Events related to the Crash
October 30, 2000 [CNNfn]
- South Korea's Daewoo Motor, as part of its self-rescue plan, intends to cut 3,500 workers (about 18.4% of its workforce).
Operating costs need to be reduced by about 420 billion won. Unprofitable overseas subsidiaries are to be shut down,
and a 24.99% stake in Korea Delphi (one of Daewoo Motors' parts suppliers) is to be sold off. We will see if the labor unions
follow through on their indicated threat [cf. Oct. 19, 2000]
October 25, 2000 [CNNfn]
- The Euro traded just above its new record low. There is a speculation that some nameless Dutch company
is selling Euros, inducing a temporary substantial weakness.
October 20, 2000 [MyCNN]
- Japan's Kyoei Life Insurance Co filed bankruptcy, with debts of ¥4.5 trillion. Japanese insurance companies
with similar S&P ratings include Tokyo Mutual Life Insurance and Aetna Heiwa Life Insurance.
October 19, 2000 [CNNfn]
- The European Central Bank held its key interest rate at 4.75%, apparently deciding that Euro weakness and
high oil prices didn't require another interest rate boost yet.
- GM's due-diligence study of Daewoo Motors is expected to take at least two more months. Daewoo Motor's union indicated
that it would stage massive strikes rather than accept any layoffs, whether it be from a self-rescue plan or from a GM-Fiat
takeover. Daewoo's creditors are overtly unwilling to finance any plan that doesn't restore operating profitability
(which ideally means a reduction in operating costs by 50%). Daewoo Motors' employees have not been paid since August 2000.
October 19, 2000 [MyCNN]
- Indonesia's plan to raise coupons on its bank bailout bonds may help the viability of Indonesian banks
with both high capital adequacy ratios and liquidity problems, by letting them raise funds (by selling the bonds) without
too much effect on the capital adequacy ratio.
October 18, 2000 [CNNfn]
- The Euro plunged 2.5% to record lows against the U.S.$. The new low is 1 Euro/U.S.$0.8328, over a cent below
the prior low of 1 Euro/U.S.$0.8440
October 18, 2000 [MyCNN]
- Twenty-one of Japan's largest banks are suing the city of Tokyo to have a new tax on their earnings revoked.
This tax [a 3% levy on gross profits for five years] was wildly popular with Tokyo's voters, a substantial
percentage who considered Japan's ¥7.46 trillion bad loan cleanup package as a ¥7.46 trillion incompetent management bailout package.
Local analysts, however, consider the levy to have limited impact on the banks' profits, while providing an estimated
income of ¥110 billion/year to Tokyo. Osaka has already passed a similar law.
- Japan's planned stimulus package may include a postponement of capital gains tax reforms, which are feared to
have the potential to reduce share prices -- and thus risk inducing Japanese bank bankruptcies.
October 17, 2000 [CNNfn]
- U.S. production rose at 2.8% for the third quarter, notably slower than the second quarter's 8.2% gain.
- The ECB was forced to dismiss rumors that President Wim Duisenberg had resigned. The Euro continued to hover within a cent
of its record lows. There were also concerns that Israel/PNA violence could result in a shutdown of oil exports.
October 16, 2000 [MyCNN]
- Moody's Investors Service upgraded Brazil's foreign currency rating from B2 to B1, and its ceiling for
bank deposits to B2 from B3. Moody's also upgraded Brazil's currency rating to B1 from B3.
- Japan's bankrupted debt for April-Sept. 2000 rose 48.1% (compared to April-Sept. 1999) to ¥10.91 trillion. The previous
record high was the last half of fiscal 1997/1998 [Oct.1997-Mar. 1998], when it was ¥9.19 trillion. There are concerns
that the next six months will have even more bankrupted debt. Chiyoda Mutual Life Insurance Co. has already boosted
this index for Oct. 2000-Mar. 2001 by ¥2.94 trillion, and another huge bankruptcy (Inter-Lease Corp, ¥800 billion) is
being speculated as plausible.
October 16, 2000 [CNNfn]
- The Euro was close to its lifetime lows again. This was attributed to the impression of the ECB's unwillingness or
inability to coordinate another joint intervention.
October 12, 2000 [MyCNN]
- Fiat SpA Chairman Paolo Fresco confirmed that Fiat was interested in only part of the assets of South Korea's Daewoo Motors. He also indicated
that Fiat still "needed to look at everything."
- Further recovery in Japan's macroeconomy will have to be consumption driven. It appears that exports'
contribution to the recovery is at maximum. [This means that Japan will have to change economic models; the
current model is an import-export engine....]
October 12, 2000 [CNNfn]
- While the U.S. stock markets have declined substantially, it is thought that it will take
at least a 20%-30% drop to disrupt (or signal a disruption; cf. the crude oil scene) the U.S. GDP's growth rate.
Remember, the U.S. Fed believes an annualized growth rate of 5% is unsustainable.
October 11, 2000 [MyCNN]
- Japan Credit Rating Agency (JCR) declared the yen bonds issued by Hainan International Trust & Investment Corp (HITIC) to be in default.
This declaration is unofficial, however; an official declaration should be done by a lead commissioned bank (in this case,
both Sumitomo Bank and Shinsei bank have prepared PR releases to this effect already), by consent of bond holders controlling at least
25% of the issue, or a bond holders' meeting. This was in response to the second missed payment on HITIC's bonds, whose grace
period expired on Oct. 10, 2000.
- Taiwan has a bad-debt problem that looks suspiciously similar to Japan's in 1997...and it may be getting
equally lethargic action to deal with it.
- Reuters Securities 3000 had a listing of Japanese retailers with particularly high debt-to-equity ratios. Namely
(quoted verbatim):
- Seiyu Ltd: debt-to-equity ratio 35.30; Supermarket operator and part of the Saison group, which also includes consumer financing firm Credit Saison Co Ltd and shopping centre operator Parco Co Ltd
- Daiei Inc: debt-to-equity ratio 29.88; Japan's largest supermarket chain operator.
- Mitsukoshi Ltd: debt-to-equity ratio 19.17; Second-biggest department store.
- Mycal Corp: debt-to-equity ratio 7.67; Fourth-largest supermarket chain operator. Also operates department stores and fast food restaurants.
- Daimaru Inc: debt-to-equity ratio 4.26; Osaka-based department store.
- Jusco Co Ltd: debt-to-equity ratio 3.35; Supermarket operator, with a nationwide chain.
- Takashimaya Co Ltd: debt-to-equity ratio 3.09; Japan's largest department store.
- Isetan Co Ltd: debt-to-equity ratio 2.26; Department store known for its focus on women's fashion.
- Uny Co Ltd: debt-to-equity ratio 2.05; Supermarket chain store operator. Owns 52.61 percent of Circle K Japan Co Ltd and 25.53 percent of Sunkus & Associates Inc, both convenience stores.
October 10, 2000 [CNNfn]
- Mexico is succeeding in negating the benefits of NAFTA, driving away foreign investment.
Mexico is implementing this via increasing taxes in less-than-expected ways, a severe lack of infrastructure, and high paperwork costs.
It is estimated that somewhere between U.S.$600 million to U.S.$800 million in foreign investment
has been driven away from Mexico already, into countries such as Malaysia, Thailand, Indonesia, and Red China.
October 10, 2000 [MyCNN]
- Pakistan's military ruler General Pervez Musharraf said that Pakistan's macroeconomic decline
had been stopped. Of his several objectives (economic revival, political and social reforms, restoration
of democracy, ending government corruption, and enforcing accountability of government functionaries),
he is finding the enforcement of accountability of government functionaries to be proceeding more slowly
than he expected. He plans to hold elections in Oct. 2002 as mandated by the Supreme Court (in spite of
this probably being too soon to fully implement the social reforms). He also wants to implement substantial
local government by the middle of 2001 (much to the horror of the local conventional political parties).
- A review of the overall business climate of Japanese life insurance companies noted that their business
model is currently fundamentally flawed: they are locked into guaranteeing 3.5% return when local methods of
investment only can yield 2%-3% returns. The Euro collapse of 26% or so since its launch has annihilated
Eurobonds for this purpose, considerably worsening the situation.
October 9, 2000 [CNNfn]
- GM and Fiat indicated that they were initiating a due diligence study of their proposed purchase
of Daewoo Motors. It is speculated that South Korea has relatively little leverage in this.
- Chiyoda Mutual Life Insurance Co. has filed bankruptcy, with a net worth of negative ¥34.3 billion, and
a total debt of ¥2.94 trillion. While no other Japanese life insurance firms had a negative net worth at
the end of Sept. 2000, it should be noted that in a survey of 19 Japanese life insurance firms, Japan's Financial
Supervisory Agency determined that the total amount of doubtful loans at the end of March 2000 was ¥233 billion -- four times
what was on the official books of these 19 firms.
October 8, 2000 [CNNfn]
- GM and Fiat sent a letter of intent to buy Daewoo Motors to Oh Hogen, chief of the Corporate Restructuring Committee of Daewoo Companies.
It is currently unclear whether GM's intent is to buy Daewoo Motors and its affiliates, or to be more selective.
An analyst at Credit Suisse First Boston suspected that the selling price would be no more than three trillion won.
October 6, 2000 [MyCNN]
- Banco de Mexico, Mexico's central bank, considers a 7.0% inflation rate for 2001 viable
if oil prices continue to be strong. This includes the effects of a proposed 15% VAT.
- Brazil appears to be headed for a trade deficit, rather than a U.S.$4 billion trade surplus.
This is attributed to high oil prices, combined with increased imports from Brazil's macroeconomic
recovery.
- Indonesia has postponed the sale of state-controlled Bank Central Asia, apparently due to
inability to get a politically tolerable price [1.78 trillion rupiah?] This delay is interpreted
by the IMF to be a violation of several letters of intent -- but there are concerns about
shifting too much debt onto the Indonesian government, and a delay may help prevent this.
October 5, 2000 [CNNfn]
- The Bank of England held interest rates at 6.0%, as commonly expected.
October 5, 2000 [MyCNN]
- Japan is normalizing its computation of GDP to match UN standards (defined in 1993) for
July-Sept. 2000 and later quarters. The notable changes mentioned are: inclusion of software development
outsourcing, and depreciation of public infrastructure (roads and dams). The former is expected to boost
GDP growth by 0.2% to 0.3% (not enough to seriously change the picture); the latter is expected to
cause a methodology boost of 2%-3% (apparently, this is formally consumption by government....).
- The second effect is interesting, because this doesn't correspond to a physical cashflow.
I would count this as a reduction in net worth of property. If the 2%-3% bias is normal, it might
be very interesting to see GDP figures, etc. under a "naive accounting system".
October 4, 2000 [CNNfn]
- The oil price spike in September 2000 has impaired British and French macroeconomic figures.
British retail sales volume grew at the slowest rate in 17 months; this is attributed to supply disruptions,
but may be compensated in October 2000. Also, the French consumer confidence index shifted to -8 from 2,
wiping out a year of gains. This index may have a strange zero, however: it was positive for the first
time in April 2000, but was created in 1987.... The oil spike is thought capable of reducing EU
GDP growth by 0.5%.
October 3, 2000 [MyCNN]
- A U.S. investment consortium led by Nabors Industries Inc. has cancelled a deal to take
over South Korea's Hanbo Steel Industry Co. The U.S. consortium sent a fax informing the
South Korean creditors that they had failed to comply with the agreement; Korea Asset Management Corp.,
Hanbo's primary creditor, indicated that the South Korean creditors were considering legal action
against the U.S. consortium.
October 2, 2000 [CNNfn]
- It is speculated that the last round of intervention for the Euro will wear off in two to four weeks (Oct. 16 to
Oct. 30 or so). Both Paribas and Chase Manhattan Bank expect new lows before January 2001.
No-frame index