Land of the Falling Property Price

In the weekend edition of the Daily Reckoning, we mentioned
how Tokyo real estate prices had gone up for the first time
in 17 years.

Then it occurred to us…this idea might fit Dr. Steve
Sjuggerud’s investment model.

Dr. Sjuggerud loves investments that other people hate.
It’s the foundation of his newsletter, True Wealth, and a
technique that turns a profit almost every time – if you
have the testicular fortitude to employ it.

There’s one danger – like standing under a falling piano,
you don’t want buy investments still on their way down. So
Dr. Sjuggerud only opens his wallet when he sees evidence
of a turnaround in price…just like Japanese real estate
prices have turned this month.

So we sent an email asking him what he thought.

"You’ve got me figured out," came his reply. "I just wrote
about Japan’s real estate in Investment U, out later
today…!"

And so he had. Except in his issue, we found Dr. Sjuggerud
wasn’t recommending Japanese real estate as an investment.
He was using it to show why the prevailing wisdom in
America – that prices always go up – is wrong.

"Our house sold!" began his story. "My wife and I went by
yesterday to clean out the last few things, and our old
neighbor stopped by to tell us the plans for his house."

"’We’re moving too – an hour north of here,’ said the
neighbor. ‘You can’t go wrong with real estate on our
island.’ This of course, is said in every real estate
conversation here nowadays, and probably everywhere else on
the Florida coast."

"My friend continued: ‘We’re up a few hundred thousand
dollars on this house. So we’re going to buy a house an
hour north of here AND buy a condo here, so we can keep a
place here.’"

"’Why two places?’"

"’The way prices are going on this island these days, if we
don’t buy it now, we won’t ever be able to afford to buy
here again.’"

But as we thought about it more, it came clear that Dr.
Sjuggerud’s neighbor is the reason Japanese real estate
could be such a good investment.

Japan has suffered the worst property bust in modern
history. According to Dr. Sjuggerud’s painstaking research,
prior to the great crash, house prices in Japan went up
every year since 1950, with the exception of 1975.

"Land can never go down in value," the Japanese must’ve been
thinking as they bid up prices until the land under Tokyo
was worth as much as all of the land in the U.S.A.,
according to one newspaper’s calculation.

In 1991 alone, says another source, the year the bubble
burst, 12 leading Japanese banks poured $470 billion in
loans into the property sector, equal to a quarter of the
total loans made in the year.

But since 1991, prices have only gone down. Now the
converse is true, they all must think: "Prices can only go
DOWN."

"Once you kill the animal spirits (after a bubble pops) it
takes a whole new generation to pass before anyone has the
stomach for risk and speculation," said Dan Denning when we
asked him for an opinion. "Second, the old axiom ‘you can
lead a horse to water’ works here. You can manipulate
saving and investment with interest rates, but people will
ultimately see through the artificial incentive and choose
the least damaging investment. Owning 30-year U.S. bonds
with a 7% yield seems like a much better idea than owning
Japanese paper or commercial real estate."

"Deflation is the problem," says Dr. Sjuggerud. "Why borrow
money today when you’re buying something that will be worth
less tomorrow.

"Hard to imagine it’s going on, isn’t it?"

Indeed it is, Dr. Sjuggerud. But when you find a pocket of
investors lacking imagination, there’s usually a golden
lining…

If you think we may have turned the corner in Japan, and
you have the testicular fortitude to speculate on it, you
have several choices. You could just buy Japan as a whole
by investing in a tracker fund or an ETF; as the above
chart shows, the stock market is highly sensitive to
changes in land values.

Or you could get your broker to check out some Japanese
companies with real-estate assets, like Tokyo Theatres, the
leisure facilities group, Yomiuri Land, Toho Real Estate
and Iida Home Max.

Or finally, you could just move to Tokyo…

For most of us though, this is just one to watch.

Did You Notice…?
By Tom Dyson

The World’s Biggest Card Game

A group of poker professionals and one rich Texan are close
to agreeing the terms for a rich poker game…the richest
ever.

$80 million will be at stake. And the game will probably
take place in the Bellagio, but that’s still in
discussion…

Here’s the situation. On the one hand you have a consortium
of poker professionals led by Doyle Brunson. On the other,
you have Andy Beal, billionaire, and richer than all the
poker players combined.

Fed up of reading "fisherman’s tales" about him and his
previous poker games against Brunson and his gang in Las
Vegas, Beal threw down the challenge in a published letter
to the consortium. "Call me naïve (I’ve been called worse),
but I believe that I am the favorite in a heads-up limit
high-stakes game against most of you," he wrote. "For the
record, I challenge you to put up or shut up about your
‘professional play.’"

He then invited the posse to come to Dallas and play him
until "one of us runs out of money or cries uncle."

Brunson wrote back. He apologized for the "fisherman’s
tales" and then accepted the challenge on behalf of the
crew…with four conditions: [Ed. Note: Heads up poker is
one-on-one play. $30,000-$60,000 would be the minimum bet.
$30,000 in the first two rounds of betting, $60,000 in the
second two.]

"1. We will raise a $40 million bankroll and post it along
with yours. (Everything is contingent on raising the money,
but I think it is very realistic that we can expand and
raise it.)"

"2. We will play $30,000-$60,000. If either side loses half
of its post-up money, it can raise the stakes to $50,000-
$100,000. There is an old axiom that applies here: Get out
the way you got in!

"3. We will choose who plays and when.

"4. We prefer to play in Vegas, the gambling capital of the
world. Most of us live here, and what would we do in Dallas
when we weren’t playing? This is negotiable. The first
three points aren’t."

Whatever his decision, Beal’s response will be published
later this week…

Card Player

And the Markets…