Hongkong-Shanghai comments on the market bubble....
Friday June 25, 6:25 am Eastern Time
U.S. may face recession as mkt bubble bursts -HSBC
LONDON, June 25 (Reuters) - The U.S. economy could face recession by 2001 as the financial market bubble is likely to burst, driving asset prices sharply lower by the end of this year, HSBC Securities said in its latest research.
In a 52-page report entitled ''Bubble Trouble,'' HSBC economists argued a combination of rising interest rates and a falling dollar was likely to herald the end of the bull market.
''We see both coming through in the second half of this year, suggesting a significant risk of a sharp and sustained fall in
asset prices towards the end of the year and in the first half of 2000,'' HSBC said.
''This combination is likely to deliver a slowdown in growth through 2000 and raises the risk of outright recession in 2001,'' it said.
The U.S. productivity miracle of strong growth without inflation has given way to a financial bubble on the back of excessive equity prices, while investors have been seduced into believing in permanent 'new economic paradigms'.
''These beliefs normally end in tears,'' HSBC warned, adding that despite low inflation, excess demand pressures still
tend to trigger an interest rate response.
''The rest of the world will not be immune. Falling U.S. equity prices and a weaker dollar will create new problems for both Japan and Euroland, increasing the dangers of outright global recession.''
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