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To: Mason Barge who wrote (6052)	6/27/1998 2:15:00 PM
From: Joseph Beltran	Read Replies (1) \| Respond to of 10921

Mason, You posed a very interesting scenario, no doubt. Dumping $500 billion of U.S. bonds on the market would no doubt create havoc, but from a supply/demand perspective, wouldn't the japanese end up getting only a fraction on the value of those bonds? In other words, to accomodate that sort of supply it seems that the japanese would have to be willing to significantly "discount" the face value of the bonds, resulting in a significantly pared down net price. Short term rates would go crazy, no doubt.... If the warranted discount is significant enough, congress should consider a special spending bill to repurchase and retire those bonds. (We may have to raid a few surplus budgets here and there, if any exist and mortgage some state parks and other national assets...) They might get one hell of a deal.

To: Mason Barge who wrote (6052)	6/27/1998 5:09:00 PM
From: Gary Burton	Respond to of 10921

Interesting speculation in Barrons today by Felix Zalouf that Japan WILL come up with a credible plan and that G7 will simultaneously buy the Yen and that in afew months the Y will be back down to 100-110 area. his reasoning is simple in that Japan cannot afford to miss this opportunity since the consequences are too horrific--so they won't. He thinks the US long bond yield will rise about 1% and that US stocks are very soon to go into a significant decline. He thinks long rates in japan could easily go to 2.5-3. Jimmy Rogers and Barton Biggs were much more pessimistic about Japan and the rest of Asia but i must admit Zalouf's thinking makes some sense to me.

To: Mason Barge who wrote (6052)	6/27/1998 10:45:00 PM
From: Zeev Hed	Read Replies (1) \| Respond to of 10921

Mason, it is unlikely that Japan will repatriate $500 Billion over a short period, they may "repatriate" over a quarter something like $50 Billions if they need it, which I do not see why they need it. If they do repatriate $50 Billion over a quarter, the FED's will kiss their hand, for the simple reason that this action will lower the demand for treasuries. Right now, their is shortage of treasuries (about $300 MM over the next 12 months or so), and Japan supplying some of this demand would allow the FED to continue with their current "restrictive" policy. Furthermore, I believe that a small amount, annually, of the huge savings amassed by the Japanese, will find their way into foreign markets, including the US, I estimate this outflow to be some $200 billion/year or so. If Japan goes into massive repatriation, they will kill their export to the US (and Europe), something they cannot afford, at least until they have created some increases in domestic aggregate demand. That is also why I do not believe the Yen is going soon to 100 yen/dollar, the Japanese may say that they do not like a weak yen, but the weak yen is what has prevented the Japanese economy from going down more than 5% in the last quarter. Since the Japanese have lost the monetary flexibility of stimulating demand by printing yens (and lowering interest rates) they are left only with fiscal stimulus (they have promised to do) which takes quite a good lag time to percolate through the economy, thus any action that drastically strengthen the yen now, will plunge Japan deeper into recession, with the danger of spiralling down with the rest of Asia into a depression. I doubt that they will commit such suicide. The US would love to see the Yen back around 120, but even this level will probably take at least 9 months before it is seen again, IMHO. Thus, right now, apart of the Asian jitters, and selective weaknesses in segments affected by Asia, I think that our markets are going to be driven by liquidity, of which there are now two major new sources, decreased demand from our treasury and "internationalization" of a small portion of the "postal system". Zeev

To: Mason Barge who wrote (6052)	6/29/1998 1:38:00 PM
From: FJB	Read Replies (2) \| Respond to of 10921

Is $500B a lot of money? Can't keep it straight these days. It's only about 100X AMZN's market cap. ;-) You know, the internet company. Ha ha! Bob

To: Mason Barge who wrote (6052)	6/29/1998 4:31:00 PM
From: Jacob Snyder	Read Replies (2) \| Respond to of 10921

MB: re: Japan/Yen situation: 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." Sounds about right. I can't think of any other reason why Rubin would say one thing, and do the opposite the next day. 2) "Japan is going to announce the formation of a bridge bank in the next few weeks to absorb something like $500BB of bad loans. Institutions using the bridge bank will be absorbed, together with their performing loans, by stronger banks. The LTC/Sumimoto talks are apparently the first instance of several to come." Didn't the Japanese say almost exactly the same thing a couple of years ago, and nothing came of it? At this point, their credibility is so low, that I don't think anyone should believe them until we see deadlines, numbers, specifics. They've moved past denial, into bargaining, but are still a long way from acceptance. Over the last year, in every other East Asia country, when the debts were really added up, they came out to several times what had been publicly stated before the crisis. I'd be surprised if the 500B$ number holds. 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." Those IMF terms have caused a huge amount of pain, a lot of political instability, and haven't fixed the problem. East Asia is no closer to a solution now than 6 months ago. A second round of devaluations is looking more and more likely. It's not surprising that the Japanese look at Korea and Malaysia and (most of all) Indonesia, and say "we've got problems, but that's not the answer". In particular, the idea of massive new government spending to prime the pump doesn't sound like it's going to work. 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)." Selling those Securities over two or three years will cause no dislocations.