To All, Hi again from the Asian front. I thought I would provide a brief update of the mood here, since for a little while yet I happen to be "on the spot." I thought also I would add that I like to post on this thread because (1) some of the most intelligent people at SI hang out here, and because (2) it is obviously clear that the health of Asia has a huge impact on the semiconductor industry. I want to spend almost all of this report on Japan. There is a lot of gloom in the region right now and all eyes here are focused on Japan.
For better or worse, I think we will finally get some clarification on a huge piece of the puzzle here, and that is what is going to happen to the Japanese economy. There's good news and bad news in that, and unfortunately most of it is pretty grim. The good news is that the rent is due in Tokyo, and whatever is going to happen is going to do so within the next 2-3 months. The bad news is that other than the resolution of uncertainty, there is no good news. So what's up....
As I have written on this thread (and others), since the SEA crisis began unfolding last August, and especially all through the October meltdown and after, there has been no real reform of any kind in Japan. The Hashimoto government has cut one deal after another with the banking community to preserve the status quo in order to (1) avoid recognizing the bad loans on the books and begin real reform towards returning the banks to health, and (2) to keep foreign banks out of competitive positions in the Japanese Credit market (remember that there are no real bond markets anywhere in Asia, so the market for bank debt is THE market for credit funds here.) The only action by the Japanese government has been (1) a series of corruption investigations where different departments in the government and some banks point fingers at each other, and (2) a series fo totally ineffective stimulus packages designed to "jump start" the economy. The first item doesn't really amount to any reform and is simply a blame shifting mechanism, and the second is economically unsound. The reason that any stimulus package whose focus is on freeing up Yen for consumers to spend is doomed to failure is that (as I've written before) Japanese consumers are not going to spend the money. They are extremely frightened by the economic horizon visible to them, and there are no investments with any real return in Japan. Freeing up money for consumers via tax breaks, etc. is simply hastening the capital flight out of the country that you are witnessing right now.
The yen has broken the 140 barrier and is on its way up fast. This is a terrible situation for Japan, and amounts to increased inflation for the Japanese. Anything foreign or containing foreign components will be dramatically rising in price for Japanese consumers. So as the government tries to free up money for people to spend (a) things cost more, and (b) more money flows out of Japan. Whether the BOJ can stop the slide of the yen will probably be put to the test in the next few days. In the press here, Hashimoto is being likened to the captain of the Titanic. His ship is Japans' economy and his ship is going down. 5-6 months ago I would have put the prior at 50-50 that Japan could weather the storm. I don't put the odds that high any more. And for you China watchers, there were rumblings yesterday from the PRC about the extent to which the slide in the Yen is putting a further strain on Chinese exports. In fact, that is true for all SE Asian countries that compete with Japanese exports in the US and European markets. There will soon be a meeting of G-7 countries, and it will be interesting to see if any plan comes out of it for a concerted effort to stem the decline of Japan's economy. There are no fiscal measures left for Japan to stop the slide in the value of the yen except to drain the BOJ's dollar reserves (which admittedly, are substantial.) The obvious thing to do would be to raise interest rates, but that cannot be done without destroying the banks, and that has to be avoided at all costs.
So what about semi land... I think at this point that all predicting the impact on prices near-term is vain. My own rules, which I have shared with Mason in the past, have to do with the Nikkei, and are
As the Nikkei crosses 15,000 downward, flush all margin from my accounts. As the Nikkei crosses 14,500, move towards all cash.
I (and others) think that 14,000 on the Nikkei is a threshold at which the solvency problems of the banks becomes critical and real economic collapse is imminent. If that happens, Wall Street could very well react with a very heavy hand. I also think that this translates into the following. I think that the buying opportunity in semi stocks may be around a while. It is obvious that there is a mountain of money trying to time the next upturn in the semiconductor cycle. Remember that those who get in at this point can get out quickly with minimal loss. If prices start to head south on Asian news, there could easily be a real rout as money bails quickly. I think the trough we're in is U shaped, not V shaped, and we're still on the down leg in the U (although near the bottom.)
jess. |
