Re: [CANSLIM] Off topic - Japan

From: "Tom Worley" <stkguru@netside.net>
Subject: Re: [CANSLIM] Off topic - Japan
Date: Fri, 8 Feb 2002 19:24:25 -0500

Next Article (by Date): AW: [CANSLIM] Follow Through Days Andreas Himmelreich
Previous Article (by Date): Re: [CANSLIM] Non Canslim "Erik Harris"
Top of Thread: [CANSLIM] Off topic - Japan "Patrick Wahl"
Articles sorted by: [Date] [Author] [Subject]

Thanks Patrick, a very good article, and one I will save. Erdman overlooked
one further risk to Japan's plight, that the banks and major corporations
are intensively linked. It is a cultural thing, to buy stock from the
companies that you lend to, in order to bolster the relationship. Problem,
of course, is that if that corp goes bankrupt, you not only lose some or all
of the money you loaned, you also lose the value of your stock investment.
And very shortly, banks will have to mark to market their investment
portfolio, which could be costly. Already, one major corp bankruptcy
resulted in a restructuring by forgiving part of the debt, and converting
another piece of the debt into stock owned by its lenders. Whether this
reduction in debt is sufficient to permit the corp to recover and exit
bankruptcy into a profitable company remains to be seen. If so, then the
value of the stock received may, in time, offset some of the debt forgiven.
If not however, it has simply postponed a complete write off by the bank.

The scariest part of all this is that Erdman does not report anything that
is not well known, and has been well known for a long time. In fact, every
aspect of the dangers are simply getting worse as the months trickle by.
Yet, despite the new Prime Minister's original very strong public support,
his most notable achievement of his term thus far has been to help produce a
royal Princess. There has been no significant govt actions taken to resolve
even one of these problems.

The latest talk by the govt, which resulted in a substantial recovery this
week by the Nikkei, is the possibility of the govt buying part of the bank's
investment portfolios. Presumably, the purchase price will be well above
current market valuations, thus offsetting some of the loss in capital by
the banks, and keeping them above capital requirements. It is obvious that
all this does is transfer the bank losses to the Japanese taxpayers. And
that is achieved by simply printing more money, and selling more govt bonds
creating more govt debt. It may be less painful now, but far more costly
later on. And it does nothing to change the bad lending practices going on
for decades.

What Japan needs is a US style Resolution Trust Corp. Let the weak banks and
corps fail, support the strong ones that understand risk assessment and
management in making loans. Break the cultural tie that not only makes
bankruptcy such an admission of failure, but ties the banks so closely to
the companies to which they lend. That alone creates a major conflict of
interest in proper risk assessment and management, and biases the banks to
continue dreaming that a non-performing loan is simply "a little behind" in
payments.

No investor should overlook the fact that Japan, despite its latest severe
recession slipping into likely its worst depression, still remains the # 2
economy in the world, behind only USA. A total failure / collapse (which it
has been on the verge of for well over a year) will affect every one of us.
The damage to both confidence and other nation's economies, just as several
are trying to resume growing, could be devastating. The only bright spot to
date is that they have managed to avoid this for over a year now, but more
and more factors are building to bring about this event.

Without significant and effective action, the result is unavoidable. Only
the timing is left to chance.

Tom Worley
stkguru@netside.net
AIM: TexWorley
- ----- Original Message -----
From: "Patrick Wahl" <pjwahl@attbi.com>
To: <canslim@lists.xmission.com>
Sent: Friday, February 08, 2002 2:06 PM
Subject: [CANSLIM] Off topic - Japan


> Interesting and disturbing article on Japan, I know at least one person on
this list
> (tom w.) keeps abreast of these matters -
>
> http://makeashorterlink.com/?U20D1246
>
> -
> -To subscribe/unsubscribe, email "majordomo@xmission.com"
> -In the email body, write "subscribe canslim" or
> -"unsubscribe canslim".  Do not use quotes in your email.
>
>



- -
- -To subscribe/unsubscribe, email "majordomo@xmission.com"
- -In the email body, write "subscribe canslim" or
- -"unsubscribe canslim".  Do not use quotes in your email.

Go to Jeff Salisbury LWGate Home Page.