Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: tradermike_1999 who started this subject	12/9/2002 12:23:29 PM
From: energyplay	Read Replies (2) of 74559

More parts of the script.. From TheStreet.com Tero Kuittinen This & that 12/09/02 08:44 AM ET German industrial production dropped by a surprisingly steep 2.3% in September. The latest Japanese consumer spending numbers showed a surprising 2% drop in October -- Germany and Japan have probably both entered a new recession by now. This explains why the latest ISM numbers in America showed a sharply lower export order reading even as the import orders expanded. This widening gap in turn implies that the US current account deficit is going to hit 6% next year, boosted by the new Prusso-Nipponese recession. And that in turn explains why O’Neill had to go -- he had said that if US abandons the strong dollar policy, he will announce it in the Yankee stadium. Since no country has ever handled 6% deficit without devaluation and the stadium is booked solid well into year 2004, the only way out was selecting somebody like Mr. Snow as the new Treasury Chief. All of which gets us into a fascinating new betting game -- competitive devaluation derby between America and Japan. Japan raised the stakes last week by breaking the international protocol and naming a concrete target (150-160 yen). America is responding by dumping policy-makers who are on the record supporting strong buck (O’Neill) and fiscal responsibility (Lindsey) and replacing them with happy-go-lucky devaluation & deficit fans. The case for weaker dollar will be backed up by a huge boost in budget deficit, which should make devaluation a necessity. But Japan has the ultimate trump card: it can threaten with a collapse of its banking system unless it gets the yen 20% lower. It’s hard to say who’s going to get ahead here… but it seems highly likely that the equities are going to be the loser. The “beggar-thy-neighbour” dynamics of Thirties are a pretty good case study. The warning season has barely started and the 4Q EPS growth projection has already has come down from 20% to 15% before the big announcements. Gucci is one of the trailblazers here -- luxury companies had survived two years of slumping markets before they’re finally starting to buckle. Japan’s November mobile subscriber numbers are out and they show that the decline of growth that set in after summer has continued; the trend is not as bad as in Korea, but it’s bad enough. It’s not clear how the Asian projections for 2003 are going to hold if we’ll see the usual seasonal decline into 1Q on top of this unseasonal 4Q downtrend.

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