their 20s and 30s still living at home practically rent-free ("parasites," as they are affectionately known)- only began to buckle after 2000

WHO are the last ditch consumers in the UK?

20 something analysis paralysis HPC obsessed, live at parent home renters.
( parasites)

Troll!

Hi DrBubb, I remember the last recession in the UK and the business that I remember doing well were, private bailiffs (then a £40.00 fee and a short test and you’re licensed, fueled with demand serving court papers and collecting debts etc). Debt recovery businesses, (that used to collect the debts- but rarely passed them on to their clients). Business consultants, (that were called in by failing business, and who made a fortune saying they could save a business from bankruptcy- only to hasten it with their fees, not forgetting the new systems which needed the consultant to run ... at their consultants hourly rate). Pawn brokers came back into fashion but they were selling high vlaue items - redeemed from people who couldn't pay thier rent / mortgage but had a Rolex, from when times were good. Auction houses did well selling second hand fridge’s and couches and general housewares etc from clearances by the Sheriffs office (Bailiffs) creditors i.e. HP companies, or Councils collecting council tax arrears. Yes the discount shops did well, but these were supplied by the Job lot buyers who cleared warehouses of stock for cash, and these did very well selling smaller parcels of goods to the £1 shops (then 50p shops). Business with payrolls to meet, with poor cash-flow were forced to sell stock at short notice for whatever the could get, just to keep going, then they went bust and then the chain of bailiffs, debt collectors, and auction houses kicked in. Later on Accountants did well doing the books from the upsurge of little business spouting up investing their redundancy payoffs in low tech businesses as the self employed. And the million and one “business opportunities advertised in the exchange and mart and such like promising high pay, from few hours, and no experience necessary- just £1-3 k and you too can be your own boss!

DrBubbto I don’t know what you think of my advice which is, in a recession move yourself and your money to a country that is not in recession. Then when the UK recovers with a commercial government installed, come back if you wish, pick up some cheap property and some eager employees and make some more money. Or if you want to stick it out, open a business that profit’s from people’s misfortunes.

funnily enough,Japan is somewhere that might be worth looking at now!!!

that and energy related shares are my top bets.(if you want nuke exposure british energy might be worth a punt,and also BHP billiton as it now mines uranium since it took over WMC)

Bankcrupcies anyone?

The following is from "The Investor's Chronicle" June 10th 2005


The prospect of an economic dowturn is music to the ears of Begbies Traynor (BEG).The insolvency,corporate rescue and recovery specialist is one of a few companies that benefits when times are tough.Creditors,such as banks,turn to Begbies to help realise the value of insolvents and,in turn,pay fees relating to the length of each job.
The time-cost payment system provides Begbies with good visibility,as cases can take up to three years to close.Begbies' first step is to acheive a 'going concern' sale for the business itself.It then chases assets,such as book debts and property.Organic and acquisitive growth have been impressive so far,and the company is winning market share by stengthening its position in local communities (rather than large cities),from which larger insolvency specialists are retrenching.
When it floated on Aim last October,the group set a target of doubling its insolvency activity over the next three years.But it has also been adding complementary sevices,such as corporate finance,to its offering.In May,it agreed to pay up to 3.7M for MCF Corporate Finance,which is expected to add sales of around 500k.As well as widening the goup's revenue base,the addition should also provide some form of hedging as corporate finance will perform well in a booming economy-when insolvencies drop off.
Begbies' latest acquisition,FDB International,is an established commercial investigation and security agency.This boosts the group's forensic investigation division and will further strengthen its relationships with clients.A move into the consumer market should be next,with the acquisition of an individual voluntary agreement (IVA) specialist.
Begbies has proved its ability to make astute acquisitions and it now looks well positioned in a growing market.Despite the heady rating of 22 times forecast earnings,the shares look attractive Buy

BULL POINTS

Acquisitions should provide growth

Well-positioned across the economic cycle

Good visibility

BEAR POINTS

Shares are highly rated

Limited tradin record




Muttley adds-This caught my eye because my accountant recently commented that the busiest department in his firm at the moment is the insolvency department.

This post does not constitute a recommendation.At the time of posting I do not hold any shares in this company.DYOR etc.

BUMP


Is there anyone who wishes to share their views please do so now.

The UK is moments away from a "technical recession" as I write this.