Lance

Morningstar: "Think Twice Before Betting On Japan Funds"

Re: Japan's volatility ...

Remember (or if anyone doesn't already know) that there is NO UPTICK RULE in Japan. Short on demand at the bid, baby.

Now ... yes ... and no laughing here, please ... they *did* institute, a few years ago, a provision that you can only short on demand 50 times the minimum trading unit in one order. So, if you want to swamp the system with shorts, you need to enter multiple orders. Real tough, that provision. Slightly mitigating, trading units have tended to drift toward 100s, from the 1000 shares that has been traditional for a long time, but there is still no uptick rule, and no rule against using computer technology to launch an avalanche of shorts.

This (lack of an uptick rule), and daily movement limits (you can find yourself up-limit or down-limit, trapped either way) make the TSE, in essence, exactly like a US futures market. These are precisely the attributes that make futures markets more volatile than equity markets -- in addition to greater leverage, which Tokyo also provides. (Margin is 33 percent, and you can borrow 80 percent against cash positions, so leverage is pretty darn good for equities.) Tokyo, or the people who run Tokyo, *love(s)* volatility. Of course they like it mainly on the upside, because that creates, rather than destroys, wealth.

But please understand, this is an insider's market run by "The Generals".

Volatility? I know Steven wants us to buy Internet Initiative Japan, and he may be right. But those of us who do have to stick our toes into a market that does a mere US$ 2 million a day on average. If somebody wants to unload a "real" position, you don't want to be long. It's simply impossible to manage risk in that small a puddle. What? I'm going to put US$ half a million in IIJ? My timing had better be *perfect*.

Finally, MUFG is said to be stronly considering a 10-for-1 stock split this fall. What this does, of course, is put TEN TIMES the amount of shares out there that can be borrowed for shorting. Recently, there has been scandal after scandal over enormous stock splits. If MUFG should run up before the split date, I would exercise *extreme* caution.

I know that MUFG wants to increase their individual shareholders ... but take care, they may not exactly care (guaranteed, actually, that they don't) if *you* get blown out in the long term process of that transformation.