Wednesday, May 20, 2009
by Martin Denholm, Managing Editor, Smart Profits Report

The U.S. and Eurozone economies are going gangbusters.

If you compare them to Japan’s stock market, that is…

Last Friday, the Eurozone’s first-quarter GDP report showed a record 2.5% contraction, punctuated by Germany’s 3.8% drop. It was the country’s worst quarterly performance since 1970 and over the past three quarters, Germany has erased all its gains made since 2005.

But Japan managed to trump both of them today, announcing a 4% quarterly drop. Its fourth straight three-month retreat equated to a 15.2% annualized plunge and in the fiscal year to March 31, GDP fell by 3.5% - the worst since 1955.

While the performance came as little surprise, the fact that it wasn’t as bad as the estimated 16.1% drop brought some bold comments from economists. Both Richard Jerram, chief economist at Macquarie Capital Securities in Tokyo and Jesper Koll, CEO of the TRJ Tantallon Research hedge fund in Japan called the results a “bottom” for the Japanese economy and that the recovery is underway.

And Goldman Sachs’ (NYSE: GS) chief Japanese economist calls for a positive GDP reading in the current, with the rate rising to 3% during the third quarter.

Are they right?

Japan’s Stock Market - A Harrowing Quarter

In the midst of a brutal period, Japanese giants like Sony, Toyota, Panasonic, and Hitachi may be surprised to hear such bullish comments regarding their stock market.

The U.S. financial crisis, ensuing credit crunch, and global recession have crippled demand for goods and forced both firms to curtail production and lay off workers.

And they’re not the only ones. Driving Japan’s record-setting first quarter was a 26% tumble in exports from the fourth quarter, while business investment and consumer spending also dropped by 10.4% (a record) and 1.1% respectively.

Weak demand from the Japanese themselves amid a rising jobless rate accounted for 2.6% of the GDP drop - the most since 1974.

So why the optimism amid these awful figures?

Land Of The Rising Stimulus: A $150 Billion Fix

How do you fix a broken economy?

Forget free market forces… just toss money at the problem.

In Japan, that fix amounted to the government giving every citizen 12,000 yen ($124) in March. Cost: $20 billion.

And last month, the government followed that up with the announcement of a $150 billion economic stimulus package. It’s designed to boost consumer spending by offering incentives to buy more energy-efficient cars and household appliances. The capital injection is also aimed at bolstering small businesses and sparking the job market.

While the jury may be out on U.S.