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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (2281)	12/7/1999 12:28:00 PM
From: SofaSpud	Read Replies (1) \| Respond to of 3536

Henry / Japan OK, I'll bite. I have invested there, via WEBs. Only a modest, intro position -- maybe one third of what I will eventually put there. Opened the position about two years ago, and am waiting for some stronger indications before committing more, which is a segue into: - short term -- who the heck knows? I wouldn't begin to hazard a guess what the next couple of quarters are like. - medium term -- very optimistic. I think they can have a good bounce from Asian recovery, and possibly from unwinding of the last few years capital flows into the U.S., without necessarily addressing the fundamental, structural problems in a meaningful way. By a "good bounce", I'm thinking 50%-100% on the Nikkei over the next two or three years. - long term -- beats me. IMHO this is partly a sociological question. As I understand the problems with the banking system, they are part of a broader way that the commercial culture evolved after the war -- interrelated conglomerates, no failure, lifetime employment, all that stuff. To go through the kind of clean-up that the U.S. did after the S&L issue would be a much greater ordeal, in the context of Japanese culture as I understand it, than it was for the U.S., which at some level recognizes the role of allowing failure in the effectiveness of the market system. I think that Japan has tremendous potential. If they were to effectively deal with the structural problems, there is no reason they couldn't have another boom like they had in the 80s. Personally, I intend to be positioned to take advantage of it. There you go, Henry. It's not brilliant, but maybe it'll help liven up the thread.

To: Henry Volquardsen who wrote (2281)	12/8/1999 11:12:00 PM
From: Lee	Respond to of 3536

Re: Japan Henry, Short term I think the government will do its best to maintain forward momentum. Fortunately, Japan does have world beating companies such as Toyota, Sony, and too many to mention. Couple this with a reemerging Asia and I believe growth can continue, although slower and with a negative quarter tossed in to keep it interesting. Medium to long term I would place Japan in the middle 20%. Of course there is the well-known demographic situation. I am equally concerned about invigorating productive private investment. The ROW has been much slower at adapting and advancing technology infrastructures and use. On the plus side catching up can trigger just the increasing investment dollars needed to help lift the economy. However, I see the rest of Asia as a more attractive investment heaven and continuing the trend of siphoning export to Europe and US from Japan. Longer term I am also concerned about the effect of the Internet on world trade. The US has a huge lead in this space that can be leverage to advance our trade and export our culture. At the moment such a small percentage of the world is online, and mostly those predisposed to a global outlook. As this changes and more of the world economy flows through the pipes, I can see a backlash that helps lock in the regional trade zones. I would feel more comfortable that this not be a concern if the US would maintain our leadership as a free trader and promote thereof. Yet our recent history is poor leadership in this area. This is also a negative trend re Japan's outlook. In sum, I see continued improvement but not the source for growth in consumption and private investment that might lead one to say, “now Japan is cooking with gas.” Cheers, Lee

To: Henry Volquardsen who wrote (2281)	12/13/1999 9:06:00 PM
From: Henry Volquardsen	Read Replies (2) \| Respond to of 3536

sorry for taking so long, things got very hectic. I've been wondering a lot about Japan lately. I have some opinions, bearish, but am more interested in what people are thinking and whether they think the reasons for my concerns are real. I'll give my overview on what I'm thinking and then go through the posts since I posted this question and make comments. Hopefully we'll have some fun -g-. My concerns regarding Japan are on economic performance. When or how this impacts markets is a complex question. First the budget deficit. Depending on which numbers you use the budget deficit is currently running between 14 and 15 per cent of GDP. This is an enormous number. And what have they gotten for this massive stimulus, a meager 1.8% growth. And even this level of growth is debatable given the way the Japanese calculate GDP. And how long can they continue this level of deficit spending? The current debt is already at 150% of GDP. This is among the highest of any OECD nation. At the worst of our deficit spending we were right around 60%. And due to the large primary deficit they are adding to this number at an alarming rate. By 2003 they will be approaching 200%. Currently they are able to finance this because of the huge pool of domestic savings. But at the rate they are increasing the debt this won't be enough and there are signs that the domestic holders won't stay in bonds forever. The real ticking time bomb however is pension liabilities. Living in the US we are familiar with how US corporations account for pension liabilities. They physically put money aside in separate regulated accounts. They also recognize it is an expense and reduce earnings. There are sometimes questions about whether these accounts have been over or under funded. But the money is there and relatively secure. I realize pension accounting is pretty dry and boring stuff but the Japanese system is very lax and badly underfunded. Japanese companies are not required to charge any reserves for future pension liabilities. All pension expense is recognized as it is spent. This has lots of interesting implications. In the 60s and 70s there were very few retirees, less than 1 for every 20 workers. It was a minimal drag. In fact at some other point it might be worth noting that this practice helped inflate Japanese competitiveness by allowing them to avoid fully pricing their product, maybe Detroit was right...they were dumping. Now the Japanese economy has 7 workers supporting each retiree and they are expected to drop to 5 soon. And eventually lower. Almost all this expense will come out of current expense and will be a tremendous drag on the economy. Recently Toyota, I believe, announced a 20 per cent cut in pension payouts to current retirees (imagine a US company trying this). And Toyota is one of the rare Japanese companies that had made at least some allowances for retiree expenses. So how bad is the pension problem? Well the best numbers I saw for the bad loan problem were $500 billion. The unfunded pension liabilities are estimated to be $800 billion. Now pension liabilities are not going to hit all at once like the bad loan problem but it will be a more persistent problem for longer. So how does Japan deal with these problems and how will it impact the markets?