roger,
Your an excellent advocate. Here is the counterpoint on items 2 and 3.
Interest rates effect the value of a dollar. If I own yen, and the dollar held in the US will go up 5% compared to my yen at 3%, then I will buy dollars. This assumes equilibrium in dollar to yen, which is that I can buy a hot dog for relatively the same amount in both countries. My act of buying dollars strengthens the dollar and weakens the yen. The central bank of Tokyo has no choice but to raise rates to ensure people buy yen and that equilibrium is maintained.
Here's where things get interesting. Japan is in a slump, so raising rates, accelerates the slump. Things get worse, now equilibrium cannot be achieved even if you raise rates. So, to stimulate things you issue a tax cut. The tax cut is supposed to assist movement back to equilibrium, but wait, the government is unwilling to give the tax cut until things get really bad (which is where it is in Japan). The result is the tax break comes to late, and the economy goes further south. Now you have real problems, so you beg for help from the US. The US to help you out lowers their rate to strengthen the yen (which is what it has done to date). Doing this results in a stimulous to the US economy (which is already heating up witness Retail sales numbers). The mkt intern recognizes this and pumps cash into stocks, because to leave them in bonds is silly. This in a nutshell explains the rise, now where is the top, and why will it collapse.
Because Tokyo is in a slump, they must find a buyer, who, the US. So they start dumping product, any price will do because we've got to maintain our employees. US co's to compete must lower their prices, this squeezes margins and erodes profits. But does the market care, no it continues to buy more stock, because its a new world order, and value means diddly, forget earnings warnings, we will grow in the future. But who is kidding who? CHKPF's got room to grow, but GE, P&G, Coke. Where are they going to grow? Asia? Who's going to buy their goods/services. Will domestic purchasers buy? Why buy a Chrysler when you can get a higher quality Honda for less?
So what do domestic co's do, they become more effecient, and layoffs begin, GTE is an example, MOT is another. Employment stats are now starting to show negative effects, this will accelerate, now consumer confidence shifts, people stop buying, but US continues to see Balance of Trade extend. Its an election year, so what happens? To hell with Japan, now I'm in trouble, I raise rates. Minute I do that mkt tumbles like a deck of cards.
Impact on CHKPF.
1. Slower internet growth, hence lower firewall demand.
2. Fewer buyers of software, no immediate need for presence when your trying to make ends meet.
Finally, keep in mind, I'm a nobody, but if a big fund manager starts to have similar thoughts, we could see a panic set it.
From a personal standpoint I see no alternative to this eventual outcome. I could be wrong on the timing (I still think this month, but next month is still a possiblity), but the results are inevitable for this year. I don't like it and am not wishing for anybody to lose their shirts but it certainly looks like a lot of people will.
These are just the macro effects. Competitive pressure is another story. Stock is clearly going to come under pressure very shortly. |
