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

To: Ramsey Su who wrote (6149)	7/2/1998 10:39:00 PM
From: Stitch	Respond to of 10921

Ramsey, Nice post on Japan's bank bailout efforts and good thoughts to chew on. Here is one turn of the jaws. The Japanese authoritys have been so frozen in the headlights of the oncoming freight train that just doing something, anything will buoy markets (which we have seen already). The resulting slowly peeled onion of horrific news will chip those gains away, especially in Asian markets and we will have what will appear to be just another sucker's rally similar to the early part of this year when everyone was in denial. Maybe some short term gains to be had here but some long term fundamental problems along the lines of your concerns. This also fits nicely with Zeev's predictions. best, Stitch

To: Ramsey Su who wrote (6149)	7/3/1998 2:04:00 AM
From: Jacob Snyder	Read Replies (1) \| Respond to of 10921

Ramsey: re Japan's bank plan: 1. If they take the bad loans out of a bank, and change the management, then it's a new bank, even if the name doesn't change. It's not business as usual, if they replace the people making decisions at the banks, with other people who act differently. 2. I take it as a given, that the plan will cost several times what the first estimates are. 3. Did they say that the auditor's review wouldn't stretch out to 5 years, and the resultant reports (in full) would be made public? This would be a big step toward transparency, if it happens. 4. I think we'll know before September. The U.S. and Chinese governments, and even more so the currency markets, are going to punish any further attempts at delaying. Their feet are to the fire now, and the hot pincers are being applied.

To: Ramsey Su who wrote (6149)	7/3/1998 9:00:00 AM
From: Mason Barge	Read Replies (1) \| Respond to of 10921

Trying to get an estimated write-off % of an estimated amount of bad loans is pretty much guesswork at this point. It depends on the definition of "bad loan". Most estimates are more in the $500BB range, but who knows? Anyway, the % will fall as the amount rises, if you see what I mean. I would agree, though, that the Y30 trillion is too little -- if they don't want to support the bad loans, who can blame them, but not keeping the depositors' confidence at 100% could spell fast disaster. How do you say "bank run" in Japanese? These banks need to talk to their friends in Hong Kong. If the Japanese public ever loses faith in the safety of their money, these banks will shatter like wieners in liquid nitrogen. The important, the crucial aspect of the Japanese plan is the audit teams who are going to turn on the lights and peer into the many dark corners of these institutions. The real problem in Japan is that Somebody's Boss's Brother-in-law has a piece of real estate with a half-finished office building on it, and the bank is carrying a 95% loan secured by the property at cost (including cost of improvements) (say $50MM) rather than the market value (say $20MM), the owner can't beg borrow or steal money to complete the project and there is no market for it even if he could. The market value of the unimproved real estate is way too high, and the improvements are wasted money. In THIS situation, the Japanese plan will theoretically identify the loan and force the institution to revalue it, i.e. it will become an official "bad loan", and the bank won't be able to lend the investor any more interest payments. Whether the land is sold and the loan written off, or the package is renegotiated or recapitalized or resold or refinanced or foreclosed, is immaterial. The important thing in Japan right now is to expose the widespread accounting abuses and force banks to realize the loss. What the bridge bank will do is this: where an institution has too many bad loans hidden in the executives' drawers (or golf bags), the market may be able to close it without the government needing to face the embarassment of ordering it closed. When assets fall below 8% of performing loans, for instance, international rules require retraction in the international market, at least. And depositors will, at some point, decide their money might be more appropriately held elsewhere. The bridge bank will provide both solvent borrowers and depositers with quick access to cash, so that viable businesses have continued access to commercial credit and the depositers feel secure enough not to start a general bank run. Without doubt, the Japanese gov't will increase the amount of funds available to prevent general catastrophe. The Japanese gov't has LOTS of hard cash available, and you'd better believe that you'll see some real clout come to bear at the first sign of a run on a major bank. Sorry to be so long-winded. The point is, that the Japanese scheme (if it is carried out) will actually cure the #1 problem, which is the Japanese banks' loan accounting. If these were U.S. banks, I would say "fraudulent accounting", since a U.S. banker would go to jail for these kinds of shenanigans. But hiding loan weaknesses has been, in the past, a more acceptable practice in Japan. The Japanese don't like to air their dirty linen in public. I see a message implied here: they see the absolute necessity of accurate loan accounting and are going to implement it in their own way, getting the job done but with as little loss of face (and life) as possible. I also am starting to think it will get worse in Japan before it gets better. Once the wall of silence starts crumbling, the dam will break and the world will get a look at how bad the situation really is. The Japanese gov't isn't as "weak" as a lot of people say. It is just built on a consensus, and the consensus is largely out of public sight. The portion of the "bridge bank" plan that is important, to me, is the development of independent audit teams. Whether the current consensus will give them enough power to stand up to the ex-government officials in charge of the banks -- that is, whether they will be able to turn in their opinions without the bank president calling their boss to veto their work -- remains to be seen.

To: Ramsey Su who wrote (6149)	7/4/1998 8:12:00 PM
From: dougjn	Read Replies (1) \| Respond to of 10921

Ramsey, I'm going to attempt a fairly short reaction to your post. You have had many thoughtful things to say about the Asian mess, and I think you are absolutely right to believe it is of key importance for US markets, at least potentially. I believe the net result of the latest news from Japan is that it tends to confirm that the Japanese will continue to work their way out of their huge asset bubble and bad loan problem slowly. They will avoid any dramatic or quick solutions, which could more quickly benefit their economy and the vast innocent bulk of their population. Instead they face a worsening recession, while many other Asian countries face a Great Depression. However, any massive Japanese financial collapse which could greatly affect the US or W.Europe looks increasingly unlikely. They will manage their way through it. And as a result face several more years of very low capital availability. Japan as a source of Asian lending is probably finished for another three years. And Japanese companies needing fiancing will have a hard time getting it. Some Japanese companies or interlinking conglomerates are of course fully self financing, but nonetheless, I think Japanese competitiveness will continue to be stunted. This I think is really to the great advantage of US tech companies overall. Sure they loose some sales to a sluggish Japanese economy, but they also face sluggish competitors. Whether in Japan or fianced by them. And US companies also look upon the sticken areas of East Asia and see companies desperate for GE or Intel or AIG or Citicorp or Loral bailouts. The real economy in Asia will get worse. I think the liklihood of a Japan ignited financial implosion continues to lessen. I think our markets will continue in a trading range, as the real economy extracts slowing earnings growth from more and more US exporters. There will also be scares over the balooning balance of trade deficit, which is only getting going, and will reach historic levels. On the other hand, companies which can still put outsized earnings growth on the board because they are relatively Asian unaffected may well see even higher multiples in this extraordinary and very extended low inflation environment. I like enterprise software and telecom equipment companies, as well as Internet backbone and bandwidth companies. Mostly. I have no semi cos or semi equipment cos for example. That's OK. They're selling to us cheap, and their rich are lending us the money to do so, to boot. ANd beyond that, they have an insatable desire to hold our paper, and even our non-interest bearing $100 bills, in truly massive quantities. The new gold bullion. Not bad work if you can get it. Now if all that starts reversing, we could see some trouble. But I don't see it any time AT ALL soon. Money to make in the mean time. Ooops, I'm being called to fireworks.... Doug