To: James Strauss who wrote (20748 ) 10/6/1998 1:47:00 AM From: J.T. Read Replies (1) | Respond to
Japan Revisited: The current rally in bonds bringing yields to historically low levels is almost totally dependent on Asia. A giant sucking sound from Asia has been bringing millions of foreign money into U.S. Treasuries. If the Asian flu worsens from Japan and Hong Kong and filters into China, bond yields will go even lower after a small respite of profit-taking in the next few days. Japan must bite the bullet and take serious measures to reform their "Achilles' heel: their crony banking system. Japanese crony capitalism, in which politcal connections allocate resources, must immediately stop, thus allowing market mechanisms to operate. Japanese government must separate the wheat from the chaff, separate good loans from bad loans, strong banks from weak banks... To be sure, some banks will fail, but the healthy and strong banks will rise to the top on their own merit and start lending again in order to get their economy jumpstarted. This will not happen overnight in a panacea, but rather take 12 to 18 months before results start to unfold. Japan has been trying to export its way out of a recession at the expense the global economy and a weaker yen was part of their solution. Because of their deteriorating economy and their inability to want to deal with the hard issues, the flood of money into US securities have brought a boon for bond investors. Thus, quality spreads are the order of the day, since the market has more than factored in a standstill economy in the next quarter. Once the US economy perceives slowdown, weaker trade implies curtailed job and income growth, which in turn impacts consumer spending and a reigning in of the US consumer's pocket book which has been the chief catalyst of the greatest economic expansion in post-war history. Business investment dries up and capital expansion comes to a halt because of inventory accumulation..... NAPM contraction.. To be sure, the stage is set and billions are at stake and on the table waiting to be played out. OMHO... JT
