Mason, Clark, Ramsey, Jess, Thanks for your thoughtful responses to my original post on Japan. Clearly there are many problems faced by this very important country, important for the region, the world and for the semiconductor capital equipment market, which is our reason for being on this thread. The legion of problems faced by Japan have received much attention in the press, making it seem very unlikely that a solution exists. I have tried to draw a parallel to the situation once faced in this country both from an economic view and a market view. It is this last point I wish to focus on here.
Since the title of this thread includes the old saw about blood running in the streets, my question would be to each of you, has the market discounted all this bad news already? That's the whole point of the "bloody streets" method of investing isn't it? As I mentioned in my original post, I was brave enough, or foolhardy perhaps, to buy US bank stocks when the blood was running in the early 90s. I clearly remember at that time how that situation seemed to be hopeless as well. The very day I was buying these stocks, the Merrill Lynch analyst appeared on TV saying the group was headed 30% lower. The whole point of a discounting mechanism like the market is that future expectations are factored in.
But we are talking semi-equip stocks here. A capital goods industry that sells equipment to another producer of capital goods. How much more cyclical could you get? By nature the swings in this industry are bound to be violent, and its' history backs that up. Right now things are pretty bloody but I see two positives that I would like to see discussed. Let me throw them out to this group for critique.
First. Money, that is lending in this case, is fungible. If the lending doesn't come from the money center banks of Tokyo why can't it come from New York, or London, or some other place? If a semiconductor maker in Asia needs a loan to buy a stepper, why does it need to borrow from an Asian lender? If the loan makes economic sense (and this is what I think we should focus on) won't a lender somewhere else step up to the plate?
Second. If Asian semiconductor makers are lousy credit risks won't others step in to fill their shoes? I think we have precedence for this when Japan lost a chunk of the DRAM market to the very firms that are now in trouble. Once again, if final demand is there the equipment will be purchased by someone and the money lent by someone.
So what will final demand for semiconductors be? If it is bad, then avoid the equipment stocks. If it is good and capacity gets used up you will see a classic dearth, glut cycle and the corresponding boom in stock prices. I recognize that these are longer term issues and some ugly holes in demand for equipment could occur, but wouldn't this just make the catch up buying later on greater?
I am new to this thread and apologize if this has been resolved earlier. If not I think the issues of final demand, capacity utilization along with replacement cycles are the critical factors in making an investment in these companies. Let me thank you in advance for your willingness to share each of your varied expertise. |
