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Pastimes : Ask Mohan about the Market
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To: Cynic 2005 who wrote (11352)12/13/1997 7:42:00 PM
From: DHL  Read Replies (2) of 18056
 
What are the possible scenarios?

Mohan et al:

I have been lurking on this forum for a couple of
months. The postings that I've read let me wake
up from the hypnotic dream of "buy and hold" and
"buy on the dips".

Now I'm wondering (like most people) how things will
play out over the next few months/years. We're seeing
a lot more articles in the mainstream press (i.e. WSJ)
about the seriousness of the Asian situation. However,
most of the articles seem to discount the effects on
our economy. Here are some observations - I'd be
interested in hearing what others think:

1) Many folks are talking about how it's only a matter
of months before the S. Korean economy turns around.
They point out the discipline and work ethic of the
Korean people. I agree that they possess those
qualities. However, in an era of overcapacity and
glut, more production will only exacerbate the basic
problems.

2) The S. Koreans represent serious competition for the
Japanese in the area of steel and shipbuilding, to
name a couple. Will the Japanese government "allow"
the yen to continue to devalue so that they can
compete more effectively?

3) If the Fed (A.G.) is increasing the money supply to
prevent a liquidity crisis, at what point will that
cause the dollar to lose value and force the Fed to
increase interest rates to defend it? Will that
even happen? Is it possible that the additional liquidity
provided by the Fed and the BOJ could worsen the
dangers by causing further currency devaluations?

4) We've read that the Japanese won't sell U.S. Treasury
bonds because they are increasing in value because
of the declining yen. If that's true, is there a
possibility that Japanese banks might sell U.S. equities
out of concern about the U.S. market?

5) In what possible scenario could the derivatives market
play a role in a market meltdown? Is there serious risk
that such a breakdown could take place or could/would the
central banks of the G7 nations have the resources,
intelligence, and fortitude to ameliorate such an event.

6) Some people think that these events will be overcome in
12 - 18 months. Such thinking seems very optimistic to
me because the problems seem so systemic? Any guesses
as to when/if events will reach "critical mass"?

What do you think?
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