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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (78526)	3/23/2000 8:34:00 PM
From: yard_man	Read Replies (1) \| Respond to of 132070

At the rate we are going -- unless we all of a sudden just go sideways for a while -- I don't see how the bubble can last until the elections, but I am sure that is on the agenda of a number of powerful people. I could be wrong ...

To: Zeev Hed who wrote (78526)	3/23/2000 10:15:00 PM
From: Earlie	Read Replies (1) \| Respond to of 132070

Zeev: Good comments. Japan is one heck of a complex situation to try to understand, but herewith a few additional observations to thicken the brew. Yes, last year's "big bang" provided the Japanese financial institutions with more external (to Japan) options, but it also tossed a short fused bomb into an already wounded Japanese banking sector (they had to "get onside" with their reserves). Last year, this triggered a calling in of loans that really smacked Japan's small/medium business sector. I wrote last year that this alone would likely trigger a continuation of Japan's inexorable economic slide, and this turned out to be accurate. Japan is now into it's second quarter of negative GDP growth, commonly known as a recession. It will worsen this year. Other things also suggest that Japan will be MIA. The massive, rarely discussed problem is the fact that not only are the Japanese banks technically bankrupt, but so is the government. Japan's deficit has grown so rapidly (last year, the Japanese government borrowed a breathtaking 42% of its total expenditures) that the rating agencies threatened to downgrade their paper (which would be a catastrophe). Amazingly, in less than a decade, Japan's government has piled up a cumulative deficit that places it in close proximity to the U.S. as the world's greatest debtor nation. Quite a feat for the country which was previously "banker to the world". Forget the myth of the wondrous Postal Savings System as a pool of cash. In fact, the Postal Savings situation is a mess. A big "roll-over" is at hand, and the government is trying to figure out how to handle this. Currently it is stuffed with a truck load of Government IOUs that represent most of the supposed cash therein. It gets worse. Current interest rates paid on government paper barely registers above zero. To attract badly needed new debt purchasers, the rates must rise, but any rate increase would smash the value of the old debt paper (i.e. crush most of the Japanese financial institutions). I have no idea as to how this one will be solved and apparently neither does the BOJ. What a volcano smoulders there. Over the last 12 months, and contrary to uninformed popular opinion, Japan has been SELLING U.S. stocks (Japanese institutional holdings fell from 45% to 37%) in a big way to fend off the liquidity crunch. That is hardly likely to abate, given the imploding Japanese liquidity situation. Partially masking this is the fact that the BOJ has been trying to offset the attached nasty currency flows through the purchase of greenbacks and treasuries (with newly minted Yen) to try to hold the Yen down (protect exports). Good luck to them. Nothing like a flood of newly created (from thin air) Yen to devalue the currency already in circulation. Not to belabour a point I have hammered of late, but with Japan imploding at an accelerating rate, they are going to continue to be sellers, not buyers of U.S. assets. As they have traditionally been consequential players in the U.S. stock markets, their departure will hurt. Japan's prostrate position also guarantees further big economic problems for Asia. In summary, Japan will be a drag on, not a supporter of the U.S. tulip market over the next year. Japan is truly on the ropes and frightens me silly, given their former financial strength and importance to the global economy. 401K dough will surely help, but the "treasury paydown" is smoke and mirrors so it won't. On balance, I agree with Trimtabs,..... we are running out of available capital with which to support the bloated pig. IMHO, the continued health (horrific use of the word) of the stock market is dependent on Greenskin's ability to stuff more credit down American throats. I hope he knows how to stiffen string. Best, Earlie