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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (4401)	8/26/2001 10:18:30 PM
From: John Pitera	Respond to of 33421

The Need For Flexibility 22-Aug-01 00:10 ET One of our main concerns surrounding the deepening of US contagion has been the fragmented nature of globalization. While we certainly respect external cultural and social influences, the markets have made it particularly clear that they prefer the seemingly Americanized themes such as deregulation, the maximization of shareholder value and top-down corporate power structures, just to name a few. This dynamic has been particularly troublesome for Europe, as we would note that despite the headline slowdown in the US, net capital outflows from the continent are now on pace to nearly double last year's total. Despite the dampened outlook for global recovery, the reflation theme does provide some semblance of insight into this trend. In other words, as investors attempt to capitalize on restructuring stories, quality becomes a major concern. This is where we would note the influence of organized labor in the recent restructuring plan put forward by Opel, General Motors Corp.'s main European unit. The Germany-based carmaker wants to cut 15% of capacity by 2003, a move which would reportedly save 2 bln euros in costs, and eliminate the production of 300K to 350K vehicles a year. The problem however, is that due to threats of noncooperation from the works council, the company has been forced to promise not to close any plants or lay off any workers against their will. Remember, labor has much more influence in Germany than in the United States, as we would note that the process of co-determination allows workers' representatives to sit on a corporate supervisory board and influence strategy. Such influence has already forced chemical giant BASF to pare capacity through attrition, while the influential IG Metall Union continues to press companies to cut the workweek in an effort to get more workers to produce the same level of output. While our concern about the resistance towards restructuring may seem a bit overdone, it is tough to argue with the fairly nasty investment implications surrounding labor strife. In addition, our perceived lack of respect towards the notion of employment security does not stand up in the face of the heightened domestic increase in flexible compensation, a trend which fosters a far more efficient alignment of the interests of employers and employees. Of course, we would also note that this trend seems to be spreading to the country most desperate for restructuring, Japan. Employees of both Nippon Telegraph and Telephone Corporation and Daiei, have thrown their support behind salary reductions and job transfers in an effort to avoid employment carnage, suggesting that unions have recognized the likelihood of an extreme bifurcation in the Nikkei going forward. In addition, rather than protest the closings of profit-draining stores, Mycal's labor union has instead decided to take advantage of the favorable sentiment towards restructuring by dipping into its strike fund to buy more shares in the company. Of interest, the stock has jumped roughly 33% in just over the last week.

To: Jacob Snyder who wrote (4401)	8/26/2001 10:22:03 PM
From: John Pitera	Respond to of 33421

Jacob excellent points you raise, it's possible that we may see NASD prices that approach both your lower end target and your upper end target in the next 15 months. We'll need to see how the global economy performs, over the next several months and also make sure that we don't see too large of a decline in the US Dollar. One that gets out of hand to the downside. We are sitting on a knife edge, and which way we fall decides whether the Nas hits 1000 or 3000 next year (of course, there is always the possibility that the manic-depressive Market believes first one scenario, then the other, so we hit both numbers in the next 18 months). It's hard for me to believe that Fed rate cuts from 6.5% to 3.5% isn't going to powerfully effect stocks (with a 6-24 month lag). But, it's also hard for me to believe that consumers can continue spending at current levels, getting steadily more leveraged as unemployment goes up. And it's hard for me to believe, given the current macro climate, that a (trailing) PE in the high 20s (for the S&P 500) is sustainable. ----------------------------------- and a few related musings on how Germany and Japan are dealing with labor issues; Germany , France etc have exceptionally strong unions.......... The Need For Flexibility 22-Aug-01 00:10 ET One of our main concerns surrounding the deepening of US contagion has been the fragmented nature of globalization. While we certainly respect external cultural and social influences, the markets have made it particularly clear that they prefer the seemingly Americanized themes such as deregulation, the maximization of shareholder value and top-down corporate power structures, just to name a few. This dynamic has been particularly troublesome for Europe, as we would note that despite the headline slowdown in the US, net capital outflows from the continent are now on pace to nearly double last year's total. Despite the dampened outlook for global recovery, the reflation theme does provide some semblance of insight into this trend. In other words, as investors attempt to capitalize on restructuring stories, quality becomes a major concern. This is where we would note the influence of organized labor in the recent restructuring plan put forward by Opel, General Motors Corp.'s main European unit. The Germany-based carmaker wants to cut 15% of capacity by 2003, a move which would reportedly save 2 bln euros in costs, and eliminate the production of 300K to 350K vehicles a year. The problem however, is that due to threats of noncooperation from the works council, the company has been forced to promise not to close any plants or lay off any workers against their will. Remember, labor has much more influence in Germany than in the United States, as we would note that the process of co-determination allows workers' representatives to sit on a corporate supervisory board and influence strategy. Such influence has already forced chemical giant BASF to pare capacity through attrition, while the influential IG Metall Union continues to press companies to cut the workweek in an effort to get more workers to produce the same level of output. While our concern about the resistance towards restructuring may seem a bit overdone, it is tough to argue with the fairly nasty investment implications surrounding labor strife. In addition, our perceived lack of respect towards the notion of employment security does not stand up in the face of the heightened domestic increase in flexible compensation, a trend which fosters a far more efficient alignment of the interests of employers and employees. Of course, we would also note that this trend seems to be spreading to the country most desperate for restructuring, Japan. Employees of both Nippon Telegraph and Telephone Corporation and Daiei, have thrown their support behind salary reductions and job transfers in an effort to avoid employment carnage, suggesting that unions have recognized the likelihood of an extreme bifurcation in the Nikkei going forward. In addition, rather than protest the closings of profit-draining stores, Mycal's labor union has instead decided to take advantage of the favorable sentiment towards restructuring by dipping into its strike fund to buy more shares in the company. Of interest, the stock has jumped roughly 33% in just over the last week.