Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (2244)	3/5/2001 8:33:24 AM
From: WTSherman	Read Replies (3) \| Respond to of 74559

Hello Jay, I don't know that I can compare the situation in Japan with that in the U.S. Here in the U.S. we certainly experienced a "stock market bubble", most apparent in the NAZ Comp and NAZ 100 where valuations reached absurd levels. That bubble has been deflating and will probably continue to do so for several more months. I won't believe that its over until the DJI is more like 8000 than 10,000. NAZ could possibly hit 12-1500. However, how much this will mean to the overall U.S. economy I'm not terribly sure. Certainly, it will have an impact on economic growth, people will see their "paper assets" shrinking, feel less wealthy and secure and cut back on spending. Probably a recession will be admitted to sometime over the summer. On the other hand, I would not say that the whole U.S. economy was in a bubble. Most notably, you did not see anything here like the rise in real estate prices that Japan experienced in its bubble. Yes, in some areas they have risen by 20% a year over the last couple of years, but, overall the past decade has seen something like a 80% increase in real estate prices. Japan's bubble saw many times that. Overall, the biggest fear I have is related to both consumer and corporate debt, which expanded very greatly in the past 5 years. A severe downturn in the economy could trigger a huge rise in "non-performing" debt which could trigger a financial crisis. This is where the Fed Reserve has a key role to play, it must move interest rates lower very rapidly so that both company's and consumers can maintain their debt at levels they can afford in a down economy. I'm sure the AG realizes the importance of this, he'd better or the wheels will come off. I think this is a major difference between the U.S. and Japanese situations. The banks in Japan held huge amounts of corporate stock and real estate as "assets" on their books. As the bubble burst these became rapidly devalued and the banks quickly went upside down as they could not liquify these. It didn't matter than Japan kept cutting interest rates because these assets were evaporating and they could not keep their books balanced. Another difference is that Japanese company's have not, historically, been terribly "profitable" by U.S. standards. ROI for Japanese company's is terrible and for many cash flow was never very strong. Moreover, they were culturally inhibitited from taking drastic action to reduce expenses(no layoffs). All of this combined to put many company's into a situation where they simply couldn't keep their loans current. They never had alot of profits, when the economy started to tank they quickly started losing money, it wasn't acceptable to take quick action and lay off workers so they simply drained their assets. This created a domino effect on the banks which were houses of cards due to the inflated "assets" they held. Thus a downward spiral started that interest rate reductions could not stop. I don't see the same thing here. First, company's are generally much more profitable than in Japan, so they have more room. Second, they will lay off people, and are, to keep from having cash flow problems. Thirdly, the banks are not nearly in the same condition as those in Japan. Fourth, the U.S. bubble was primarily a stock market phenomena and not so much anything else, only modest inflation in real estate, which is the telltale sign of a serious long term problem. Lastly, as a percentage of GNP the debt of the U.S. government is a tiny fraction of the debt of Japan's government and has been growing smaller and smaller for the past five years. This has helped moderate the problems associated with the rise in consumer and corporate debt. All in all, I think the U.S. is probably in for a rough year or 18 months of either "no growth" or "negative growth", but, that it will rebound from that. Japan, on the other hand, is pretty much screwed. They face all the problems I noted above, plus they are continuing to experience a drain of mfg. jobs out of Japan. This was inevitable as the country became more prosperous and wages increased. Mfg. work will always seek areas with the lower labor cost where possible. With Japan's intense focus on mfg. and on export markets this is a double whammy for them. Their company's had to move jobs overseas to compete, but, the domestic economy was so constrained that there wasn't much to replace those jobs with. The U.S. went through this in the 60's and 70's. And we were never as dependent upon mfg. as Japan is. I think that the root of all of this is Japanese culture, its isolationism, its unwillingness to embrace change and its fear of foreigners. Relying upon exports to build a backward economy into a developed one is fine. Trying to maintain a developed economy around mfg. exports simply wont' work for very long. Especially, when advances in technology have made much of the work "less skilled", so that there are lots more things that realatively untrained and uneducated workers in other places can do. Sorry for the long rambling post, hope it makes some sense.

To: TobagoJack who wrote (2244)	3/5/2001 9:12:42 AM
From: Box-By-The-Riviera™	Respond to of 74559

Jay have you done any work correlating Chinese years with market performance... you know: Dragon: bullish Snake: analysts in jail Rat: major hype TIA J