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

To: TobagoJack who wrote (32178)	4/23/2003 5:54:41 AM
From: smolejv@gmx.net	Read Replies (1) \| Respond to of 74559

wilkommen, bienvenu, welcome, zu Kabaret, au Cabaret, to Cabaret broadwaymidi.com See, Jay, we know - among other things - what a reasonable P/E is supposed to be. >>The difference in performance may be explained by the fact that Germans and French are not treating their homes as ATMs, credit cards as wallets, and stock exchanges as playgrounds.<< Yes, it's the anal-retentive approach to life vs you-know-what of US. See textnart.de (we have not changed since...) also... textnart.de re >>To the victors go the spoils.<< Man, the guy must have cojones way below his knees - comes from having legs 2 inch long... The truth is, go for the high ground, young man. Europe and Germany, they're just front-running the Kahuna (ng). RegZ dj

To: TobagoJack who wrote (32178)	4/23/2003 8:55:09 AM
From: sciAticA errAticA	Read Replies (3) \| Respond to of 74559

China: No Pain, No Gain Andy Xie (Hong Kong) Morgan Stanley Apr 23, 2003 The Chinese government is launching a massive campaign to keep the SARS virus under control. A massive migrant labor force estimated at 150 million and poor rural healthcare infrastructure make this task exceptionally difficult. The campaign sets the country’s priorities right by putting people’s health and safety first. It is the right choice for the country. However, it is unavoidably disruptive to the economy. China faces rising risk of a hard landing, in my view. Canceling the week-long May Day break and firing key government officials over mishandling of the SARS crisis are the first major steps in China’s Long March toward political transparency. China is a different country after two decades of rapid economic development. The belated political change may ultimately improve China’s financial transparency, which would improve the connection between growth and profitability. Export strength remains a cushion for a slowing economy. If FDI flows are merely delayed rather than diverted, China’s exports could remain strong for the foreseeable future. Putting Life First Over the weekend, China (1) cancelled the weeklong May Day break, and (2) made major personnel changes to reflect responsibilities in the mishandling of the SARS crisis. The national media has also shifted from the message of ‘everything under control’ to an education campaign on how to avoid catching SARS. China is facing up to the harsh reality of how a contagious illness could spread in a mobile and modern society. These decisions are the first steps toward restoring the public and international community’s confidence in the Chinese government. A long road lies ahead. SARS is spreading to the underdeveloped interior provinces that lack the sound healthcare infrastructure necessary to deal with a major outbreak of a contagious illness. The central government has promised to make financial resources available to deal with the virus in poor provinces. In my view, the short-term economic pain will be acute. Cancellation of the weeklong May Day break could decrease this year’s GDP growth rate by 0.2-0.4%. The disruption to normal economic life could incur even more economic costs. On April 2, we reduced our forecast for China’s 2003 GDP growth rate to 6.5%. This is sufficient to cover the economic losses associated with SARS for one quarter of the year. There are three scenarios for how this crisis could unfold in the coming months. First, the virus loses its virulence going into the summer months, as do many other contagious respiratory diseases. Second, the virus remains as it is but the public campaign reduces the infection rate and brings the epidemic under control within two months. Third, the virus mutates and hits in several waves as did Spanish flu and Hong Kong flu. The first two scenarios are consistent with our current GDP growth forecast. Most of the economic impact would be concentrated in the second quarter and probably be equivalent to giving up one quarter of growth. Normalization should take place in July. The third scenario would imply a significantly lower growth rate than we are currently forecasting. It is virtually impossible to make such a forecast. The only relevant message is that it would imply much more downside than is currently in the market. Balance Sheet Risk As China’s economy enters a period of rapid slowdown, it is impossible to predict the downside associated with its balance sheet risk. Large amounts of non-performing loans in state banks and the low profitability of state-owned enterprises are widely known risks embedded in China’s balance sheet. However, they may not represent the most important risk in this cycle. An opaque private sector represents the gravest risk to China’s economy in the short term, in my view. A large number of private companies have flourished in the past few years by manipulating financial accounts to obtain bank loans. Some have even controlled local banks and used them as their own piggybanks. A large number of private companies have negative cash flow but present positive profits through accounting tricks. If the cycle turns down hard, they may face bankruptcies, which would magnify the economic cycle. This risk is especially pronounced in the property sector. Commercial building space under construction rose to 928 million square meters last year from 772 million sq. m. the year before. The industry didn’t have much equity to begin with and used mostly bank loans to fund its growth. Poor capitalization has been partly hidden by creative accounting. Further, purchases by Taiwan and Hong Kong residents are quite important to this sector’s health. The SARS crisis would reduce such demand. The balance sheet problem within this sector could be exposed in a downcycle. The sector contributed 23% of overall economic growth last year. If it experiences a hard landing, the impact on the economy would be large. Financial Transparency China must improve its financial transparency in order to reduce the potential for a hard landing. China straddles a market and a planned economy. The tension is often borne by the financial sector. For example, a listed state-owned enterprise usually has a parent company that is in worse financial shape. The wall between the two must inevitably collapse over time. Further, the rise of China’s private sector, especially in the non-export sector, is modeled after Southeast Asian crony capitalism. Many, if not most, private companies that sell into domestic demand do not make returns above their cost of capital. They plug their cash flow problems with more loans. This has given them incentive to control local banks to ensure their cash source doesn’t dry up. This new risk represents an immediate challenge to China’s economic stability. The SARS crisis shows the costs associated with lack of transparency in dealing with public health issues. Transparency is an even bigger problem for the financial sector. China’s domestic credit to GDP ratio is 165% and growing. This enormous amount of credit has been formed in an environment of lax risk management and lack of accounting transparency. China must deal with this issue as soon as possible to ensure economic stability. A Giant Step Toward Transparency China’s government has taken extraordinary steps to correct the mistakes made early on in its handling of the SARS crisis. The political system is trying to adapt to a new environment. China has become much more dependent on globalization for its economic growth. Economic growth has increased the importance of non-economic issues to the Chinese population. China has shown a willingness to adapt to the changing internal and external environment. This is another example. morganstanley.com

To: TobagoJack who wrote (32178)	4/23/2003 8:22:05 PM
From: EL KABONG!!!	Read Replies (3) \| Respond to of 74559

Jay, I read an article (some time ago now, maybe 2 years ago or so) that in retrospect was actually quite prescient as regards the German and French economies. As I recall, the author had (quite accurately) set out the conditions that each European country had to agree to in order to adopt the Euro as a currency. Because of the large percentage of government spending that went to social programs, the author pointed out that both Germany and France would encounter great difficulties in continually meeting the rather strict limitations put on their government spending by the European Central Bank. One thing he point out was that any crisis (out of the range of normal spending) would have enormous impacts on the governments, because both countries had so little leeway for crisis situations (thin margin for error in "predicting" future spending). Germany did incur just such an event with the severe flooding some months ago now. The author also pointed out that, historically speaking, the French and the Germans had the lowest totals for consumer spending when expressed as a percentage of household net worth, or as a percentage of gross domestic product. In short, the French and the Germans are not prone to impulse buys at the marketplace, or shopping in overpriced malls, or excessive purchases of luxuries. Both the Germans and the French are/were savers, but not nearly as prolific as the Japanese used to be. However, individual investors in both countries tend towards domestic investments over foreign investments, and when foreign investments do occur, they are much more likely to be through mutual funds, or indirectly via a bank savings account (where the bank invests in foreign equities) as opposed to directly investing in US$ denominated stocks and bonds. So, as the author correctly predicted, when the US markets fell, the French and the German individual investors were not as directly impacted as say some Asian individual investors were. However, indirectly both the French and Germans suffered losses in their domestic equities (who in turn had lost money in US equities), and indirectly in their bank and insurance returns. And the reaction to the bad news by consumers in both countries was easily predictable, as they simply shut their wallets tightly, reduced consumer free spending, and saved money in what they see as less volatile assets (perhaps some folks use precious metals, some still use bank and insurance accounts, others may increase mutual fund holdings, and I assume there are those that simply stuff the old mattress). One other aspect of the report had to due with the large number of social programs in both France and Germany that has profoundly altered the attitudes of the working people, and which is paid for by systems of taxation that in essence transfer monies from the workers to the social programs, which in turn pay the monies out to program recipients. Social programs have slowly gone from being perceived as a form of assistance to being perceived as a sovereign granted right, not to be meddled with by politicians or anyone else. Many of the people in both countries have little or no plans to meet future needs in old age other than the social programs that currently exist. And both countries face the strong prospect of a decreasing population of working age people to support those older folks that have retired. (I might also point out that a very similar workers' attitude exists in the USA regarding social security, and the US government has very similar problems to France and Germany in this regard, as there are fewer and fewer workers left to support a burgeoning list of recipients.) Given the pressures on the two governments, and the downright dismal confidence in their economy by the working people, it shouldn't be surprising that their domestic equities and financial institutions are currently having some problems. I think that whatever the two nations decide to do, it will provide an interesting lesson for the rest of the world, either providing a road map for recovery, or giving a prime example of what not to do. No way of telling for sure which way things will go, or how things will be perceived. KJC