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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Stitch who wrote (528)	10/15/1998 9:06:00 AM
From: Worswick	Read Replies (5) \| Respond to of 2794

Stitch and Henry. We still have yet to hear about the true derivative exposure of Japanese banks, the US pension and endowment funds, and the international bank exposure to "South American" derivative products. Remember all those Brady bonds? At that the world's bankers seem to have absolutely no taste on top of their recent losses to buy anybody's new bonds. What is this? What is the effect? It is all very fine to say Henry that you and your friends are sensible men, that you are ful of probrity and that you do look very hard at all the deals which come your way. You aren't the herd here. The thundring herd is is going to trample you. It is the Penn Square banking fiasco, the Long Term Credit fiasco, and the Bank Herstatt's of this world not to mention the "problems" that international banks have in rolling existing credits foreward that will cause problems in the future here. We are now living in times not seen since the end of World War II. Bascically, we have our most basic social "glue (oil) in a 33 1/3% decline in the last six months. This is radically deflationary. The CRB Index is at levels not seen in decades. There are people who depend on steady prices ....like farmers and international companies who depend upon a certain cash flow stream to carry on current business. The trend world wide is deflationary. American now have 93% cash flow of their disposable income commited to consumer debt. This is up from 65% in 1982 (Oct. 13, 1998 Barron's) This has nothing to do with traders. This has nothing to do with hedging anything. The engine of the world was the American consumer. The engine is very tired and the shopping basket needs oiling. In the real economy something like 60% of the economy is dependent on people buying thigs. You. Me. Mildred next door. The real exonomy is in trouble in large parts of the world. The trend is deflationary. I know from people doing the deals Wilbur Ross is doing are in trouble in South Korea... because the Koreans (highly xenophobic people) don't want to give awy the keys to the store. That is deflationary. Japan is in trouble big time. I just spoke to a man who has lived in Japan for 40 years and is and was a newspaper man there. Japan is in gridlock economically. It has been for 7 years. It is 1932 in Japan....and 1932....and 1932. It is fine for Henry to say he is a careful person. That is beggaring the point. The point is we are living in very tender times where a great many unexpected things may happen and I personally would be not .... long lots of things. At that we are about to find out about the weak links in the economic feeding chain. You better believe that. The things that emerge here each day are so untowrds so fantastic that even a script writer couldn't dream them up if he was making a movie about it. And remember, "Do not be long...else wise you will be considerably smaller and diminsihed". ...and the truely remarkable thing about all this strum und drang is that the people, the average person in the US is totally oblivious to what is going on. My god. We are really suffering the effects of a terminally rotten education system here in the US, and are deeply into the wonder bread world here. Brains have been replaced by giant pink twinkies in people's heads. Ah, we need an ex-junkie like C. Cogessian Boyle to sing the song of our time. My best to you and trying to see the forest from the trees here, Clark

To: Stitch who wrote (528)	10/15/1998 2:52:00 PM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 2794

Stitch, I'm sure there are some pension funds that are invested in the hedge funds that have blown up. Pension funds have been a very specific target of hedge fund sales. The pension fund industry is pretty heavily regulated by ERISA. One of the specific regulations I am aware of is on the hedge funds themselves. Any hedge fund that takes a certain amount of ERISA money, I believe over 15%, needs to comply with ERISA reporting requirements. These regulations are pretty complex and as a result most hedge funds will not take pension fund money if it puts them over this barrier. There are also regulations on the pension funds themselves but am not up on the specifics. The overriding guideline however is the prudent man concept. This requires them to act in a prudent fashion so even if something is allowable under the regulation the pension fund can get in trouble if the specific action is later deemed to have been imprudent. Of course this is tough to define and by the time you get around to the issue the damage is done. But it does have the effect of making pension fund managers more cautious. Henry