Download IS JAPAN ‘BACK’? 2013 th

IS JAPAN ‘BACK’?
Japan Society of Northern California/Federal Reserve Bank of San Francisco, May 9 th 2013
5/8/2013
2
SOME PRELMINARY OBSERVATIONS
“It is the one sphere of life and activity where victory, security and
success is always to the minority and never to the majority. When you
find any one agreeing with you, change your mind.” Keynes, speaking of
Investment, 1937
SUMMARY
o
Causes of Japan’s “Lost Decades”
o
o
o
o
o
o
o
o
o
o
o
First – Strategic irrelevance post-1989
Second – early ‘90s headwinds strong in proportion to the size of
the bubble
Third - 1997-2012- persistent macro-economic policy mistakes.
No insuperable “structural problems
Last headwinds dropped to nothing in 2009
Senkaku spat marks Japan’s recovery of a strategic role
“Abe-nomics” represents reversal of the mistakes of 1997-2012
Anyway, monetary policy has actually been loose since 3/11
Deflation may already be over
PM Abe may just be “in the right place at the right time”
Both the initial, long period of error and its reversal echo the
‘30s.
5/8/2013
3
WHAT ACTUALLY HAPPENED?
Is Real Life lived in Real or Nominal Numbers?
Year
1995
2000
2005
2010
2011
Nominal GDP
(Y mil)
501,707
509,860
503,903
482,384
470,623
Population
(Thou)
125,570
126,926
127,768
128,057
127,799
Period
Change 1995-2011
2000-2011
Nominal GDP/head
(Y mil)
4.00
4.02
3.94
3.77
3.68
Nominal GDP per Capita
-7.8%
-8.3%
Note: GDP for Fiscal Years, Seasonally Adjusted; Population estimates as of October 1st
Source: Econostats, Statistics Bureau, Milestone Asset Management
5/8/2013
4
Real GDP
(Y mil)
455,460
474,847
503,921
512,364
509,450
Real GDP/head
(Y mil)
3.63
3.74
3.94
4.00
3.99
Real GDP per Capita
9.9%
6.6%
WHAT ACTUALLY HAPPENED?
Policy the Key to the Story of the Bubble
Topix
3,500
1989: BoJ hikes 3 times in one year
Bubble bursts (12/31/89)
3,000
BoJ's 3rd rate hike
(12/25/89)
1990: BoJ hikes twice more
2,500
"Black Monday"
Consumption tax increase
from April '97 decided
2,000
1,500
BoJ cuts
BoJ at last starts to cut
Pre"Bubble"
export-driven
bull market
begins
1,000
1991: BoJ cuts 3 times
1993: BoJ cuts twice
Fiscal/Monetary policy
easing in response to
Asian Financial Crisiss
1995: BoJ cuts twice
Q1CY86
The"Bubble" begins
500
Yen/US$ goes to 88;
International agreement
to weaken it
1992: BoJ cuts twice
1986: BoJ cuts 4
times in one year
23/9/85
Plaza Agreement - Japan accepts massive
revaluation of Y/US$ rate in order to correct Japan's
"excessive" bilateral trade surplus with the US
0
79
80
81
82
83
84
85
86
87
88
89
90
Source: Bloomberg. Milestone Asset Management
5/8/2013
5
91
92
93
94
95
96
97
98
99
WHAT ACTUALLY HAPPENED?
Policy Error the Key to the Story after the Bubble
Topix
2,000
Feb 2000: US credit
spreads start to widen;
Internet bubble bursts
1,800
BoJ begins to drain
"excess" reserves
FX Intervention Ended;
genuine easing stops
The
Earthquake/Tsunami
forces genuine easing
on the BoJ
BoJ ends
ZIRP
1,600
New Financial Minister Takenaka
ventilates possibility of total loss
for bank shareholders in context of
bank resolutions. Market tanks.
1,400
BoJ tightens
1,200
1,000
Partial Nationalisation of
Resona proves not to
involve total loss for
shareholders. Market
rallies
"QE" instituted
800
QE+FX intervention = genuine
easing
600
Gov Kuroda
pledges unlimited
easing
BoJ eases;
Fiscal policy
loosens
400
26/9/2006:
PM Koizumi
leaves office.
Topix 1610
200
26/4/2001: Koizumi becomes PM.
14/4/2003:
Topix 1366
Topix 770
0
00
01
02
03
04
05
06
07
Source: Bloomberg. Milestone Asset Management
5/8/2013
6
08
09
10
11
12
13
WHAT ACTUALLY HAPPENED?
Another, very different, Narrative – All about Strategic Position
Topix
3,500
9th November 1989 - Berlin Wall
opened. Market peaks 8 weeks
later
3,000
2,500
2,000
1,500
1,000
11th September 2012 China makes a fuss
about the Senkaku Islands. Market breaks
out in November
500
0
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
Source: Bloomberg. Milestone Asset Management
5/8/2013
7
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
5/8/2013
8
MONETARY AND FISCAL POLICY
“Even apart from the instability due to speculation, there is the instability
due to the characteristic of human nature that a large proportion of our
positive activities depend on spontaneous optimism rather than
mathematical expectations, whether moral or hedonistic or economic.
Most, probably, of our decisions to do something positive, the full
consequences of which will be drawn out over many days to come, can
only be taken as the result of animal spirits – a spontaneous urge to
action rather than inaction, and not as the outcome of a weighted average
of quantitative benefits multiplied by quantitative probabilities.” Keynes,
The General Theory of Employment, Interest and Money, 1936
WHAT IS “ABE-NOMICS”
o
o
o
o
o
Do we know what it is?
o Not really, but the fact that it is seen as a “-nomics” is an
unconscious admission that it is relevant to the economy
o Contrast with Koizumi – who was of no relevance
Could it be an “cover band, reprising the LDP’s greatest hits”?
o No. Something new, but echoes of the past are strong
Is it any more than a currency policy?
o Yes, but not much more
Isn’t that enough?
o Yes it is, so let’s forget irrelevant chit-chat about “reform”
But isn’t it also little more than a case of “political luck”
o Largely, but not entirely so.
5/8/2013
9
BANK RESERVES HEADING FOR DOUBLE THEIR 2007 PEAK
Easing has its Roots in Tragedy - the Tohoku Tsunami. Just as in 2003-7 real effects lagged…
Y bn
70,000
60,000
50,000
40,000
30,000
20,000
Current Account Balances
10,000
Excess Reserves
0
Jan-09
Nov-09
Sep-10
Jul-11
Source: BoJ, Bloomberg, Milestone Asset Management
5/8/2013
10
May-12
Feb-13
“TRIED AND FAILED” – AUSTERITY FAILED, NOT SPENDING
Proactive Fiscal Policy used only Twice – and it “worked” when tried
13%
12%
11%
10%
9%
8%
7%
Estimate of 'Managed' Expenditure as % of Nominal GDP
6%
1985
1987
1989
1991
1993
1995
1997
1999
Source: MoF, HM Treasury, Milestone Asset Management
5/8/2013
11
2001
2003
2005
2007
2009
2011
4% OF GDP ‘MONEY PRINTING’ GAVE US THE ’05 RECOVERY
Monetary policy works with long and variable lags
Y tril
60
50
40
30
20
10
0
01
02
03
04
05
06
07
Source: BoJ, Bloomberg, Milestone Asset Management
5/8/2013
12
08
09
10
11
12
THE YEN IS KEY
Yen over/under-valuation vs OECD Purchasing Power Parity Estimate
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
-20.0%
-30.0%
Source: OECD, Bloomberg, Milestone Asset Management
5/8/2013
13
Jan-12
Jan-08
Jan-04
Jan-00
Jan-96
Jan-92
Jan-88
Jan-84
-10.0%
Jan-80
0.0%
INFLATION COULD BE EASY TO PRODUCE
Labour costs competitive: US and Japan now the cheap, developed, places to produce
Minimum Wages (per hour)
In USD
Shanghai
2.28
HK
3.87
US
9.00
UK
9.50
France
12.35
Japan
¥744
US$7.67
Source: National labour data, OECD, Bloomberg, Milestone Asset Management
5/8/2013
14
(actual)
(actual)
(proposed)
(actual)
(actual)
(nationwide average)
(at current FX)
OLD INFRASTRUCTURE = MORE SPENDING = HIGHER WAGES
One third of construction workers now over 55
Source: Ministry of Land , Infrastructure and Transport
5/8/2013
15
INFLATION-ADJUSTED JGBS THINK DEFLATION IS OVER
Implied break-even inflation rate (5-year) on Inflation-adjusted JGBs
2.00
1.50
1.00
0.50
0.00
-0.50
-1.00
-1.50
-2.00
-2.50
Jun-09
Jun-10
Jun-11
Source: Bloomberg, Milestone Asset Management
5/8/2013
16
Jun-12
HOW MUST STIMULATION WORK? KALECKI SHOWS US HOW
Kalecki’s Profit Equation: Total profits = the sum of the consumption of capitalists & net
investment & the public deficit & the net external surplus minus the savings of workers
35
30
Household Savings (-)
External Surplus
Government Savings (-)
Net investment (+)
Dividends (+)
Profits
25
Percent of GDP %
20
15
10
5
0
-5
-10
Source: BoJ, MoF, Morgan Stanley, Milestone Asset Management
5/8/2013
17
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
-15
HOW MUST STIMULATION WORK? KALECKI SHOWS US HOW
Kalecki’s Profit Equation: Total profits = the sum of the consumption of capitalists & net
investment & the public deficit & the net external surplus minus the savings of workers
If it isn’t the interest rate alone that equilibrates savings and investment there is a function for
other factors
This opens up a role for, for instance, Tobin’s ‘Q’ arbitrage and for “animal spirits”
In Japan’s case, net investment (investment less capital consumption (economic depreciation))
has fallen consistently since the onset of deflation and is now negative
A rise in investment is actually a ‘good thing’ when your starting point is capital consumption
(let’s glide over the data quality complications…)
Raising dividends would also be a ‘good thing’ for profits because it would increase the income of
capitalists
Implication is that ‘Abe-nomics’ will really work by stimulating the non-salariman portion of the
country – it is inherently redistributionist.
The issue is how long the essentially non-capitalist salariman will consent to give up the gains he
has made in relative terms over the past 16 years.
5/8/2013
18
5/8/2013
19
IMAGINARY “STRUCTURAL PROBLEMS”
“It is astonishing what foolish things one can temporarily believe if one
thinks too long alone, particularly in economics.” Keynes, The General
Theory of Employment, Interest and Money
DO RATINGS AGENCIES HAVE ANYTHING TO SAY?
Or Are They Inadvertently Admitting that Deflation, Not Spending, is the Issue?
1.5
JGB yield; %
Credit rating
1.9
2.0
1.7
2.5
1.5
1.3
3.0
1.1
3.5
0.9
4.0
0.7
Average credit rating
10yr bond yield (RHS)
Source: CLSA , Milestone Asset Management
5/8/2013
20
Dec '12
Dec '11
Dec '10
Dec '09
Dec '08
Dec '07
Dec '06
Dec '05
Dec '04
Dec '03
Dec '02
Dec '01
Dec '00
0.5
Dec '99
4.5
JAPANESE ARE NOW `POOR`
A “Salariman’s” “Pocket Money” has halved in 20 years
(JPY/month)
80,000
73,858
70,000
66,633
66,527
60,861
60,000
60,603
58,593
53,582
54,706
52,579
53,000
49,657
50,000
56,837
53,532
55,455
54,691
48,703
49,609
46,394
45,445
46,116
45,104
42,958
40,000
37,786
41,302
40,641
37,546
39,603
38,377
36,647
32,885
30,000
29,480
20,000
79
81
83
85
87
89
92
96
Source: Shinsei Bank , Milestone Asset Management
5/8/2013
21
98
00
02
04
06
08
10
05
WHAT MIGHT HAVE BEEN……
110 Trillion Yen of GDP Gone Missing = Depressed Tax Collections
650
Assume 1% nominal growth since 1997
600
550
500
450
Actual GDP in Nominal Terms
400
350
300
250
200
1980
1985
1990
1995
2000
Source: Morgan Stanley, Milestone Asset Management
5/8/2013
22
2005
2010
2015
DID JAPANESE SUDDENLY BECOME “TAX CHEATS” IN ‘96?
What changed was Deflation, not “Tax Evasion”
% of Corporate Sector's Sales represented by Loss-making Companies
50
45
40
35
30
25
20
15
Onset of Deflation
10
5
0
1951
1956
1961
1966
1971
1976
1981
Source: NTA, Morgan Stanley, Milestone Asset Management
5/8/2013
23
1986
1991
1996
2001
2006
LOSSES OF LOSS-MAKING COMPANIES 4% OF GDP
Profits of Profitable Companies Essentially Unchanged post-1996
70
(Y Tril）
60
50
40
30
20
10
0
-10
-20
-30
-40
1963
1968
1973
1978
1983
1988
Source: NTA, Morgan Stanley, Milestone Asset Management
5/8/2013
24
1993
1998
2003
2008
12% DECLINE IN WAGES LEADS TO 40% DROP IN TAX
Income Tax Withheld at Source on Regular Wages
14
250
(Y Tril）
12
200
10
150
8
6
100
4
50
Income Tax Withheld（LHS）
2
Total Wages（RHS）
0
0
72
77
82
87
92
Source: NTA, Morgan Stanley, Milestone Asset Management
5/8/2013
25
97
02
07
CRUMMY ECONOMY = SPENDING UP & TAXES CRUSHED
FY 2011– Spending at deflationary period highs, revenues at secular lows
% of Nom in a l GDP, Fisca l Yea r s
T ot a l Ex pen dit u r e (A s decla r ed)
of w h ich :
In t er est Pa y m en t
Socia l w elfa r e
Loca l Gov . T a x Gr a n t s, Specia l Gr a n t s a n d ot h er s
A ll Ot h er Ex pen dit u r es
A ct u a l T ot a l Expen dit u r e l ess In t er est Cost s
A v er a ge
1 7 .6 0 %
1997-2011
High
2 1 .3 0 %
Low
1 5 .3 0 %
La st y ea r
A ct u a l
2 1 .3 0 %
1 .7 0 %
4 .3 0 %
3 .3 0 %
8 .3 0 %
15.90%
2 .1 0 %
6 .3 0 %
4 .1 0 %
1 0 .1 0 %
19.70%
1 .4 0 %
3 .0 0 %
2 .6 0 %
7 .2 0 %
13.20%
1 .7 0 %
6 .3 0 %
4 .1 0 %
9 .2 0 %
19.60%
9 .4 0 %
1 0 .5 0 %
8 .2 0 %
9 .1 0 %
3 .1 0 %
2 .2 0 %
2 .0 0 %
2 .0 0 %
3 .7 0 %
2 .9 0 %
2 .2 0 %
2 .3 0 %
2 .7 0 %
1 .3 0 %
1 .8 0 %
1 .9 0 %
2 .8 0 %
2 .0 0 %
2 .2 0 %
2 .1 0 %
T a x a n d Ot h er Rev en u e in T ot a l
of w h ich :
In com e T a x
Cor por a t e T a x
Con su m pt ion T a x
Ot h er r ev en u es
Re-St a t ed Cen t r a l Gov er n m en t Su r plu s/Deficit
-1 0 .5 0 %
Source: MoF, Milestone Asset Management
5/8/2013
26
BETTER ECONOMY = SPENDING DOWN & TAXES UP
Let’s remember that just as inflation is a “tax increase” so deflation is a “tax cut”
Hy pot h et ica l Ca se
T ot a l Ex pen dit u r e (A s decla r ed)
of w h ich :
In t er est Pa y m en t
Socia l w elfa r e
Loca l Gov . T a x Gr a n t s, Specia l Gr a n t s a n d ot h er s
A ll Ot h er Ex pen dit u r es
A ct u a l T ot a l Expen dit u r e l ess In t er est Cost s
T a x a n d Ot h er Rev en u e in T ot a l
of w h ich :
In com e T a x
Cor por a t e T a x
Con su m pt ion T a x
Ot h er r ev en u es
Re-St a t ed Cen t r a l Gov er n m en t Su r plu s/Deficit
A ssu m pt ion
3 .4 0 %
4 .5 0 %
3 .5 0 %
8 .7 5 %
20.15%
Dou ble
Ret u r n
Ret u r n
Ret u r n
A ssu m pt ion
FY 2 0 1 1
t o Mea n
t o Mea n
t o Mea n
1 3 .0 0 %
4 .6 0 %
3 .5 0 %
2 .0 0 %
2 .9 0 %
-7 .1 5 %
Source: MoF, Milestone Asset Management
5/8/2013
"Refl a t ion Wor ks"
27
4 .0 0 %
3 .0 0 %
2 .6 0 %
7 .2 0 %
16.80%
2 .3 5 x FY 2 0 1 1
Fa ll t o low s
Fa ll t o low s
Fa ll t o low s
1 6 .5 0 %
Pr e-defla t ion A v er a g e
Pr e-defla t ion A v er a g e
A v er a g e post -1 9 9 7
Pr e-defla t ion A v er a g e
5 .8 0 %
4 .8 0 %
2 .2 0 %
3 .7 0 %
-0 .3 0 %
Rise
Rise
Rise
Rise
t o pr e-defla t ion
t o pr e-defla t ion
t o pr e-defla t ion
t o pr e-defla t ion
h ig h s
h ig h s
h ig h s
h ig h s
SOCIAL SPENDING: NO LINK WITH “DEMOGRAPHICS”
Year-on-year (FY) Change in Central Government “Social Welfare Expenditure”
50%
40%
30%
20%
10%
0%
-10%
67
70
73
76
79
82
85
88
91
Source: MoF, Milestone Asset Management
5/8/2013
28
94
97
00
03
06
09
12
THE GROWTH PROBLEM IS NOT “DEMOGRAPHICS”
Growth and Population Change in 147 countries over the last 30 years - No Relationship
8%
r2 = 4%
7%
6%
19
417
Population growth
5%
4%
3%
2%
1%
0%
-10%
-5%
0%
5%
10%
15%
-1%
20
2
-2%
Source: IMF, CLSA , Milestone Asset Management
5/8/2013
GDP CAGR
29
20%
RELAXING OR LAID OFF? BECOMING A “NORMAL” COUNTRY
Japanese Working Hours – Steep post-Bubble Decline; Now at OECD Average
2,300
Hours per year
2,200
2,100
2,000
1,900
1,800
1,700
1970
1975
1980
1985
1990
Source: OECD, JP Morgan , Milestone Asset Management
5/8/2013
30
1995
2000
2005
2010
NUCLEAR POWER – SCARE STORIES TO BE IGNORED
Conventional sources of generation more or less cover Japanese power needs
Output (mn kWh)
Total
Peak
Nuclear
Therm al
Hy dro
Purchase
non-nuclear
pre-quake
77,431
25,967
52,7 98
7 ,837
1 6,7 97
post-quake
90,344
17,083
64,445
7 ,239
1 8,660
Assumptions : Output roughly = demand < supply capacity
peak dem and
96,173
Aug-07
Pre-quake nuclear peak
25,967
Peak dem and less non-nuclear supply
5,829
Probable need for nuclear/nuclear capacity
22%
(= peak dem and m inus post-quake non-nuclear supply as a % of pre-quake nuclear output)
Source: METI, BAML, Milestone Asset Management
5/8/2013
31
LIMITATIONS OF BIG-COMPANY MANAGEMENT
32
5/8/2013
HAS THE EARNINGS UP-SHIFT ALREADY OCCURRED?
Trailing 10-year Average Real EPS since 1980
Source: Morgan Stanley, Milestone Asset Management
5/8/2013
33
20 YEAR DELEVERAGING REDUCES ROE
Deflation = Deleveraging
8
(x) Total Assets/Net Assets
7
6
5
4
3
2
1
1963Q3
1975Q3
1987Q3
1999Q3
Source: Ministry of Finance, Morgan Stanley, Milestone Asset Management
5/8/2013
34
2011Q3
20 YEAR DELEVERAGING REDUCES CAPITAL EFFICIENCY
Renewed Rise in Leverage & Asset Turnover Requires the End of Deflation
1960s
A v era ge
ROE (%)
1970s
A v era ge
2010s
A v era ge
8 .4 0
4 .9 8
6 .01
4 .8 8
1 .7
111
4 .2
1 .2
120
5 .1
1 .4
129
4 .7
1 .4
97
3 .6
2 .5
89
2 .7
3 .3
78
2 .4
A ssu m e
Net Ma r gin
3.30%
Nor m ROE
90%
95%
100%
105%
110%
115%
120%
8 .1 7 %
8 .9 1 %
9 .6 5 %
1 0 .4 0 %
1 1 .1 4 %
1 1 .8 8 %
1 2 .6 2 %
8 .6 2 %
9 .4 1 %
1 0 .1 9 %
1 0 .9 7 %
1 1 .7 6 %
1 2 .5 4 %
1 3 .3 2 %
9 .0 8 %
9 .9 0 %
1 0 .7 3 %
1 1 .5 5 %
1 2 .3 8 %
1 3 .2 0 %
1 4 .0 3 %
9 .5 3 %
1 0 .4 0 %
1 1 .2 6 %
1 2 .1 3 %
1 2 .9 9 %
1 3 .8 6 %
1 4 .7 3 %
9 .9 8 %
1 0 .8 9 %
1 1 .8 0 %
1 2 .7 1 %
1 3 .6 1 %
1 4 .5 2 %
1 5 .4 3 %
1 0 .4 4 %
1 1 .3 9 %
1 2 .3 3 %
1 3 .2 8 %
1 4 .2 3 %
1 5 .1 8 %
1 6 .1 3 %
1 0 .8 9 %
1 1 .8 8 %
1 2 .8 7 %
1 3 .8 6 %
1 4 .8 5 %
1 5 .8 4 %
1 6 .8 3 %
Source: Morgan Stanley, Milestone Asset Management
5/8/2013
2000s
A v era ge
8 .7 9
Scen a r io A n a l y sis
2 .7 5
3 .0 0
3 .2 5
3 .5 0
3 .7 5
4 .0 0
4 .2 5
1990s
A v era ge
7 .8 5
Net Ma rgin (%)
A sset T u rn ov er
Lev era ge Ra t io
A sset T u r n ov er
Lev er a ge (x)
1980s
A v era ge
35
BIG COMPANIES DO NOT USUALLY EARN A RETURN
The “Good News” is that Returns should go back towards the 2006/7 level; the “Bad News” is
that that will still only equal the Cost of Capital
Source: Bloomberg, Morgan Stanley , Milestone Asset Management
5/8/2013
36
PRODUCTIVITY REMAINS A MACRO PROBLEM…
Relative Labour Productivity and the Stock Market
300
1.20
1.15
250
1.10
1.05
200
1.00
150
0.95
0.90
100
0.85
0.80
50
Nikkei in US$
0.75
Relative Labour Productivity
Source: Bloomberg, Mitsubishi UFJ Morgan Stanley , Milestone Asset Management
5/8/2013
37
Mar-12
Mar-10
Mar-08
Mar-06
Mar-04
Mar-02
Mar-00
Mar-98
Mar-96
Mar-94
Mar-92
Mar-90
Mar-88
Mar-86
Mar-84
Mar-82
Mar-80
Mar-78
Mar-76
Mar-74
Mar-72
0.70
Mar-70
0
…WITH MICRO ROOTS - BLOATED WORKFORCES
Workers
(no.)
FY 2011
Sales/Worker
(Ymn)
Hitachi
Toshiba
Mitsubishi Electric
350,000
203,000
114,000
25.75
31.58
31.85
323,000
191,000
117,000
24.71
30.12
32.37
Panasonic
Sony
Sharp
TDK
348,000
168,000
56,000
88,000
22.22
42.69
54.37
9.97
290,000
190,000
50,000
34,000
25.13
35.25
37.28
19.65
Canon
Ricoh
198,000
109,000
17.94
17.81
87,000
67,000
32.09
21.49
Nissan
Toyota
Honda
159,000
318,000
179,000
55.03
59.78
49.91
136,000
211,000
112,000
43.84
61.12
54.26
NTT
219,000
46.98
224,000
46.53
Kajima
15,000
87.89
19,000
92.23
Fast Retailing
33,323
24.62
1,853
185.74
Shiseido
Fuji Photo
Shinetsu Chemical
32,595
81,691
16,167
20.94
26.88
64.81
24,495
37,151
18,754
24.36
37.73
36.20
Fanuc
SMC
5,198
15,384
103.60
22.22
3,707
9,891
56.39
19.64
Komatsu
HCM
44,206
21814
44.83
37.46
28,522
9,503
37.01
33.85
Source: Bloomberg, Milestone Asset Management
5/8/2013
FY 2000
Workers
Sales/Worker
(no.)
(Ymn)
38
...AND SPECIFICALLY WHITE -COLLAR OVEREMPLOYMENT
How Gross Cashflow has been Used by Selected Major Consumer Electronics Companies (Averages)
Averaging
Period
Panasonic
Sharp
Sony
Philips
Siemens
Samsung
Apple
Hon Hai
10 years
3 years
10 years
3 years
10 years
3 years
10 years
3 years
10 years
3 years
10 years
3 years
10 years
3 years
10 years
3 years
Depreciation
SG&A
R&D
Interest
Other nonOp costs
Tax
Dividend
Retained
Earnings
Gross Cash Flow
11%
11%
33%
39%
16%
16%
9%
7%
10%
8%
19%
19%
3%
3%
13%
14%
58%
60%
28%
29%
50%
52%
62%
68%
53%
46%
40%
42%
25%
19%
38%
42%
21%
21%
25%
26%
27%
26%
20%
17%
18%
17%
15%
15%
8%
6%
11%
3%
1%
1%
1%
1%
1%
1%
3%
3%
4%
1%
1%
1%
0%
0%
2%
1%
7%
16%
8%
14%
-4%
1%
-7%
-2%
-3%
-2%
-3%
-4%
-2%
-1%
-5%
-5%
4%
4%
5%
8%
7%
15%
3%
3%
5%
8%
5%
5%
18%
19%
7%
6%
2%
1%
3%
3%
1%
2%
6%
7%
6%
9%
2%
2%
0%
0%
7%
5%
-3%
-14%
-3%
-21%
0%
-14%
4%
-3%
8%
10%
20%
21%
48%
54%
27%
23%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Source: Citi Investment Research, Milestone Asset Management
5/8/2013
39
IMPORTANT DISCLOSURES
Milestone Asset Management Co. Ltd (the “Manager”) is the Investment Manager of the Ichirizuka Fund and the Investment Advisor to the Simplex
Milestone Small-cap Value Fund (together, the “Fund(s)”).
This information is for illustration and discussion purposes only and is not intended to be, nor should it be construed or used as, investment, tax,
ERISA, or legal advice, any recommendation, or an offer to sell, or a solicitation of any offer to buy, any securities, units or interests in any fund,
including an unit or interest in any private investment fund managed or advised by Manager, including the Fund(s).
Any offer or solicitation of an investment in the Fund(s) may only be made only upon delivery of the offering and subscription documents (the “Fund
Documents”) to qualified investors. Prospective investors should rely solely upon such Fund Documents in making any investment decision. An
investment in the Fund(s) is not suitable for all investors. This presentation has not been prepared for any particular investor or client or necessarily
for any particular type of investor or client.
Neither the Manager nor any of its affiliates, employees, agents or representatives are authorized to make (or, through information contained herein,
are making) any representations or warranties inconsistent with or in addition to those contained in the Fund`s(s`) Documents.
Investments in the Fund(s) will be selected by, and will vary at the sole discretion of, the Manager and are subject to availability and market conditions,
amongst other factors. No representation is made that the Manager`s or the Fund`s risk management, investment process or investment objectives will
be or are likely to be achieved or successful, or that the Fund or any of its investments will make any profit or will not sustain losses. Past performance
is not indicative of future results.
Return targets or objectives and volatility targets, if any, are used for measurement or comparison purposes and only as a guideline for prospective
investors to evaluate particular investment opportunities and accompanying information. Targeted returns reflect subjective determinations by the
Manager based on a variety of factors, including, amongst others, prior performance of similar investments (if any), volatility measures, risk tolerance
and market conditions. Performance may fluctuate, especially over short periods. Targeted returns should be evaluated over the time period indicated
and not over shorter periods. Targeted returns are not intended to be actual performance and should not be relied upon as an indication of actual or
future performance.
Any assumptions, assessments, intended targets, statements or the like (collectively, “Statements”) regarding future events, future market conditions
or expectations, investment opportunities, market conditions or commentary or which are forward-looking constitute only subjective views, outlooks,
estimations or intentions, are based on the Manager`s expectations, beliefs or intentions, should not be relied upon, are subject to change without
prior notice due to a variety of factors, including fluctuating market conditions and economic factors, and involve inherent risks and uncertainties,
both general and specific, many of which cannot be predicted or quantified and are beyond the Manager`s or the Funds` control. Future evidence and
actual results (including actual composition and investment characteristics of future Fund portfolio investments) could differ materially from those set
forth in. contemplated by, or underlying these Statements. In light of these risks and uncertainties, there can be no assurance and no representation is
given that these Statements are now or will prove to be accurate or complete in any way. The Manager undertakes no responsibility or obligation to
revise or update such Statements.
(Continued overleaf)
5/8/2013
40
IMPORTANT DISCLOSURES
(Continued…)
Any descriptions or information involving investment objectives or criteria, investment process, or investment strategies are provided for illustration
purposes only, may not be fully indicative of any present or future investments, may be changed at the discretion of the Manager and are not intended
to reflect actual performance or to project performance.
Any information concerning past performance of any fund is presented for illustrative purposes only. There can be no assurance that the investment
returns of the Fund (s) will repeat or resemble the patterns of the past. Past performance is not an indication of future performance.
This information is as of the date(s) indicated, is not complete, is subject to change, and does not contain material information regarding the Fund,
including specific information relating to an investment in the Fund(s) and related important risk disclosures. Before making any investment,
investors should thoroughly review the Fund (s) Documents with their professional advisor(s) to determine whether an investment is suitable for
them. The Fund(s) are unregistered private investment funds that may invest and trade in many different markets, strategies and instruments,
including securities, non-securities and derivative) and are NOT subject to the same regulatory requirements as mutual funds, including mutual fund
requirements to provide certain periodic and standardized pricing and valuation information to investors. An investment in the Fund(s) may involve a
high degree of risk and volatility and could be highly illiquid.
Certain information contained herein has been provided by and/or is based on third party sources, and although believed to be reliable has not been
independently verified and its accuracy, timeliness or completeness cannot be guaranteed.
This information is confidential, is the property of the Manager, is intended only for the intended recipients and their authorized agents or
representatives, and may not be distributed to any other person without our prior written consent.
5/8/2013
41
MILESTONE ASSET MANAGEMENT
Enquiries:
Alexander Kinmont
Tel: 03-5413-4196
Fax: 03-5413-4192
E-mail:
[email protected]
www.mamj.com
4F Keyakizaka Terrace
Roppongi 6-15-1
Minato-ku
Tokyo
5/8/2013
Discretionary asset management company for qualified investors registered with the FSA
(Registration No. : Kanto Financial Bureau 1064)
Member of Japan Investment Advisers Association
(Membership No.: 012-02093)
42