Zenkyoren Lesson: Why We Should Not Make Obviously Bad Decisions

1. Back in the late 1980's while working for Nomura Securities in London, I use to make calls to large institutional clients. One was Zenkyoren. If you've heard about them then you have very specialised knowledge. The manager in charge, Kobayashi-San was always genuinely kind to me, serving me tea and telling me remarkable stories about Zenkyoren. It was the agricultural insurance fund. When I first glanced at its brochure, I told Kobayasi-San that there was a typo. He said, "Where?" "Here, the reported assets have too many ZEROS." He laughed and said, "No, Tanega-san, that's the correct number of zeros." "But Kobayasi-San, that would mean you are the largest fund in the world, by far!" He simply smiled, "Really?" "Yes, I really mean it. HOW IS IT POSSIBLE?"

2. Kobayashi-San then pointed to a picture on the wall. "Tanega-San, please look at this picture. It is our board of directors. Do you notice anything strange?" I looked carefully. I saw a group of about 20 old men and Kobayashi-San standing in the middle with his charming smile. "Just old men," I said. He laughed and said, "Look at the old men's hands. Do you see anything?". I was looking for something IN their hands and saw nothing. "No, I can't see anything, I said. "Look, how LARGE their hands are," he said. And then it hit me. These board members were FARMERS.

3. Kobayshi explained how the farmers in Japan organised themselves, how they saved IMMENSE money to support their retirees, building IMMENSE first class facilities like physical fitness stadiums, spa resorts, and care centres and how this particular fund was meant to preserve their future for at least seven generations--150 years or more. Really?

4. We then spoke about rates of return. I asked, "Kobayshi-San, why are you buying long term assets at what you know will bring you negative return?" To set this in context, this was 1988 and Japanese brokers were stuffing Japanese institutions with crap paper and on any reasonable estimation the the long term funding gap showed that these institutions would be losing or paying 2% per year for the privilege! His answer betrays the "giri" values of the people. "Tanega-San, this is something we must do for everyone." "But Kobayasi-San, you can't do this forever. You will run out of money." "Not for a long time, Tanega-San."

5. Really? Dear Reader, just because governments have printing presses and can roll over their national debts at near-zero interest rates does NOT MEAN that said governments will be able to fool anybody in the markets for any appreciable time. The US and Europe have STRUCTURAL problems that cannot be solved without a re-setting of debts. Expect only fool's rallies until the debts come under control.