Japanese stocks are soaring.

After enduring two decades of excruciating stagnation, they're the best performers of 2013.

Why now?

Because the Bank of Japan has joined the global printing party.

Until recently, the BOJ was a buzz kill among central banks. While the Fed, the Bank of England, the ECB, and every other major central bank were binge drinking from their spiked punch bowl, the BOJ sat in the corner, nursing its club soda. It refused to print as much money as its profligate counterparts, because it didn't want to devalue the yen.

Imagine, a central bank concerned with protecting its citizens' purchasing power. How quaint!

But everything changed once Japan elected money printer extraordinaire Shinzo Abe as prime minister in December. The BOJ has tossed its club soda and is downing sake bombs: it's now printing money the fastest of all developed nations and aims to double its money supply by 2014.

So far, the results have been predictable: soaring stocks and a tanking yen. But there's more to the story: yesteryear, a strong yen was hamstringing Japan's formidable corporations by rendering their exports uncompetitive. As Don Coxe, prolific investment strategist and friend of Casey Research will explain, the newly weakened yen has brought these world-class companies back from the dead. Might they warrant some of your investment dollars?

Before I sign off, it's worth noting that with Japan revving up its printing presses, there's nowhere left for investors to hide. Every single central bank of consequence is now printing money like mad, and all currencies are in a race to the bottom. Gold is the only escape hatch for investors who want to preserve their purchasing power.

I mention this because I just got word that BIG GOLD, our service focused on identifying the best large-cap precious metals stocks, is raising its price to $149. By signing up today, you have one last chance to get a one-year subscription at a deep discount of $79—almost half off the regular price.

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With that, read on for Don Coxe's fascinating take on why the devaluation of the yen may be the best thing that's happened to Japanese stocks in two decades.

Dan Steinhart
Managing Editor of The Casey Report

The Ty Cobb Effect

By Don Coxe, Chairman, Coxe Advisors LLC.

What has happened to Japan?

The weakest of the world's major economies has rather suddenly become a strong performer, with its stock index the best global performer since Abe's election.

Is there a model for this sudden conversion from slowpoke to speedster status?

How about Ty Cobb?

Ty Cobb was probably both the best and most vicious competitor in what's now known as baseball's Dead Ball Era.

When the league got around (led by Brooklyn's Branch Rickey) to introducing Spring Training, Ty Cobb figured out a scheme to both build his physique and delude the opposition. Back then, there were no trainers, and teams' attention to players' fitness consisted of dragging them out of bars before they'd done too much damage.

Cobb secretly put lead weights into his spikes. Opposing players feared his speed—particularly on the bases, where he was known for his habit of sliding viciously into hapless infielders.

Then, when the season began, he took off the spikes and seemed to be flying.  How had he become so fast—so fast?

Source:  Factset

We've suggested “The Ty Cobb Effect” in recent conference calls focused on Japanese manufacturers' sudden emergence as formidable global competitors after decades of decline.

Importantly, our analogy suggests that the transformation is here to stay. Most Wall Street observers are skeptical that this is anything more than a blip. They are characterizing Japan's renaissance as “The Cicada Surprise,” in which Japanese manufacturers suddenly emerge as pests to their competitors after 17 years of seeming somnolence or irrelevance.

The distinction is not merely entomological, but it is important: cicadas are noisy nuisances for merely a few days, and then, having mated and laid eggs, die. Their progeny appear 17 years later. The Japanese are most definitely not known as eager reproducers.

We've been enthusiastic endorsers of Abenomics and a long-delayed Japanese economic renaissance. We've also argued, since last October, that the Japanese stock market is the most attractive in the industrial world.

Here's why:

  • The yen has been devalued by roughly one-third.
  • The Bank of  Japan has achieved the astounding feat of printing more money than the Fed.
  • Japanese voters have endorsed Premier Abe with an improbable level of enthusiasm. This after more than two decades of voting insipidly for one faceless loser after another, whose political lifespans barely outlasted cicadas.
  • Japanese companies have, in aggregate, far more cash and far less debt than American or European companies.

Source:  Factset

In recent years, the central question about the Japanese stock market has been: how long can most Japanese manufacturers survive against global competitors who devalue their currencies? As the yen's trade-weighted value continued to soar, the bosses of the Bank of Japan basked in compliments from other central bankers regarding their conspicuous—and unique—virtue of protecting their citizens' purchasing power.

And then, backed by both a tsunami of voter enthusiasm and the most massive display of global short-selling of the modern era, the BOJ faced reality. It facilitated the yen's gobsmacking plunge from 75 to nearly 100 against the dollar.

We had long marveled at the ability of Japanese manufacturers to survive producing in the nation with most overvalued currency in the world. We were not surprised they were losing ground to competitors abroad—not just China and Korea, but Germany and the USA.

But now a weak yen is spurring commentators to compare Japanese industrialists to potential  Supermen. Even the ordinarily sober Economist magazine is excited.

Such forlorn Japanese companies as steelmakers and manufacturers of heavy equipment are making a comeback. The Chinese and Koreans had been beating them up for so long that it's a miracle they even survived. During Japan's glory years before the Plaza Agreement (1984), the yen was 250 to the dollar; 15 years ago it traded at 140. Japanese manufacturers' struggle to survive with the yen at 75 made them lean and mean.

In our view, the now-formidable Japanese industrialists' rising consumption of key commodities, such as iron ore, metallurgical coal, and copper, will more than offset any contractions in demand from other Asian manufacturers.

And the third-largest economy in the world has rather suddenly switched from being a drag on global GDP to being one of the most potent players, and a significant net contributor to global growth.

For 40 years, Global Capital Markets strategist Don Coxe has been speaking about, writing about, and investing in the global capital markets. Currently, he is advisor to BMO Global Asset Management for commodity funds: www.coxeadvisors.com.