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To: stsimon who wrote (63571)	8/29/1998 5:41:00 PM
From: nihil	Respond to of 186894

RE: Interest rates below zero This is the old "pushing the string argument." During the 1930's a group of "stagnationists" argued there was no market for equities because there were no profit opportunities (Keynes was sympathetic to this idea). It therefore did no good, and might hurt to pump up the money supply. The anti-stagnationists argued that technological change created opportunities for investment and it was only necessary to make credit available for entrepreneurs to begin investing, because there were opportunities if only in cost saving innovation. That's where I am today. I believe that a bear market in stocks or bonds cannot survive sharp cuts in interest rates. I don't care about a recession in the goods or commodity markets, let me borrow margin money cheap and I will gamble my own capital and buy to the limit in selected high tech companies. Even IPO's. I draw the line at loss-making internet stocks. There are lots of other people with exactly the same attitudes --- many of them visitors to these pages.

To: stsimon who wrote (63571)	8/29/1998 6:12:00 PM
From: VICTORIA GATE, MD	Read Replies (1) \| Respond to of 186894

stsimon RE<It would not surprise me to see the market go down 1000 points on Monday. > Would it surprise me to see the market go up more than 100 points on Monday ? Good luck with what you have in your mind vg

To: stsimon who wrote (63571)	8/29/1998 6:19:00 PM
From: nihil	Read Replies (2) \| Respond to of 186894

RE: No action in Japan You wonder why Japan can sit in a 8 year slump despite long-term interest rates of <2% and short-term interest rates of < .5%. The answer is simple. Much of the economy is wrapped up in industrial groups (keiretsu). Most of these companies have excess capacity and are closing or moving operations over seas (Nissan shut down it's main plant a couple of years ago). Because of intergroup stock ownership, management can survive any loss or failure. These companies feel a deep sense of obligation to the country and also refuse to force the government to overthrow the bureaucrats in the Ministry of Finance and MITI. Nothing changes, and the government even imposes consumption taxes. There is enormous potential for public improvements (Tokyo could use a sewer system, f.i.). But debt and fear of inflation prevent the Keynesian solution to depression. Loans are available at very low rates to good credit risks. Banks and businesses borrow huge amounts and buy U.S. Treasuries with them. They earn over 5% on the bills and pay 1-3 per cent on the loans. (The collateral is usually Japanese paper, rather than the U.S. Treasuries). Really cautious people cover by selling dollars forward for yen at the maturity of the T bills (or buy yen forward for dollars -- same thing). This coverage reduces the return but eliminates exchange rate risk. It also reduces the downward pressure on the forward yen that would have occurred in uncovered trades. This whole process is called "the yen carry trade" and amounts to hundreds of billions. It has been going on for years, always at a profit. Risk for risk, a Japanese cannot find a better investment in Japan than he can find in the U.S. Alas, I cannot find a Japanese bank that will lend me a few trillion yen. This has had a considerable effect, maybe definitive, on the American bull market in stocks and bonds. As the U.S. has eliminated the deficit and the outstanding public debt has started to decrease the U.S. T bill yields have fallen, but are still profitable. A bizarre problem is the growing shortage of American debt instruments. The recent declines in the American stock market will make U.S. stocks even more attractive to the Japanese. With the Japan financial big bang Japanese savers will be bombarded by Japanese and (now) American stockbrokers and mutual fund salesmen. There $10 trillion on deposit in Japan earning less than .5% interest -- (about $80,000 per Japanase). This money is up for grabs (remember, the yen is falling faster than Japanese prices, deposits earn little and the real value of these savings is eroding.) I think money will tend move from Japan to the U.S. until interest rates and ROI in stocks are about equalized (a predicted result of the so-called H-O-S (Hecksher-Ohlin-Samuelson) Factor Price Equalization Theorem and the process is known as (covered) interest rate arbitrage. This makes me a bull on American stocks and bonds, and a continued bear on Japan stocks and bonds until they spend most of the $10 trillion on good American bonds and tech stocks.