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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (19631)	8/30/1998 5:43:00 AM
From: IQBAL LATIF	Respond to of 50167

Crisis or opportunity-- Capitalism without banks By Steve H. Hanke RUSSIA'S PROBLEMS ARE BEYOND solving by IMF loans or devaluations. You cannot run a capitalist system without banks, and Russia has no real banks. The banking system is technically insolvent and has huge off-balance-sheet long ruble, short dollar positions. That's the conclusion of a brilliant new book by Michael Bernstam and Alvin Rabushka, Fixing Russia's Banks (Stanford: Hoover Institution Press, 1998, $16.95). When the Russian government, as part of its Aug. 17 package, declared a 90-day moratorium on the repayment of debt owed by the banks, it gave its beleaguered banks a few more weeks. It did not render them solvent. Real banks accept deposits and make loans to finance investments. Russian banks aren't real banks. Few Russians trust them. Two-thirds of the retail savings in Russia are deposited abroad or stashed under mattresses. Most of the rest is deposited at the state-owned Sberbank, where it benefits from a unique deposit guarantee. But even Sberbank isn't a real bank. It makes few loans to finance business and industry. It is little more than a financing arm of the Russian government and is scheduled to purchase almost $10 billion in government paper in 1998. With most of the country's savings buried or sent abroad, and with no one to make commercial loans, credit and real GDP have collapsed in Russia since 1990. Even if Russians would trust them, these Russian pseudo-banks have no ability to make loans. They lack capital, credit skills and collateral for loans. These banks are just speculative trading houses. They derive most of their revenue from foreign currency trading, dealing in government bonds and other speculative activities. These pseudo-banks remain alive through periodic injections of liquidity at favorable rates from the Central Bank of Russia by collecting fat yields from government paper and by profiting from sweetheart deals with the government. They feed off the Russian government and indirectly off the IMF, World Bank and foreign governments. -------------------------------------------------------------------------------- Two-thirds of the retail savings in Russia are deposited abroad or stashed under mattresses. -------------------------------------------------------------------------------- They are predators on the economy, not facilitators. The most incredible case of predation was the so-called loans-for-shares deal of August 1995. The government consolidated its demand deposits and parked them in banks owned by people with the right connections. The banks then loaned the government these funds at low interest in exchange for options to purchase stock in valuable state-owned natural resource enterprises. This scheme allowed the government to count the loans as budget revenues, which reduced its fiscal deficit and kept the IMF money flowing. The bank loans were not repaid and the banks exercised their options. This allowed the banks to acquire valuable assets for peanuts. Thus did the Yeltsin government pay off its friendly bankers and dissipate the assets inherited from the old communist government. In 1996 and early 1997 the banks took advantage of the hot Moscow stock market to unload some of these assets at sky-high prices. Russia's predatory banks are beyond redemption. Russia must have a whole new banking system if it is to revive its economy. This presents a remarkable opportunity for U.S. and other foreign banks. They have the financial technology and the credibility the local banks lack. In the end the Russians will have to swallow their pride and let the likes of Citibank operate freely throughout Russia. Ordinary Russians will take their money from under the mattress and entrust it to Citibank or HSBC or BankAmerica or Lloyds. The foreign banks in their turn will know how to find worthy borrowers and will lend them money. Russia will have a real grass-roots economy. So foreign banks should be allowed to establish branches throughout Russia and to purchase up to 100% of local banks. The remaining local banks would then be forced by competition to meet international standards. Steve H. Hanke is a professor of Applied Economics at The Johns Hopkins University in Baltimore.

To: IQBAL LATIF who wrote (19631)	8/30/1998 5:45:00 AM
From: IQBAL LATIF	Respond to of 50167

HIGH TECH STOCKS can be a nasty place to invest. Even as the major market indices cling tenuously to near-record levels, many tech issues have suffered unnerving declines. On June 1, more than half of the companies listed on the tech-laden Nasdaq exchange were down 20% or more from their 1998 highs. This volatility can be worrisome. But don't let it scare you away. Technology has powered the current bull market and will continue to be the economic growth engine in decades to come (see this issue's cover package on how non-tech companies use information technology to cut costs and boost productivity). How can you capitalize on recent high tech sector weakness? Take advantage of the market's increasingly unforgiving attitude. These days, fickle investors react to unwelcome news with a "punish now, ask questions later" trading strategy. Manugistics (MANU), Adaptec (ADPT), and Motorola (MOT) are only a few of the firms that have seen their market values plummet by 30%, 40%, or more due to perceived weakness in their business strategies. The trick is to determine which of these are fading stars and which are long-term players with a bright future. If you can differentiate between the two, the payback could be handsome. When an out-of-favor company attracts your attention, the first thing to do is get a sense of its valuation relative to its competitors. After the drop, is the stock really as cheap as it seems? Get comfortable using the Internet as a quick source of information. Two good references are the SEC's Edgar archives (sec.gov/cgi-bin/srch-edgar) and Yahoo's quote service (quote.yahoo .com). Using these searchable sites you can easily find a firm's most recent 10-Q quarterly statements, 10-K annual reports, DEF 14A proxy filings, insider trading records, and key financial indicators. Start by looking at the company's price-to-sales ratio. Studying the price-to-earnings ratio, the more commonly used indicator, can also be helpful. But companies in trouble often don't have earnings or can sometimes disguise earnings problems with tricky accounting. Sales are more difficult to manipulate. "During tough times, revenues are more stable, and they are a better indicator of long-term value," says Merrill Lynch computer hardware analyst Steve Milunovich. A BETTER INDICATOR Stock Performance Growth Flow Price to Sales 5-Year Projected Earnings Adaptec -73% 4.66 1.59 23.25% Applied Materials -45% 8.17 2.17 22.00% KLA Tencor -61% 6.06 2.25 22.39% Manugistics -37% 13.99 3.19 47.50% Motorola -32% 7.92 1.00 18.75% Novellus Stystems -46% 7.07 1.99 25.90% Oracle -31% 18.43 3.63 24.57% Seagate Technology -43% 15.45 .75 20.67% Stock Performance: 10/10/97 to 6/10/98. Source for growth flow ratio: California Technology Stock Letter. Stock price for P/S ratio as of June 10, 1998. Source for five year projections: Zacks Investment Reseach. Another effective indicator of future growth is the amount a company spends on R&D. Michael Murphy, editor of the California Technology Stock Letter, uses a price to-growth-flow ratio where growth flow equals the firm's earnings plus R&D expenditures. Says Murphy, "R&D gives a good indication of future revenues. Companies with a price-to-growth-flow ratio of 10 or below look cheap." And even when earnings drop significantly, the ratio can still give you a good indication of the firm's potential. Murphy's price-to-growth-flow ratio is a good initial indicator of value, but the next step is to see whether the firm's R&D spending is paying off in terms of financial performance. Many companies that spend heavily on R&D-Silicon Graphics, Xerox, and Apple, for example-haven't been effective at converting expensive development projects into revenue-generating products. So check how much revenue the firm is deriving from its recent products (3 years old or less), and how that compares with its competitors' figures. Murphy likes to see a number greater than 50%. Revenues from newer products indicate a company is innovative and willing to cannibalize its old products for new growth opportunities. That's a good sign. If the valuation numbers satisfy you, delve further into the company's operations and strategy. Find out what originally scared off investors. If you hit on something that looks suspicious-for example, decreasing margins or shrinking market share-don't ignore it. Dig deeper. Is the firm's technology being subsumed into another company's products? Call the investor relations department or attend a shareholders' meeting to hear how the firm is addressing these problems. Gaining familiarity with the company's key executives may fill in some of the holes left by your research. Finally, evaluate the company's long-term strategy. If you're planning to hold the firm's stock for several years, you certainly want to know whether the company is thinking for the long run as well. Does it have a strategy to expand its customer base? Does its vision match the market? Has it been successful in getting new customers and technology through mergers? Have key executives made significant sales of stock? If you are willing to do your homework and can stomach high tech volatility, you can pick up excellent companies at bargain-basement prices. Geoff Baum, editor of garage.com, a startup capital firm, may hold financial positions in companies listed.