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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: Ploni who wrote (10243)	6/18/1998 6:54:00 AM
From: clochard	Respond to of 18691

The market slide will continue because the smart money is cashing out. They know that we won't get any higher in front of impending earnings decline in front of Asia problems in front of the milleneum change. Why not get 5-6% on a safe bond given all the uncertainty?

To: Ploni who wrote (10243)	6/18/1998 11:18:00 AM
From: Oeconomicus	Respond to of 18691

Charles, Joey has a much more pessimistic view of banks than I do, so I don't think we will see major failures, but I do agree with him that they may be great shorts if we do get into a recession. First, I don't agree that derivatives will bring down any significant banks, unless of course they are grossly mismanaged, in which case someone would go to jail. It wasn't the concept of real estate lending that brought down S&Ls, it was greed and corruption and I do not see that in places like NationsBank/BofA or even Chase and Citi. Well, OK, a little greed in how the top execs pay themselves, but not in how they generate profits in the bank. OTOH, both lending and derivatives involve credit exposures, though small relative to nominal dollars involved in the latter. Recessions lead to credit losses, credit losses lead to severe lending restraints (self imposed), and both lead to lower earnings. What do lower earnings lead to? Higher stock prices! Oops, I forgot I was trying to think rationally, not like a maniacal investor. I should have said lower stock prices. I guess it's possible that y2k fears will lead to a short-term liquidity problem (never underestimate hype, fear or stupidity - I wish I had learned the hype and stupidity parts before shorting 'net stocks) and that could compound the tight credit and squeeze margins, but that would be a temporary effect (not that it doesn't matter, mind you). Overall, I don't expect bank failures or inflationary government bailouts. I do expect bank stocks to return to more normal (historically speaking) valuations, perhaps even the low end, and for many of them to go through internal reorganizations, including layoffs (they do that every five years or so anyway, so they are overdue), but the future is far from bleak for US banks. For the economy, I still think a deflationary recession is much more likely than inflation, stagflation or any other *flation. Regards, Bob

To: Ploni who wrote (10243)	6/19/1998 2:40:00 AM
From: Investor-ex!	Read Replies (1) \| Respond to of 18691

Charles, Do you thus think that a crash this time might be met with hyperinflation? It's an important question. For long-term investors, this is THE question. My own opinion has been vacillating quite a bit lately. It would appear Asia has a preference for deflation. Why this is, I'm not sure. Deflation-based debt is absolutely crippling. Whether this preference persists to its ultimate conclusion is yet to be seen. Lately, some have suggested that Asia switch gears and inflate its problems away. It will be interesting to see if this develops. The US and Europe, on the other hand, have had direct experiences of both deflation and inflation this century. If it comes down to it, and we had to pick our poison, and that assumes we even have a choice, the US will likely side with "heavy" inflation, but well short of hyperinflation. Inflation: a great way to reduce debt burdens without explicit repudiation, bad for stocks but not deadly, relatively fewer job losses, the illusion of increased pricing power, and everyone pretends they're getting a raise. :o) Of course, the bond market will have absolute triple fits and interest rates could sky-rocket. Stocks might not even crash, depending on how quickly rates rise. Real companies, unleveraged or at least sensibly leveraged, for the most part, will not go out of business. Contrast this with severe deflation, where a great many businesses and their banks, even basically sound ones, go under. Even the US Treasury would be better off with inflation. At least business activity wouldn't grind to a halt. They would still collect (inflated) tax receipts. Also, depending on how Y2k plays out, whether warranted or not, I anticipate a certain amount of "stockpiling" by both businesses and individuals as that event draws near. This, too, would be at least mildly inflationary, if it happens. Note also that most commodity markets have already been conveniently "positioned" for an unfolding of the inflationary scenario. That said, inflation vs. deflation, as of now, is still something of a toss-up. But, IMO, events are leading us to having one or the other -- and lots of it.