You too Nikko san ,,
Yes,, in this market,, and also played 36 holes today ,, in the blusturry New York weather.. our first fall weather,, passed out at 9 ,, just woke up ..
Maybe the battered European bull soon will be able to charge happily higher like in the good ol' buy-the-dip-and-get-rich days. But you probably don't want to bet the farm on it.
Euro Vision: *Special* The Contraction Begins to Pinch
By Ned Stafford
Special to TheStreet.com
10/4/98 7:09 PM ET
FRANKFURT -- European stock markets spoke loudly this week. And it would be very unwise not to listen.
The markets are warning that something wrong, very wrong, is afoot all across Europe. In Germany, the mighty locomotive of Europe, the DAX closed down 13% on the week and at Friday's session low was down 38% from the July record high.
What started out back in those carefree days of summer as a correction eagerly bought by buy-the-dip experts has turned into a steady skid. Keep in mind that the great U.S. bear market of 1973-74 lopped 48% off stocks in a little less than two years. It has taken Europe just over two months to reach 38%. Anyone who believed all that candy-coated Fortress Europe talk of early August has been crushed.
Maybe the battered European bull soon will be able to climb to its feet and charge happily higher like in the good ol' buy-the-dip-and-get-rich days. But you probably don't want to bet the farm on it. Pros say the confidence of this market has been vaporized and is not going to bounce back anytime soon.
Perhaps more importantly, the European stock market appears to be pricing in a much more severe economic slowdown than most economists now forecast.
Sentiment indicators all over in Europe are turning down. In Germany, the much-watched Ifo business climate index for August fell sharply, and many expect the September number to be lower still. German export growth peaked in September last year, just after the Asian crisis started, and has slid since, with contraction now on the horizon.
That contraction will be all the more painful with the slide in the U.S. dollar. Dollar strength the past two years has been a major stimulant for European economies and corporate profits. But that is over, with the dollar plunging from just over 1.80 marks in late August to below 1.64 today.
European central bankers had hoped that European Monetary Union would start Jan. 1 with a dollar around 1.80. European Central Bank President Wim Duisenberg said just a few weeks ago -- with the dollar around 1.69 -- that a further fall would be cause for alarm.
Adolf Rosenstock, economist at Nomura International in Frankfurt, said that a dollar below 1.60 marks would be alarming and that a dollar at 1.50 would probably shove Europe into recession, primarily because it put U.S. exporting firms in a much stronger position against stronger Euro currencies.
Layoffs have started, and unemployment is high in several European countries. Dutch Bank ING let 1,200 people go last week. And traders whisper that fear of job losses in the financial sector is growing.
Deflation, which already is pouring into Europe, is the other big concern. In Germany, for example, August export prices were down 0.5% on the year and import prices down 4.7%. Consumers loved it at first, until they started losing their jobs because of it. The German producer price index fell 0.8% in August, and CPI in September was up only 0.8%. A strengthening mark will only add to the deflationary problems.
But European central bankers -- especially Bundesbankers -- are not moving with the alacrity that investors would hope. But the central bankers may now be getting the message.
Professional European Central Bank watchers say off-the-record that both Duisenberg and Tietmeyer are gravely concerned about decelerating European growth, deflation and plunging markets -- just on the eve of EMU. In a speech Sept. 17 that was largely ignored by the press, Duisenberg declared unequivocally that the ECB is as prepared to fight deflation as it was inflation.
And, it seems, the Bundesbank is playing a shrinking role in the European monetary policy show. The ECB Governing Council -- of which Tietmeyer is one of 17 members -- is now starting to call most of the shots. Stefan Bergheim, economist at Merrill Lynch in Frankfurt, confirmed, "Europe is in a common monetary policy already."
But Duisenberg and Tietmeyer have been reluctant to take rate-cut action, partly because they are concerned that such a move would be viewed by markets simply as confirmation of how bad the situation has become.
The prime factor inhibiting a rate cut is the unfortunate timing of European Monetary Union, which kicks off Jan. 1. On that day, like it or not, all 11 EMU nations must accept the one ECB rate, which most think will be set at wherever the Bundesbank's key rate is Dec. 31. The Bundesbank short-term rate is now at 3.3%, and a rate cut before Jan. 1 would make it ever harder for high-interest rate nations to converge on Jan. 1.
But if the dollar keeps sliding and economies keep decelerating, the Bundesbank will have no alternative but to cut for the good of Europe as a whole. Michael Levy, a money manager with Bankers Trust, said at this weekend's TSC Summit that he believes the Bundesbank will have to lower rates ahead of EMU. That thinking dovetails with a growing sentiment throughout Europe that the Bundesbank faces little choice, given the growing ferocity of global economic and financial problems.
Hans-Juergen Meltzer, economist at Deutsche Bank in Frankfurt, said that new economic forecasts become outdated days after they are released. "I have never seen anything like it."
And neither have Tietmeyer and Duisenberg and Alan Greenspan and Robert Rubin, who along with other G7 finance leaders are meeting in Washington this weekend in attempt to hash out some solutions.
Anyone who thinks these guys will not be discussing dollar/mark or making big contingency plans for a coordinated global rate cut -- just in case the world appears ready to slide over the edge -- probably still believe in the tooth fairy.
See Also
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Rout Continues in Europe
10/2/98 8 AM
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