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To: Edwin S. Fujinaka who wrote (3264)	1/12/2000 11:44:00 PM
From: Edwin S. Fujinaka	Read Replies (1) \| Respond to of 6018

A caveat to temper unbridled optimism on the internet stocks in general and Softbank in particular: Paris, Tuesday, January 11, 2000 The Bears Should Recall Japan -------------------------------------------------------------------------------- By Gregory Clark International Herald Tribune -------------------------------------------------------------------------------- TOKYO - As Internet fever escalates, U.S. bears try vainly to ring the bell by harking back to the 1929 stock market boom in the United States and the subsequent Great Depression. In fact, they need go back no further than the 1989 share boom in Japan to find a parallel. Japan's boom began with rising land prices pushing up the shares of firms that owned land. Like the Internet boom, in which new share issues provide the funds needed to boost more share issues, Japan's boom soon became ahot air tandem act. Speculators rushing to buy more land pushed land prices up even further, which then gave the rationale to boost share prices even higher. Banks added to the circular frenzy by accepting land at inflated prices as collateral for lending more funds to be used for even more speculative investments. Irrationalities and manipulations saw the boom lap over into other stocks. If shares in Tokyo Concrete jumped, that was reason to bloat the shares in Tokyo Cake Mix. At one stage, 40 companies saw their shares almost double on rumors that they were about to discover AIDS cures, even though most had almost nothing to do with serious pharmaceutical research. (To this day, not one of them has even come close to finding a cure.) And as with the current boom in the Western economies, there was no shortage of rationalization for the boom. Since Japan was a small island, high land prices were justified and would continue to rise forever, boosting the stock market even further. Or the asset effect of rising land and share prices would boost the economy to even greater heights, which would then justify even higher land and share prices. Or, even if the government did intervene to kill the boom, it would do so in a way that provided a soft landing. And so on. In fact, even a small intervention was enough to cause a decade-long collapse. True, the Internet boom can at least claim the rationale of increasing overall productivity. But improved productivity does not automatically create greater profits. One of the first rules of economics is that profits come mainly from market imperfections. Under the free competition and free information provided by the Internet, markets improve and profits inevitably tend to fall to zero. Things get even worse with the need for internecine mergers and frantic spending to create the semi-monopolies that hopefully will guarantee profits. That red ink from the Internet companies is not accidental. Nor is it temporary. Ultimately, the people who gain from the information glut and lower prices will be the consumers. And they, too, will be crunched by the eventual collapse. But, as in Japan, do not expect the market to provide the downturn. Irrationality can continue to feed on irrationality almost indefinitely. Booms, once started, can continue far beyond even the wildest hopes of the speculators. As in Japan, the collapse will be triggered by rising interest rates. The speculators will then have a decade to reflect on where they went wrong. - The writer, president of Tama University in Tokyo, contributed this comment to the International Herald Tribune. --------------------------------------------------------------------------------