déjà vu once again?

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

U.S. stock slide is looking like Japan's Nasdaq mirrors Nikkei's slump
By Matt Krantz
USA TODAY /August 20, 2001

U.S. investors are starting to get a taste of what a no-growth,
Japanese-style stock market slide feels like.

After 2 more weeks of losses, the Nasdaq composite and Standard & Poor's
500 are at levels first hit in 1998. If stocks don't rebound until 2002, as
many believe, investors face a fourth year of dead money.

Some are even starting to compare U.S. markets to Japan's 11-year stock
slide. ''The Nasdaq is doing what the Nikkei did,'' says Mark Headley,
portfolio manager of the Matthews Japan fund. U.S. investors have gotten
used to stocks bouncing back, ''but that's not what always happens,'' he says.

Japan's plight is worse. Firms there are avoiding painful measures, such as
massive layoffs, says Gary Motyl of Templeton Institutional Equities. And
banks still are reeling from bad loans made during the '80s.

Even so, Japan shows how ugly post-bubble markets can get. The Nikkei index
has sunk to levels last seen in December 1984, when U.S. indexes were
nearly 90% lower.

Some similarities to Japan:

* Ferocious interest rate cuts have had no effect. Japan has cut rates to
zero, but its economy and stock market are still lifeless. Although the
Federal Reserve is expected to slash rates for the seventh time this week,
U.S. stocks are still collapsing. The Nasdaq is 63% below its 2000 high
(the Nikkei is 71% below its 1989 high). All three major U.S. indexes are
down since the Fed first cut rates Jan. 3. There have been seven cases when
rates were cut six consecutive times. Only once -- at the start of the
Depression in 1930 -- have stocks been lower 6 to 12 months later, says
James Stack, president of InvesTech Research.

* Lower rates should encourage borrowing and spending, but banks are
tightening lending, afraid borrowers could have trouble repaying, says
James Paulsen at Wells Capital Management.

* A painful unraveling is a result of firms expanding using inflated stock.
In Japan, they used shares to get bank loans. Here, companies used rising
stock to grow, says David Herro of Oakmark International fund.

Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine