Good post. But there are some supporting facts that I'd like to challenge.
a) deflation. Asian Crisis and imports can't change U.S. service sector inflation(I don't see any price pressure there,only the opposite), and the chronic supply shortages for college grads and computer science personnel.(unemployment rates for them are now below 2%) Service sector is more than 2/3 of the U.S. GDP output.
b) Asian crisis and dropping commodity profits increasing profits for many firms! (Dell, Airlines for example)
These firms buy a large amount of parts from Asia, or consume commmodities that have been slammed by Asia.
c) industrial firms are a decreasing percentage of market capitalization. And most of them have already fallen anyways. (Steel, Chemicals, etc.) A few haven't fallen yet-3M, Dupont, but these willnot impact the market in a major way.
d) Safe Haven & Currency Hedge: Gold needs a global crisis to re-establish its role. If Asia is contained, then gold will lose more lustre. And gold does not pay interest like dollar deposits.
e) Containment of Asia. All eyes are on Japan. If they act quickly(And it seems that voters there have sent a clear message to politicians that they must), then the Yen's decline will be contained. But if the politicians still think it's business as usual, then the U.S. will intervene if necessary to stem the collapse of Asia. There will be pressure on the Yuan and the HK$, but only if the Yen undergoes a sudden crash. Intervention will cushion that crash, as it did a few weeks ago. In any case, gold seems to be linked to the yen right now.
I wuld put the chances of an Asian Debacle at 30%. If that happens, gold will skyrocket. But thatis assuming that everyone in the treasury and the Japanese government are idiots who don't realize the gravity of the situation right now.
f) Y2K. Would love to hear yur opinions about this issue.
There is an Asian adage that states that "paper money will always beworth the paper it's printed on." In order for that to happen, everything will have to go wrong for Asia, the US and Europe. And Y2k just might be the factor, IMO.
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