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Strategies & Market Trends : Waiting for the big Kahuna

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To: Tom Trader who wrote (7471)	10/26/1997 2:29:00 PM
From: Mosko	Read Replies (2) of 94695

Tom, I want to respond to the question you posed <Why would one not invest in companies that do not export to SE Asia and therefore have little or no exposure to the crisis there? Now if the response is that the problems there are the start of a global economic crisis, I don't buy it--unless someone can present convincing reasons that it should be so.> I am niether a bear nor a bull, but do think one can play out possible scenarios based on current events. In the short term, I think you are correct in thinking that it is mainly the multinationals that will be affected by the Asean crisis. Aside from initial panic the deflation in Asia will bring cheaper import prices and all those tunnel vision investors focusing on inflation here will be able breath easier realizing there will be a temporary easing of interest rates. BUT.....as time goes on we will begin to seriously import deflation. The first will be those companies that that export to Asia to feel price pressure and oversupply, but it won't take long for those US companies that have to compete with cheap imports to feel price pressure and realize that they can produce their products using cheap asian labor. Jobless claims go up in the US reducing that ever expanding consumption demand that is neccesary to keep those earnings up. The PE of the markets in general is based on projected future earnings NOT trailing earnings. Sooner or later everybody realizes that the markets have far outpaced growth. Throw in the inevitable trade skirmishes and rising protectionist sentiment and I think you have a pretty good recipe for a bear market. In my opinion the only difference between a crash and a bear market is the time it takes you to get there. Personally I don't have the skill or inclination to second guess or time the market, but I for one am holding 60% cash, 20% equities, 20% S&P short fund. I think we could have some temporary upward movement before more down so will sit on my hands for awhile and see what happens. The question you need to ask yourself is how are you going to know when the sell-off is over? How will you know if we aren't just taking a breather? This is the question I ponder.

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