I can see the Clintonites slapping each other
on the back and giving high-fives to one another
cause the stock market went up after the IC report.
In the meantime there are extraordinary problems
facing the world markets starting with Japan.
Two years ago people were worried about Japanese
banks and real estate losses. One year ago the
concern was about their Far East losses. Now its about
corporate failures and So.Am. losses. The problems
in Japan have not been addressed, the risks are growing well
beyond their borders and are not evidenced by today's PEs
in US equities.
Relative the Japanese GDP, bank credit losses are
estimated at around 15% or more. Unfunded pension
liabilities are similarly estimated at 15% of GDP in
Japan. A 30% drop in GDP, even spread out over time,
will hamper any economy let alone the world's second
largest. In effect, real GDP gets "marked-to-market"
downward for the excesses and losses from devaluation
of real and financial assets. Given the size of the
Japanese economy, their problems are 10 to
20 times the size of our S&L bailout. Recent talk is
that Japan may have its sovereign debt downgraded...for
this to happen to the world's largest creditor is very
disconcerting.
In addition to Japanese real and financial asset losses,
which are largely unrecognized in an accounting sense,
twenty-five percent(just a guess) of the rest of the planet's GDP growth is being challenged this year and may be also for the first
half of 1999. In this environment, I'm keeping my money in
governments, some gold stocks, and exercising "judicious shorts"
through OEX puts. To me the outlook is about capital preservation,
not capital appreciation. I turned bearish late Sep.'97 but have
yet to see good reason to reinvest in equities anywhere. In fact,
compared to last fall, current valuations are even more out
of line with the evolving risks IMHO.
Its not your fault, MM, that you recently got religion and the
rest of the market ignores the signs.<g> |
