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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Stitch who wrote (6051)	6/27/1998 9:12:00 AM
From: Mason Barge	Read Replies (5) \| Respond to of 10921

Okay, everyone, the best I can piece together, here is the current most-likely scenario: 1) The Chinese are telling Clinton that if the yen hits 150 or worse, their promise not to devalue the yuan will be reconsidered. Since many analysts now think that 180 is inevitable if the situation is allowed to run its course, this is a serious threat. 2) Japan is going to announce the formation of a bridge bank in the next few weeks to absorb something like $500BB of bad loans. Institutions using the bridge bank will be absorbed, together with their performing loans, by stronger banks. The LTC/Sumimoto talks are apparently the first instance of several to come. 3) The Japanese have maybe one shot (possibly a second) to use their huge foreign capital reserves to enact a plan. That is, they have enough clout to reverse the current situation short-term, and don't want to waste it unless it is going to correct the long-term problem. They are VERY resistant to the kind of outside dictation of terms that the little guys have been getting from the IMF. 4) To support the bridge-bank plan, and to give the yen the short-term boost it needs to break out of the current momentum ("downward spiral") they will liquidate an enormous amount of US Treasury notes and other fixed-rate debentures denominated in US dollars. 5) Do I need to tell you what the sale of say $500BB of dollar-denominated notes would do to the US economy? Interest rates would pop up (you can imagine short-term rates rising 50% in a week or two), the equity market would tank, cash and commodities would increase in value by a corresponding amount. Real estate would also fall (it would be hard to justify a rise in 30-year mortgage rates rising as much as short-term rates, but a rise to 9.5-10% is certainly conceivable and would hurt real estate prices). I think the US is savvy enough to prevent long-term damage to the equity market, but if this scenario transpires, we won't see the Dow at 9000 again for a number of years. Of course, the sale of any appreciable amount of Treasury notes will erase the silly "budget surplus" Clinton keeps crowing about. Here the Japanese are ahead of us, since there has been no adequate attempt by the US gov't to accumulate savings in this rosy economic period. Do people really think that the current artificial economic heyday will continue unabated?

To: Stitch who wrote (6051)	6/28/1998 7:26:00 PM
From: Jess Beltz	Read Replies (2) \| Respond to of 10921

Stitch, sorry that it has taken me so long to respond, but we had to go hiking (for the last time) yesterday since we had a brief window of sunny weather. Anyway, two things: (1) I talked to Takeshi last night in it looks like the LTC-Sumitomo merger will go through. Takeshi's comment on it was, "now they can take two (relatively) smaller inefficient banks and make one larger inefficient bank." (2) About Mr. Yen's comments: several points... (a) I do not know the actual size of Japan's foreign reserves (to prop up the yen) or the amount of Japan's total capital reserves (to buy up the bad debt currently held by Japanese banks), so I do not know the ability of Japan to "use its money and its strength to revive Japan." I do wonder if they could so easily do these things why they haven't done it so far, and how sitting on immense capital reserves is going to revive the Japanese economy. (b) These comments are not exactly the "we don't have a problem" kind of denial that we've been hearing for the last 9 months, but does sound suspiciously like it since in essence what Mr. Yen is saying is, "yes, there's a problem but we can fix it anytime we want to." That also sounds suspiciously like the kind of things an alcoholic says about quitting drinking. I find it very interesting that (i) all of the comments of this kind come from Japanese officials, (ii) NO westerner associated with or knowledgeable of the Japanese economic scene has anything but the most dire predictions about it, and (iii) the Japanese have this face-saving denial oriented culture. I am still not sinking any money (but a tiny amount) into long equity positions in semis or oil until I see some kind of light at the end of the tunnel in Japan. jess.