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Technology Stocks : Creative Labs (CREAF) -- Ignore unavailable to you. Want to Upgrade?

To: Dennis G. who wrote (6830)	12/9/1997 3:20:00 AM
From: JP Sullivan	Respond to of 13925

OT RE: This says it's really just a currency problem, which is entirely understandable. It doesn't indicate that there's a major economic slowdown over there. But I'm sure the bears will try to shove that interpretation down our throats again. Dennis, Don't kid yourself. It's an economic disaster for most of East Asia. Witness the IMF-led bailouts for Thailand, Indonesia and lately South Korea ($56 bil, the biggest in bailout history). Also don't forget the collapse of a major stockbroking firm in Japan, not to mention the Asian WSJ's recent article about how the Japanese economic recovery is essentially dead. Then yesterday, the Malaysian cabinet (all ministers and their deputies) took a 10% pay cut (a first in the country's history), and pay rises for senior government officials were frozen until further notice. The Finance Minister also revised the country's 1998 economic growth estimate from 7% (given during the budget speech in October) to between 4 and 5%. Quite a drastic comedown from the 8-9% we've been enjoying for the past nine years or so; I would definietly call that a slowdown. In fact, I'd consider us lucky if we don't end up in a recession, like the one I think Thailand will be in by early next year. The primary cause for all this mess: poor money management and hubris, if you ask me. In the good years, all the funds flushed the banks in the region with lots of cash, and the banks started dishing it out like there was no tomorrow. It didn't matter that the money one borrowed was put to poor use; so long as one had the right connections, one got the loan. And the bigger it was, the better. Think big! was the phrase of the day for most of the so-called Asian Tigers. Then the funds decided they'd had enough and began pulling out en masse, and now there's hell to pay. But I'm over-simplifying, and I'm digressing ;) The point I'm trying to make is that the problems of the region are severe--yes, people are throwing themselves out of windows, or at least off rooftops. A company like ORCL that's trying to expand rapidly in Southeast Asia is going to face a major decline in sales in the coming months as corporations start to delay their expansion plans and cut back on spending. So, you see, currency problems are really only one half of the picture. Slowing sales make up the other half and are the more serious of the two. Realistically speaking, the situation is not likely to improve in the next 12-18 months. Having said all of that, CREAF is in the enviable position of manufacturing its products in Asia, where it has a tremendous cost advantage, and selling them in the US and Europe, two areas of the world that have been relatively untouched by the "Asian contagion". So in the short term (2-3 months), there is little to indicate that CREAF will be hit (well, maybe nudged) by the current crisis. But I would be much less optimistic over the medium term (say, 6-12 months) as the infection starts to spread its poison. To paraphrase Greenspan, the effect on the US economy will not be insignificant. How painful it's really going to be is anyone's guess at this time. So, enjoy the ride on CREAF while ye can.