Ahmadinejad, Iran, and Japan’s Great Crash of 1990

The hardest thing to forecast is the end of a bubble. One reason is that bubbles often do not feel like bubbles when you are in them. In the 1980’s, for example, Japan’s emergence as a global powerhouse because of its dominance in exports was seen as almost anything but a bubble. You will recall the doom and gloom talk about the end of the US when Japanese companies started buying American companies in the mid-80’s. Our former colleague Barton Biggs was pretty lonely saying the Japanese stock market was wildly overvalued. Everything was up, up, up! Even the Rockefellers threw in the towel, or so it seemed, selling their famed Rockefeller Center to Mitsubishi. At one point the grounds of the Imperial Palace in Tokyo were said to be worth more than the entire continent of South America. It was the Go-Go years on steroids, as the Nikkei 225 soared from 10,000 to 40,000 or so, and the Japanese were invincible, on top of the world:

japan2.GIF

We thought of Japan today as we read VDH discussing Iran. Islamic terrorism has been in a bull market at least since the Iranian Revolution in 1979. You can date it earlier if you like (to Munich, or Sirhan Sirhan, etc) but Iran has, like Japan, been a dominant and successful worldwide leader in exports since the overthrow of the Shah. Its unique export has been Islamic terrorism. At virtually every turn to date, the West has subsidized this noxious Iranian export by doing virtually nothing to stop it. From the fatwa against Salman Rushdie, through the Marine barracks in Lebanon, through the West’s inaction as Iranian clients Hamas and Hezbollah did their dirty work, Iran has gotten pretty much a free ride for the quarter century since Jimmy Carter. So it is no wonder, perhaps, that the millenarian and blowhard Mahmoud Ahmadinejad feels free to threaten the West 24/7 with economic and military ruin from his mighty land.

One thing about the conventional view of Iran seems quite suspicious to us. That is, the predictions about what happens in the aftermath of a US strike against Iran’s nuclear facilities (and quite a few others, no doubt) are uniformly disaster scenarios. Economic ruin, oil embrgoes, chaos in Iraq, impeachment of Bush, Muslim uprisings on the streets of Europe, the scenarios are uniformly bleak. Except for this, as noted by VDH:

[W]ho knows what a successful strike against Iranian nuclear facilities might portend? We rightly are warned of all the negatives — further Shiite madness in Iraq, an Iranian land invasion into Basra, dirty bombs going off in the U.S., smoking tankers in the Straits of Hormuz, Hezbollah on the move in Lebanon, etc. — but rarely of a less probable but still possible scenario: a humiliated Iran is defanged; the Arab world sighs relief, albeit in private; the Europeans chide us publicly but pat us on the back privately; and Iranian dissidents are energized, while theocratic militarists, like the Argentine dictators who were crushed in the Falklands War, lose face. Nothing is worse for the lunatic than when his cheap rhetoric earns abject humiliation for others.

Don’t misinterpret what we are saying. We are not predicting a rosy scenario if and when the President takes action against Iran, though the uniformity of disaster predictions reminds us of the uniformity of predictions that the Japanese bull market would go on forever. 100% consensus is nearly always a danger signal. And we do think Ahmadinejad, with his military budget 1% of the US’s, has been overplaying his hand rhetorically. Ahmadinejad’s millenarian fervor has been on a roll and in a bull market since his earliest days humiliating American hostages in 1979. Will he be taught the lesson that the Japanese have struggled with for 15 years — that all bull markets end, and the hyperinflated ones end very badly. The Japanese thought their future was heaven in the 1980’s, up to the beginning of 1990, as the chart above shows. The rest of the chart is below, and tells a completely different story. Witness what happened after the 1990 peak in the Nikkei 225, with a cruel ferocity and tenaciousness that destroyed Japan’s confidence for over a decade:

fdff.GIF

Which will it be for Iran, continued bull market, disaster or something else? Time, luck, and the character of our nation and its leadership, will tell.

UPDATE

In this photo of protests today against the West, Iranians show that they too date their bull market in terror, intimidation and blowhardism to 1979 and Ayatollah Khomieni:

kho.jpg

Speaking of blowhardism, the Iranians had this to say about our story just above: “This is a psychological war launched by Americans because they feel angry and desperate regarding Iran’s nuclear dossier,” Foreign Ministry spokesman Hamid Reza Asefi told a weekly news conference. “We will stand by our right to nuclear technology. It is our red line. We are ready to deal with any possible scenario. Iran is not afraid of threatening language,” he added.

We shall see, shall we not? (Where are the lady protesters, by the way? — oh, never mind.)

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