Rich Bernstein says "Buy Japan"

I have been meaning to get to this Rich Bernstein (formerly the chief strategist at Merrill Lynch and a guy with something of a following) piece for some time. It appeared on 2/17 in the FT and concludes that Japan is a good place to invest, especially in relation to the emerging markets:

His argument starts with this:

A global credit bubble was built.

Credit related assets are starting to deflate (emerging markets).

Malinvestment from the credit bubble is being revealed.

At this point, I had my hopes up as this all sounded pretty Austrian. From Bernstein:

Bubbles create capacity that is no longer needed when a bubble deflates, and the global credit bubble  was no exception. Tremendous productive capacity was built in many emerging markets under the assumption that growth in these economies would accelerate. Those forecasts proved incorrect, and overcapacity is indeed building as the credit bubble deflates.

Unfortunately, it goes downhill from here. He highlights the idea that this malinvestment is driving global productivity down and that the primary method for gaining market share without productivity growth is currency depreciation.

In the emerging markets he says that currency depreciation isn't an option as inflation is building in those markets. However, Japan is crashing the yen. This gives Japan a wonderful opportunity to gain market share and grow.

Ergo, Japan is a wonderful place to invest.

He comes so close to grasping the idea that debasement and unbacked credit growth create malinvestment, yet throws the concept completely overboard when discussing Japan. This Austrian would summarize the article this way:

Yes, easy money created malinvestment in emerging markets following the credit induced boom. Japan is just entering this malinvestment stage, be sure to get on board.

Even with the scope of the malinvestments that we saw revealed in 2000 and 2008 and that we are starting to see come to light once again, it sometimes feels completely hopeless that analysts will ever understand ABCT and how we destroyed our society.

 Disclaimer: Nothing on this site should be construed as investment advice. It is all merely the opinion of the author.