How business, doctors and journalists prey on your food anxieties I
How business, doctors and journalists prey on your food anxieties I
How business, doctors and journalists prey on your food anxieties I
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FINANCIAL STRATEGY<br />
ja an's virulent<br />
de ati<strong>on</strong><br />
A . Cary Shilling Is<br />
presidentof A . Gary<br />
Shi7ing & ~o ., ecanomic<br />
c<strong>on</strong>sultants <str<strong>on</strong>g>and</str<strong>on</strong>g><br />
rvestrrent adv :ser .<br />
His firm publ'ehes<br />
ins,f~5t a mi<br />
newsletter covering the<br />
<str<strong>on</strong>g>business</str<strong>on</strong>g> outlooi <str<strong>on</strong>g>and</str<strong>on</strong>g><br />
nvest¢ent strategy .<br />
THE \t[cKL[ has rallied recendv, <str<strong>on</strong>g>and</str<strong>on</strong>g> some<br />
investors think Japanese stocks are screaming<br />
L uvs . In relati<strong>on</strong> to cash flo%a <str<strong>on</strong>g>and</str<strong>on</strong>g> book ralue<br />
they are as cheap as they've beer. in the poi<br />
era . The Japanese faced do« n Clint<strong>on</strong> in the<br />
auto trade talks . The recessi<strong>on</strong> there is o~er three<br />
vears old <str<strong>on</strong>g>and</str<strong>on</strong>g> can't last forever .<br />
But think nrice before eou leap into Japanese<br />
equities . There is !nore bad ne,rs to come .<br />
As ~tith the U .S . in the 1930s, Japan's basic<br />
problem is the inabili7y to deal with self-feeding<br />
deflati<strong>on</strong> . Prices of goods are falling, so c<strong>on</strong>sumers<br />
are delaying purchases in anticipati<strong>on</strong> of<br />
still lm~'er costs . This curtails producti<strong>on</strong>,<br />
The widespread deflati<strong>on</strong><br />
in Japan has<br />
exalted the yen,<br />
not the reverse .<br />
hikes unemplovment <str<strong>on</strong>g>and</str<strong>on</strong>g> scares even those Japanese<br />
%cith lifetime emplotntent into further<br />
retrenchment . The 50% deciine irn real estate<br />
prices <str<strong>on</strong>g>and</str<strong>on</strong>g> the 60ib tall in stocks have compounded<br />
tlte problem .<br />
The Japanese banks are bv no means out of<br />
the %roods . Propern' <str<strong>on</strong>g>and</str<strong>on</strong>g> stocks arc the collateral<br />
for manv loans in Japan, <str<strong>on</strong>g>and</str<strong>on</strong>g> the value of this<br />
collateral is shrinking . The Japanese banks are in<br />
naice as bad a positi<strong>on</strong> as the U .S . savings <str<strong>on</strong>g>and</str<strong>on</strong>g><br />
loans were half a decade ago .<br />
Here's the nub of the problem : W'ith detlati<strong>on</strong>,<br />
real interest rates :u-e high, O2n though<br />
nominal short rates are about 14?~ . So there<br />
isn't nmch room to cut rates further . Falling<br />
corporate earnings <str<strong>on</strong>g>and</str<strong>on</strong>g> gobs of excess capacity<br />
mean that the solid companies to which banks<br />
want to lend aren't borrowing for capital<br />
spending . S-Seamehile, the go% ernment is too<br />
Weak to otercome the bureaucrats' abhor<br />
rcnce of rising deficits . This makes it tough to<br />
push through tiie big tax cuts <str<strong>on</strong>g>and</str<strong>on</strong>g> deficit<br />
spending needed to check the detlati<strong>on</strong><br />
. The Japanese deflati<strong>on</strong> has helped drive the<br />
ven to levels where it is hard for Japanese exports<br />
to compete . Wcak companies have been selling<br />
foreign assets <str<strong>on</strong>g>and</str<strong>on</strong>g> c<strong>on</strong>certing the proceeds<br />
to ycn to shore up their balance sheers at<br />
:iome, ,thich means thec sell dollars <str<strong>on</strong>g>and</str<strong>on</strong>g> buc<br />
ven . Japanese deflati<strong>on</strong> has exalted the yen,<br />
not the recerse . The neaker ven against the<br />
dollar that we c<strong>on</strong>tinue to foresee mathelp<br />
exporters <str<strong>on</strong>g>and</str<strong>on</strong>g> spur stocks, but <strong>on</strong>hbrietlc .<br />
Much more v~'ill he needed to solve Japan's<br />
basic «oc