There’s a problem coming though it’s likely not what you’ve been told.

In a previous article “The Real Reason For A Refugee Crisis In Europe” we looked at the actions taken by western governments in order to fill the income gap on the Ponzi scheme of entitlements via mass immigration.

Careful though before we tread any further. Just discussing this presents us with a highly volatile substance. In an increasingly charged world where stating anything not deemed politically correct, even if and maybe especially if the flaws in the popular narrative are stated factually, puts one at risk of being banned from social media outlets, associated with Hitler and if you’re unlucky enough to come into the crosshairs of the loony left, physically beaten.

It is an exceptionally good reasons to dive right in.

In that article I specifically said…

“The refugee labour force is unskilled, uneducated, often violent, and arriving for the benefits… which are rapidly drying up.

This is in fact accelerating the demise of the Ponzi — sucking out more capital rather than replacing it. And this is without mentioning the social upheaval being caused.”

Indeed every talking head Western educated economist has been repeating the same tired mantra…and in a curious incestuous feedback loop this is then backed up by liberal arts majors who continue to tell us that “diversity is strength” and God help anyone who disagrees with these frizzy haired halfwits because you’ll immediately be labelled a fascist, which is a curious thing. Curious because fascism clearly isn’t something these folks have bothered to understand the meaning off. You know…consult a dictionary to look up the meaning, – which brings me to books. History books in particular. Something none of these geniuses seem to have ever read. Because if they did the entire premise would summarily be torn to shreds. It’s a good thing people no longer read otherwise how on this green earth would so many manage to join in mutual consensus on what is clearly absurdly wrong. Perhaps its appeal lies in the fact that it’s one way to hallucinate without taking magic mushrooms.

In any event we’re barrelling down this path at an accelerating speed whether we like it or not. We…as in me don’t like it but nobody cares about “we”, so we truck on. If I was a millennial, I would say…WTF? The situation is probably irremediable. The immigrant class, a low skilled labour force is intended as a GDP accelerator in order to plug the budget deficits but here’s the problem with this. They are sprinting full speed into and colliding with technological change leading to obsolescence of this very workforce.

The social upheaval is already being felt – and this is before we even consider or discuss the culture clash. Ugly – really ugly.

Japan – The Country With an Aging Population Crisis

Which brings me to Japan. THE country with the worst possible demographics. I mean this place is losing people like there’s a fresh plague God forgot about and just unleashed to teach those yellow bastards a lesson. Only I think God and those liberal economists have got it all wrong and not only because they’re not bastards but because they’re probably going about this the EXACT right way.

The demographic issue needs addressing. So, what are those devilishly smart folks on this island nation doing about it?

The West Has Always Lectured Japan that Immigration Solves All

Well we know that to solve this problem they’ve been lectured…repeatedly by western intellectuals on the merits of opening their borders to mass uncontrolled immigration, as is being tested out by many western European nations. This they’re told will solve this crisis. They’ve heard it all, nodded their heads gravely, furrowed their brows, and promptly ignored it. The Japanese are ploughing a different field.

It’s not that they don’t understand the issues. They’re far from stupid that much I can tell you. Any nation enjoying demographics where more go into a box on any given day than come bawling into the world covered in goop, will face falling spending, which shrinks the economy, which in turn discourages families from having kids, which then shrinks the economy further. Couple that with the fact that people are living longer than ever before and things get tricky for governments to balance budgets. Especially so for countries with social programs reliant on tax revenues to pay for obligations.

As mentioned, though this isn’t solely a Japanese problem. This is a problem across much of the developed world.

Here’s a question to ask yourself though. Does a decline in population automatically equate to a decline in productivity?

Well let’s look at Japan’s GDP.

Nothing to write home about. Clearly it’s been flatlining since the 90’s and this is what the IMF and other three letter agencies staffed with Western economists have their knickers in a knot over.

But that’s only part of the equation. To understand living standards, we need to look at GDP per capita.

Whoah!!

I think the answer to the question above is obvious. No

Consider that simply increasing the number of people isn’t the same thing as increasing productivity.

Comparing Japanese Productivity Rates to Europes

It’s amazing the Europeans haven’t figured this out.

If you had a meat pie to divide amongst 10 people and lost 30% of your meat pie to a magpie that flew down and nicked it that’d be a problem. But if that happened while half of the 10 people all watched a YouTube clip of Greta “everyone needs to become a vegan” Thornburg and promptly decided “well that’s it, no more meat for me” then we don’t have a meat pie problem do we.

Clearly not the policy enacted in Europe. How’s that going for them?

In a welfare state this means that the majority of those that are supposed to be increasing GDP are a lead weight on the system.

This is why I said: “This is accelerating the demise of the Ponzi scheme of entitlements.”

As someone who has spent a lifetime studying financial markets and pretends to know what may or may not be taking place let me suggest something:

When X multiplied by 1 gets you to 1X you’re probably on the right track, but when X multiplied by 1 returns you negative 10X you may want to think long and hard about continuing to implement your theories.

There is something else…less easily represented by numbers in the short term but which has an asymmetric return both positive and negative over the long run.

Japanese Social cohesion

Japan has something that most of the rest of the world would sell a kidney for. Social cohesion. It should not be surprising. Wealth inequality is low. Civil strife is extremely low and the value system across the populace is largely indistinguishable no matter where you happen to be.

Remember the devastating tsunami in Fukushima?

What did the Japanese do?

Why of course, they rioted and pillaged stores, stole anything they could get their hands on and caused general mayhem. Oh, wait silly me that was Paris after the French won the football because we all know that when your country wins a sporting contest it’s rather upsetting. Quite unlike when a Tsunami rips your city to shreds, which isn’t.

And here are the Japanese dealing with food and water shortages after the Fukushima disaster

In an article on the topic from theweek.com

“The chaos and theft that have followed many earthquakes, hurricanes and tsunamis have been noticeably absent in the wake of Japan’s 8.9-magnitude quake. Instead, people have formed long, orderly lines outside grocery stores, where employees try to fairly distribute limited supplies of food and water. “Looting simply does not take place in Japan,” says Gregory Pflugfelder, an expert in Japanese culture at Columbia University, as quoted by CNN. “I’m not even sure if there’s a word for it that is as clear in its implications as when we hear ‘looting.'” How has Japan managed to avoid this common after-effect of disaster?”

The Japanese have turned a biological problem…that of baby making into an engineering problem and they’re tackling it with automation AI and robotics. This is their answer to the demographic decline.

Robots I’ll remind you do not require pension plans and promises of a good life, and when they get old you can toss them in the trash or recycle them and they won’t riot in the streets.

The future that many western countries are laying is one of acute conflicts domestically. Importing massive amounts of folks of any differing culture was always going to be an issue. Importing those with radically different and even antithetical value systems was and still is…batshit crazy. That’s not a racist statement it is simply one deducted from historical records.

And Japan are the crazy ones. Go figure.

Over the coming decades we’re going to find out which model is the superior one and just who the crazies really are.

Japanese Market Stats

Oh and in case you’re wondering. Japan prints an EV/EBITDA of 7.1 a return on equity of over 10%, and free cash flow yield touching 7% and as of this writing has never been cheaper with a discount of 30% to the MSCI World index. It’s such a shame everyone is buying the snot out of them. Oh wait what am I saying…that’d be WeWork at 26x revenues. You may have heard of them. You know that amazing fraud company that’s really a massive loss-making office rental company dressed up as a SAAS company (that’s how easy it is to dupe folks these days).

-Chris

“I’m convinced that everything that is important in investing is counterintuitive, and everything that is obvious is wrong.”

“Unconventional behaviour is the only road to superior investment results, but it isn’t for everyone. Successful investing requires the ability to look wrong for a while and survive some mistakes.”

Howard Marks CIO at Oaktree Capital