Interesting article from Fool.com’s Bill Mann on “Falling Like Japan”, here is an excerpt (all highlights mine),
``In the aftermath of the bubble, Japan's government rushed in to prop up its banking system, which was teetering under the weight of non-performing loans. Rather than letting businesses fail, this has had the effect of propping them up to continue operating. To this day the scope of the problem is still not known.
``Without this information, investors both in Japan and outside have made a logical conclusion -- to take their investment dollars elsewhere. Japan's industrial sector has failed to meet its cost of capital over the last 20 years, in large measure because the government has allowed capital-destroying companies to continue to operate. Had these companies been allowed to fail, Japan long ago could have flushed out its system and gotten back on the road to economic health. In the name of protecting jobs, Japan's economy has continued to sputter, punctuated by spectacular bankruptcies in cases where the facade could not hold up. The cost of propping them up has been much, much more economic pain. Japanese call the long economic downturn ushinawareta jūnen, the lost decade.”
My humble two cents:
One, affected companies or industries which seek shelter from the government are likely to underperform simply because like in the Japan experience, productive capital won’t be allowed to flow where it is needed.
Thus, the unproductive use of capital in shoring up those affected by today's crisis will likely reduce any industry or company’s capacity to hurdle its cost of capital.
Two, since capital always looks for net positive returns then obviously capital flows are likely to go into sectors that aren't hampered by cost of capital issues from government intervention.
This probably means a NEW market leadership (sectoral) and or money flows OUTSIDE the US or from markets/economies heavily impacted by the crisis.
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