PART I - THE CRISIS
Identifying the problems - This phase is pretty much completed. Almost all problems are now out in the open and there should
be no more surprises forward, just the magnitude. Many on Wall Street are of the opinion that this is the bottom. The Asia
contagion is already factored into the current market price. If this is true, then I am sitting on the sideline with cash looking like an idiot. So far, no one has been proven right or wrong.
Quantifying the problems - This is the phase we are in and is creating all the uncertainties. How much is Japan's bank loan problem? Are the Japanese going to bail out of the US markets, bonds, equities, whatever to move funds back home? How much does Indonesia or Korea really need from the IMF? How severe would unemployment be? Most importantly, how much would it affect earnings for all companies with interest in the region. My notes look like -".....Michael Dell said no problem ..... TER e report is totally worthless ...... Lam Research says there are push outs ...... IBM very cautious but expects Asian problem over later this yr ...... CPQ says business couldn't be better ........ ORCL says impact ....." I conclude that everyone is clueless at this point. Earning estimates for the next few qtrs are almost worthless in some cases.
Solutions - Amazingly, the solutions are clear. Slow down growth by less borrowing. Less government spending and tax cuts. Stop supporting ailing business and let them fail. The most important factor here is that they are all recessionary for the short term while the long term benefits could be fantastic for the region as well as the world. This is the dip, followed by a few years of explosive growth that I am hoping for.
PART II - HOW IT MAY IMPACT OUR MARKET
Unemployment - Massive unemployment resulting in a whole slew of problems.
Possible political unrest - Philippines and Indonesia most vulnerable. Korea and Thailand may make a lot of noise.
Demand of US products - This is Part I of where it is going to hit home.
Increased competition - This is Part II of where it is going to hit home. If any one can add up Part I and Part II, then make
the appropriate adjustment to the upcoming earnings for companies like QCOM, IBM, MSFT, WDC, MU, MOT, KO, MCD etc.,
please let me know.
Bad Debts - Around June of last yr, Applied Material and a few other semi eq companies took the hit for failing to bail out
Submicron. AMAT took something like a $18 million charge for their share of the lost. Are there more of this type of
failures in the horizon? How many vendor financed projects are in progress in the region which may be in danger of default?
Joint Ventures - There are countless JVs between US companies and companies/government of all the SEA countries. A lot
of capital is on the table. Are any of these projects going to fail or be thrown off schedule, resulting in one time charge
offs? On the other hand, they may be benefiting from the lowered cost.
Trade deficit - US trade deficit is likely to sky rocket, triggering a new round of protectionism. Difference being that it will
be both ways this time. Ross Perot and Pat Buchanan will be out there screaming revoke NAFTA and other nonsense. Fiercely nationalistic countries like Korea and Japan may turn around and stop buying anything foreign. That could make it a lot more difficult to do international business, creating a lose-lose scenario. |
