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

To: smolejv@gmx.net who wrote (3999)	5/30/2001 7:47:00 PM
From: westpacific	Read Replies (2) \| Respond to of 74559

DK - Two interesting reads, both from Prudent Bear. This may have something to do with noises coming out of Japan of late. My friend John Mesrobian pointed out an article a couple weeks ago in the LA Times by Kenichi Ohmae, who is advising Japan’s new Prime Minister on economic matters. The article basically warned that Japan’s financial institutions may be forced liquidate their US assets in the next few months (the Japanese own 10 percent of US treasuries and are the largest foreign holders) in order to clean up their chronic banking problems. Now, that article in and of itself means nothing. But may be worth giving a little credence to when taken together with the sharp rally in the yen last week, the inability of the bond market to rally over the last few days, recent statements by the Japanese government reflecting on the possibility of using Japan’s foreign reserves as well as foreign assets to clean up their banking mess, and the fact that high level Japanese government officials are in Washington today meeting with Secretary O’Neill and will meet with Uncle Al tomorrow. If the market is beginning to sniff out that the Japanese are planning to sell their US treasury holdings, it would certainly explain a great many things. Obviously, such a move by the Japanese would have grave implications for US financial assets. On the flip side, it might be just what the doctor ordered to help Japan out of its 10 year funk. And this from the international perspective that ties in with the above...... The news coming out of Japan is similarly worrisome, particularly in light of a popular Prime Minister whose economic policies, if implemented, we believe will engender a deflation worse than any seen in the region since 1998 (and almost certainly destroy his current politically sky-high approval ratings in the process). One simply has to look at the latest banking results in Japan to understand the risks inherent in a prompt market-based resolution of the banks’ bad debt problem. The country’s four giant banking groups – which rank as some of the biggest in the world in terms of assets – have combined outstanding non-performing loans of $121 billion, according to their latest annual results (by way of comparison, the entire Savings & Loan debacle in the US ultimately cost the US taxpayer some $150 billion). This implies that the bad loans on the books of the banks are accelerating, even as decent profits are being used aggressively against write-offs. Bad loans at Bank of Mitsubishi-Tokyo, for example, rose 55 per cent last year to Yen 4.460 billion despite the bank taking a huge Y800 billion charge to deal with them. If bad loans continue to accelerate at this pace, it is highly unlikely that Mr. Koizumi will be able to meet his pledge to solve the banking system’s bad debt problems. Nor should he, since his proposals would only make this worse. Perhaps the stock market has begun to draw the same sorts of conclusions, judging from the precipitous fall in banking stocks over the past week or so.