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JAForlines Global: Kinga Shinnen and Hope Eternal

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New York, December 20th, 2012, Advisor Update®
If you watch the news enough, especially lately, you might come to the conclusion that the world is falling apart before your eyes.  We thought therefore that we would provide some perspective by focusing on what is well in the world.  Thankfully, we don’t have to look far.

In 1990, the UN announced as a part of its Millennium Development Goals that it would seek by 2015 to cut in half the number of people living in extreme poverty.  With economic malaise spread throughout the developed world and much of the developing world, one might expect that that goal will not be obtained.  However, the World Bank concluded this year that it was reached in 2008.

Likewise inequality seems to be on the rise.  Protests have erupted around the world, most notably in the Middle East and Europe, to stand up to the perceived exploitation of political and business elites.  Even here in the Land of Opportunity, the refrain “Main St vs. Wall St” has become ubiquitous.  But this perception as well cannot stand up to scrutiny.  The global Gini coefficient, a widely used measure of income equality, has declined steadily since the 1970s and shows no signs of stopping.

Other metrics show continued advancement as well.  As a result of improved medicine, people are living longer and healthier lives.  In just 10 years for example, the average life expectancy in Africa has increased from 50 to 55 years of age.  And despite what seems like constant war-making and saber-rattling, there were fewer war related deaths during the past decade than any other since the start of the 20th century.

With Christmas around the corner, and especially in light of recent tragedies, it’s important to reflect on what good there is in the world.  Luckily for all of us, there is more than plenty.

Mean reversion is a powerful force in global tactical allocation. Sharp devaluations and bubbles in asset prices always reverse over time. The trick is identifying the macro economic conditions that could trigger such a reversal. We have watched Japan decline for years under the weight of debt, no-growth fiscal and monetary policies and an aging population.

Still, its corporate roster includes some of the most successful companies in the world: Toyota, Honda, Canon and Mitsui. Considering the recent election there, the government may finally be embarking on the kinds of pro-growth reforms that it must undertake to improve its dismal contribution to global GDP. There’s some cynicism out there: Japan has tried to reform many times over the last twenty years and failed. Is this time different? Perhaps not, but in the short run, Japan is one of the most attractively priced equity markets in the world. Add the fact of a global wall of government liquidity in capital markets and an overvalued currency and you have an interesting investment thesis.

Japan the country has some beautiful vistas and many of the Shinto shrines and Buddhist temples are breathtaking in their design and tranquility inducing atmosphere. In the north, castles dot Honshu (the main island); my favorite there is Hirosaki, in the Aomori Prefecture.

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