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Technology Stocks : C-Cube -- Ignore unavailable to you. Want to Upgrade?

To: CPAMarty who wrote (27157)	12/29/1997 1:48:00 AM
From: Rarebird	Read Replies (3) \| Respond to of 50808

" What do I think will cause the shortfall in earnings ( including Cube) for US equities? The Southeast Asian crisis. But I think you need to first understand why it's a crisis and how it originated. Then the answer to your question can be easily answered by yourself. The Asian tigers leveraged too much. The average Southeast Asian company has a leverage of 4:1 ( debt to equity ) as compared to a typical US company's leverage of 1:1. The companies ( especially Taiwanese, Japanese and Korean ) wanted to get market share at any cost without looking at profitability or how to pay back the debt. The local banks borrowed very heavily and lent to these companies, who ultimately could not pay back the loans as promised. Banks, who had borrowed overseas and lent to these companies, lost their capital while protecting their domestic customers under the government's influence. Once this was grasped, Southeast Asian banks sold as much of their local currencies for US$ as possible to not default overseas. This brought about a fall in the value of the local currencies. That is to say, there was a panic and run on local currencies, precipitating a slump in their values. ( To George Soros credit, he recognized the situation and took full advantage; but he did NOT CAUSE the panic! ). The local banks in SE Asia are hardly independent of their governments and have no logical policy in place to circumvent such runs or to control bank's borrowing for excessively leveraged companies. The cheap foreign capital made everything look easy and no one had an inkling that such a run could take place. These Asian Tigers do not have a thoroughly independent and competent Central Bank like we do here in the US. When I asked one of my Korean customers who is good friends with the newly elected leader, what happened? he said "we have no comptroller".... Now that you understand the crisis, Marty, you tell me, why are prices falling for PC's, disk drives and chips? Why will there continue to be further pricing pressures? These Asian Tigers are flooding are markets with their cheap imports! For US multinational high tech companies to compete they must lower their prices drastically! You think our market has these pricing pressures already discounted in present high tech share prices? In companies like Seagate and Ascend where the bad news is already out, You bet! Their down 75% from their highs. In the typical high tech company, the bad news is not out already. You want to wait for the bad news to come out, go right ahead and suffer the financial consequences. The average strategist is predicting 6-10% earnings growth for the S&P 500 this coming year. Just wait till your average analyst starts reducing earnings expectations for the particular companies they cover in their sector. American LA LA LAND in Mary Poppins Fantasy land will be turned on its head! There will be no saving grace either as the shorts come out like bandits. American consumers are at the peak of their leverage. What will happen, Marty, when the Sotheast Asian hoarders eventually sell their US holdings ( Treasuries and Stocks )? What will happen to US interest rates? What will happen to stock prices? Rates will rise ( in the second half of 98 ) and stocks will fall even more!