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Strategies & Market Trends : Bosco & Crossy's stock picks,talk area
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To: Zeev Hed who wrote (1931)10/19/1997 11:33:00 AM
From: Iris Shih   of 37387
 
Zeev,

Thanks for your analysis and Dave's posting. Very interesting and intriguing. It's enough for me to think about it for a while. From Dave's article I found the following interesting.
"The bad news side of the pessimistic new paradigm is that if Asia's excess supply problem is bad
enough, it will eventually be transferred to the Western Hemisphere. Encouraged by cheap raw
materials and the ability to import cheap labor from Asia, producers in the Western Hemisphere
may put into place so much capacity that even markets in that hemisphere are saturated with
inexpensive goods. This situation may sound wonderful, but producers must cover their costs. If
overinvestment occurs, the symptoms will arise in the form of falling profit margins and an inability to command adequate prices to
compensate producers for the costs of making those additions to capacity: a chronic lack of pricing
power. In short, the fallacy of composition that led to widespread excess capacity in Asia could
spread to the Western Hemisphere. A surprise round of earnings disappointments for U.S.
companies with global exposure would signal a possible spread of the Asian problem of excess
capacity.
The main market signal of incipient or actual excess capacity is a tendency for bonds to outperform
stocks. Since excess capacity will put downward pressure on earnings and prices, stocks will be
hurt by the negative pressure on earnings. At the same time, bonds will be unambiguously helped by
the negative inflation pressure and eventually by the drop in real interest rates that accompany a
collapse in investment following the clear emergence of excess capacity conditions."

Several years ago, Taiwan enjoyed the strong Taiwan dollars and high growth rate with low inflation. It's hard to imagine that the same advantage it enjoyed for a couple of years now came back to haunt itself.

Regards,

Iris
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