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Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: chowder who wrote (14741)	6/28/2002 4:45:53 PM
From: stockman_scott	Respond to of 23153

In Defense of America Stephen Roach Morgan Stanley (New York) June 28, 2002 Enough is enough -- even I have my limits. Sitting on my desk was a note from our own Serhan Cevik, concluding that the Israeli economy was mired in its worst contraction in 50 years (see his 27 June dispatch, "Just Pain, No Gain [for the Time Being]"). No sooner had I put the piece down when, out of the corner of my eye, I saw a rather remarkable headline flash by on Bloomberg -- the Israeli shekel had apparently strengthened to a one-month high against the dollar. The distaste for dollar-denominated assets had clearly taken on a life of its own. We all know markets go to excess. Unfortunately, economies do as well. That’s been precisely my point in underscoring the post-bubble vulnerabilities of the US economy. America’s massive current-account deficit only compounds the problem insofar as the dollar is concerned. In retrospect, it was a classic set-up for the repricing of an over-valued asset. The only thing missing was a loss of confidence in the asset itself. That came rather suddenly. Courtesy of Enron, Tyco, and now WorldCom -- and all too many others in between -- the missing piece had fallen into place in the form of a full-blown corporate governance shock. America was tainted and the dollar bore the full wrath of global investors. Hell hath no fury like an asset scorned. Even the shekel was a winner. Yet America is far from over. To the contrary, I would argue that our free enterprise system has never been more vibrant and effective in taking matters into its own hands. The sad litany of corporate transgressions has been met by a quick and painful response in the marketplace. The destruction of wealth has been astonishing. For just the "gang of five" -- WorldCom, Tyco, Qwest, Enron, and Computer Associates -- there has been a $460 billion loss in market capitalization (estimated by our strategy group as a loss in market cap relative to recent peaks in respective share prices). Need I say more? The Schumpeterian principle of "creative destruction" is alive and well. Once unmasked, dishonest accounting and other forms of corporate chicanery have been dealt with in a brutally expeditious fashion. I know of no other system that renders such painful verdicts so quickly. Nor is America the next Japan. Interestingly enough, of all the questions I got on a recent European tour, the comparison with Japan was easily at the top of the list. The parallels are obvious. They stem mainly from the aftershocks of a popped asset bubble. The charts of the Nikkei post 1989 and Nasdaq post 2000 do, indeed, have an eerie similarity. But the comparisons stop there, in my view. First of all, Japan’s banks are still broken -- America’s are not. As a result, the credit intermediation process works in the US but remains largely dysfunctional in Japan. That gives America traction between its real and financial economies -- a necessary, but not sufficient, condition for any economic recovery. Japan, by contrast, remains mired in a lethal "liquidity trap" -- unable to respond to the zero-interest rate policy of its central bank. Moreover, unlike the United States, the Japanese "convoy system" of corporate survival remains very much intact. Most large Japanese companies are still judged as "too big to fail," and outright bankruptcies are few and far between. Such an approach has "moral hazard" written all over it. The case of Daiei -- a large and heavily indebted Japanese department store that was kept afloat by government intervention this past January -- makes that point crystal clear. The same can be said of Japan’s unwillingness to resort to labor-saving restructuring tactics. The still-sacred institution of lifetime employment prevents Corporate Japan from effectively utilizing market-driven tactics of headcount reductions to improve business efficiencies. A comparable point can also be made with respect to Europe, where institutional rigidities remain the norm -- especially in its labor markets. Yet America does it quite differently on all of these counts. At the heart of the US system is an inherent flexibility that is all but lacking in Japan and present to only a very limited degree in Europe. However brutal, that very flexibility is now hard at work in US financial markets. As Corporate America gets marked to market in this exceedingly difficult climate, business and investor behavior will most assuredly change -- as should the response of Washington’s regulators. There are no guarantees on the outcome -- companies and politicians, alike, often go too far in responding to such serious problems. But that’s the way the American system always seems to work as it seeks a new equilibrium. I have no idea if the worst is behind us. Trevor Harris, our resident accounting guru, believes that Corporate America still has quite a long way to go on the disclosure front -- perhaps as long as another year. The bad news is that it is probably far too early to conclude that the worst of the corporate governance shock is over. The good news is that progress is finally under way. None of this alters my basic conclusion that any recovery in the US economy remains fragile, at best. Nor does it dissuade me from the view that America is in the early stages of a multi-year growth slowdown. In my view, the equity bubble of the late 1990s gave rise to excesses that must now be purged. And that’s exactly what’s now going on. It may well be that the corporate governance shock of 2002 could go down in history as the decisive spark to this purging process. In the end, that could be the real silver lining of the current environment. Just as the wrenching process of creative destruction served a flexible US economy well in times of difficulty in the past, I remain convinced it should do the same going forward. That’s always been at the heart of America’s economic defense.

To: chowder who wrote (14741)	6/29/2002 2:53:19 AM
From: Warpfactor	Respond to of 23153

Check out Tellium (TELM): Stock trading at 0.93. Fundamentals: LT Debt: 0.02 Cash per share: $1.86 Price to Book: 0.16 Suggest we all get together and buy the company, fire everyone, and liquidate the assets for a quick 200% ROI. Oh, forgot about this news: <<4:15PM Tellium warns for June quarter (TELM) 0.93 +0.23: As an illustration of just how bad business is in the telecom equipment sector: TELM warns that Q2 (Jun) revenues will be down to $3 mln from $54.1 mln in the March quarter; the Multex consensus had been $23.0 mln. Company also announces restructuring plans.>>