Re: Japan/recent decisions

[ROSSERJB@xxxxxxxxxxxxxxxx id <01HVP9MEFNBQHU0Y8U@xxxxxxxxxxxxxxxx> for pkt@xxxxxxxxxxxxxxxx; Mon, 25 Sep 1995 17:54:03 -0500 (EST)]

To Paul D.
     There is at least one case where one can know for
sure that there is a true fundamental.  That is for closed-
end funds.   Their undeniable fundamental is the net asset
value of the assets constituting them plus or minus any
management fees, tax effects, or other "agency costs" most
of which will not change much over time.  Any "motion" in
the prices of the assets or variation in the expected returns
of the assets, or the distribution of those returns, irregardless
of whether or not economic reality is ergodic, non-ergodic,
chaotic or non-chaotic, ontologically or epistemologically
uncertain, full of rational expectations or irrational expectations,
should induce an equal motion in the value of the closed-end fund.
     The historical record is very clear however that they do not
in reality.  This has been known in the finance literature for over
20 years, if not much longer, as the "closed-end fund puzzle."
Also, one can consistently beat the market on average by buying
closed-end funds with deep discounts.  Some out there right now in
this category include several that date back to the 1920s when
in 1929 they were running enormous premia, just before the crash.
(Those who can, go pick up the ten dollar bills lying in the street.)
     Yes, Virginia (and Paul and Gary), there are some fundamentals
and the clearly observed upward deviations from them, as in 1929,
are bubbles.  Although the fundamental on Japanese real estate may
not be knowable and may "not exist," I still have no hesitation in
declaring that when in December 1989 the value of Japan  (as real
estate) exceeded that of the entire rest of the world (also as real
estate), that there was indeed a bubble.  And when it crashed, well,
bubble, bubble, toil and trouble!
Barkley Rosser (yep, I'm back)