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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (52)	3/8/1998 7:04:00 PM
From: Freedom Fighter	Respond to of 1722

>My major experience with financial stocks has been Southwest >Secuities, which I still believe is a great little company. But, I >found that playing SWS required guessing correctly what the Fed would >do about interest rates. And I guessed wrong, going into SWS -- and >coming out! This is not correct in my view. The intrinsic value of a financial company has nothing to do with short term interest rate moves. Rate changes may effect the stock prices on a yearly (or more) basis but that is not the intrinsic value. Intrinsic value implies both favorable and unfavorable circumstances. What you are describing is more of a market or sector call. This kind of investing is popular on Wall St. , but both Buffett and Munger are fairly clear that they know noone who has gotten wealthy that way. The only exception would be if you saw a very long term change (decades) in the inflation and interest rate environment. >Greenspan raised short term rates to 6% in 1994 with the economy >having much less slack than it does now, but in spite of his repeated >warnings, he raised rates only by .25% [to a total of 5.5%] a year >ago. Real Interest rates were negative or close to negative in 93 when we just coming out of a recession. It was not really a tightening in the common use of the word. It was a return to normalcy on the rate front. The Real Fed Funds rate should be positive. In fact, the negative Fed Funds rate in the early 90's is a prime suspect in the wild speculation and financial asset bubble we are in at present. That is the backbone of the Austrian theory of economics! >And...there's not a lot of margin of safety in >current valuations on financial company stocks. This is certainly true. Financial stocks generally trade at a multiple of book value in private transactions. The current passive prices are higher than the historical takeover prices. This is sheer lunacy. This is true even if there is a premium attached to the passive prices because of the higher probability of a takeover or merger in a consolidating industry. I became heavily invested in financial stocks in the early 90's when everyone hated them. I have cashed in all those wonderful chips.

To: porcupine --''''> who wrote (52)	3/8/1998 11:42:00 PM
From: porcupine --''''>	Respond to of 1722

Subject: Asia Update From: WCrimi To: gadr@nyct.net I sent this because I don't think we have even begun to see any real impact in the U.S. yet. The economic impact may not reach here for another 6-18 months. I read the Australian Financial Times several times a week. The economic impact is just starting to hit there. Clearly this is a very slow moving process with the worst to come on an economic basis. False security on Asia: warning of worse to come By Michael Mullane, Markets Editor The recent strong rebound in Asian sharemarkets is a false dawn, analysts are warning, with a new wave of weakness about to hit as the region's crisis slashes economic growth and drives businesses into bankruptcy. Analysts also warn that Australian shares and the struggling local currency will be caught in the fallout as the Asian markets renew their slide. Sharemarkets in the Philippines, Singapore, Thailand, Malaysia, Hong Kong, Indonesia and Korea have all jumped by between 40 per cent and 60 per cent from their record lows in January, driven by US hedge funds chasing bargains and merger activity. But these markets remain on average about 35 per cent below their year highs and analysts say there are now a growing number of viable Asian businesses that cannot raise the cash flow to meet their costs. "There's no denying we've seen a big bounce in Asian markets, but we've yet to see the worst of the overall crisis hit the real economies of the region," said a Rothschild Australia international economist, Mr Michael Thomas. "Investors have taken the view that the worst has already been factored into Asian market prices and that a corner has been turned. "But we are only just starting to see inflation worsening and unemployment rising and there's definitely going to be a lot more defaults in terms of businesses in Asia going to the wall." Markets across the region are bracing for renewed slumps: Following a rise of more than 45 per cent in January and February, the worst losses by listed companies in Thailand's history and further revelations of the central bank's role in propping up the finance sector are expected to put the brakes on further rises for Bangkok stocks. From its recent low in early January, the Jakarta stock exchange has risen more than 40 per cent, but inflation is now at a 30-year high, and many companies are technically bankrupt as the economy has been in recession for three months. After the South Korean stockmarket index soared to nearly 600 points last month, it has dropped significantly in the last few days as worries grow over another debt crisis later this month. The market is expected to remain volatile because of high interest rates and the failure of rising exports to stabilise the won. Japan's stockmarket has risen 13 per cent this year on the hope of a government stimulatory package that has yet to eventuate and may ultimately disappoint investors. Most analysts also believe the Australian sharemarket is overvalued and "lacking leadership", with recent gains being led by only a small band of large capitalised stocks, such as News Corp and Telstra. They say Australia's deteriorating national current account deficit -- expected to blow out to around $30 billion next financial year -- slowing domestic growth and lingering concern over the direction of commodity prices will add to sharemarket and currency weakness. Merrill Lynch equity strategist, Mr Peter Dougherty, warned that Australian corporates would have to "wear the heat" of increased competition from a flood of Asian exports when those countries finally started to recover. "The situation is worrying . . . The Australian market will struggle for direction," he said. It is expected that strong evidence will emerge of which Asian economies have been hit the hardest over the next three to six months. "Then it's a matter of waiting until they hit bottom," Mr Thomas said. He said Rothschild's research had shown that while Australian exporters were reporting steady volumes, there was increasing price pressure that would translate directly to the bottom line of many Australian companies. The perception that Australia would be seen as a safe haven in the region has not materialised. "The big concern, for better or worse, is that Australia has been viewed as too close to Asian countries," said Mr Thomas. Since the October crash, Australian shares have staged a rally from a base of 2,300 to around 2,700, but the breadth of the rally has been extremely narrow. UBS Australia chief economist Mr Stephen Roberts said the Australian dollar was overvalued. Mr Roberts expects the $A to be trading at US65› in three months. Last week it touched a one-month high of US68›, but barely a month ago the unit dived to an 11-year low of US63.17›. "Australian growth is underperforming US growth and that situation will deteriorate through 1998 due to the Asian crisis," he said. Mr Roberts said he was not confident that Japan would stimulate its economy to anywhere near the degree the market was looking for.