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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: bobby beara who wrote (28399)	10/5/1999 9:15:00 AM
From: Hawkmoon	Respond to of 99985

We may have had this conversation before Bobby, I just don't recall it. There are several reasons which provide me the sense that the worst is not yet over in Japan. The first, of course, is the tremendous amount of bad debt they have to write off before their banking system is properly restored. Merging institutions into mega-banks does not solve their inherent illiquidity issues. Until this debt is written off, it seems very difficult to believe that banks will be able or willing to handle the kind of risk required for massive consumer spending (and consumption is what drives any economy). Secondly, the tight-fistedness of the average Japanese consumer. A few of them may be venturing back into the stores now, but they can easily be spooked back into consumer seclusion with any major economic shock or worry. The Japanese have over 12 Trillion in personal savings, mostly in their Postal Bank Bonds. From what I've read, it looks like many of these bonds start coming due next year and there is a lot of concern that the Gov't won't be able to fulfill their obligations to these bondholders. Hence, monetization of their debt and devaluation of the Yen. Thirdly, it is my sense that the money that has been flowing into the Nikkei has been mostly hot foreign money, including US managers. At the first sign of major risk, that money will come as fast as it went in. So while US managers have been doing well in Japanese equities, and receiving the added benefit of a stronger yen and weaker dollar, that money will start coming back over when the yen shows signs of topping out. Fourthly, the impetus for such a capital flight from Japan and Asia may arrive within a couple of months, maybe less. Y2K is going to impact Japan and certain other Asian nations far worse than here in the US, where we have at least paid attention to planning for disruptions. In Asia, my sources at the State Dept are telling me that there are some REAL concerns about Japan's readiness with regard to infrastructure and financial issues. They just haven't been paying attention to the issue until this year (and then only reluctantly). This could create the event that brings that capital home. In sum, the Japanese aren't spending money on their own stocks. It is foreign money that can leave as quickly as it came should bad news arrive. That bad news is monetization of Japanese debt beginning next year, and Y2K. Significant Y2K fears may very well drive the "hot" money out of Japan and into US bonds, and the commencement of monetizing the first part of those $12 trillion in JGBs, should make the Yen-Dollar carry trade VERY lucrative once again. They have to print money to pay off that debt. They certainly aren't going to collect it through general public revenues. Just my opinion. Regards, Ron