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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (1757)	6/12/1999 10:42:00 AM
From: Step1	Read Replies (2) \| Respond to of 3536

Henry, I tend to concur with your skepticism on the Japanese gov numbers... Most people get the impression that the recession in Japan is really dreadful, people are walking around with glassy eyes and there is no money being spent by those now legendary olympic savers... Quite far from the truth, there is I find plenty of money sloshing around, especially since the government has just opened the spigots in the last year or so. The consumer has money, and in a deflationary world it becomes stronger every day. What you mentioned in this post: >>In the US I believe the Fed is more motivated their concerns re excess demand than inflation. Nothing in the recent data suggest a real danger of an inflationary spike<< and a little later you say: >>a convincing arguement can be made that one of the biggest problems in Japan results from the very strong capital spending related to the equity spike in the 80s. This huge amount of excess capacity still sits like a weight on the Japanese economy. << This huge amount of capital created a huge overcapacity in just about anything. There is always the line that goes like this: If only all that pent up demand could be released. It supposedly would restart the economic engine. I am not so sure it could just be made to happen so quickly. Any demand is met with enormous production capacity, pricing power is almost immediately eroded . Until the excess capacity is purged (companies lay off, restructure, get out of business lines or go bankrupt), things will not pick up. The government has spent and has promised to spend again in the short future an ENORMOUS amount of money on public works, some I must say very much needed in infrastructure (side walks, parks and rest areas near train stations, downtown "silver citizen" friendly areas etc) while , especially for the bigger projects (bridges, highways and dams) I must say mountains of money are being wasted. The stated goal is to provide employment and to get money fast to dying construction companies, not to efficiently improve infrastruture.@A lot of the projects are rammed through or seem to be very poorly planned . So, while the last GDP numbers looked good, there is absolutely nothing long-term in this kind of spending, and my feeling is, if it fails, this time they are in big trouble, being at the end of that alley (public works). The government has also, quite rightly stated I believe, that the revival of Japan lies in its small and medium size companies and in new industries, which they have made a list to be prioritized (MITI's idea it sounds...) I remember seeing it a while back in the financial press, bio-technology, information technology, environmental processes and tech for sure, I think welfare and care for the elderly were sectors to be given a high priority. This will take time, and like any other major shift, the people displaced in one industry may or almost surely will not fit in the new ones emerging. That said, and I think Paul Berliner, if you are reading this far, you will agree, the service sector is still growing. A whole host of services that didn't exist even 5 years ago, are expanding briskly through the recession. I can think of home delivery services, cleaning services (office, homes ) , telecommunications (internet and wireless), financial (brokerage gearing up for big bang) as well as new concepts of retailing (convenience stores were practically inexistant 4 years ago, now they have mushroomed ad nauseam...) which are in themselves types of services. There was even a start up-stand alone airline coming into the anemic travel market. So far they are still flying... People are willing to pay for these and like I said earlier, there is enough money sloshing around to provide a good buck for the innovators. To summarize ( I feel I am getting a bit to windy here): Japan has : 1-huge production overcapacity 2-underemployment (in some industries, it is estimated that up to 30% of people are redundant) 3-no way to go down on interest rates 4-little leeway in increasing government deficits ALthough I believe the other members of the group of 8 will do everything to publicly support Japan and put a positive spin on things in order not to spook the crowd, I would be careful here. On top of the 4 domestic negatives I listed above, I find 3 international factors could in themselves seriously damage any hope for a quick recovery. They are: 1- US stock market crash followed by marked slowdown in US economy 2- Yen appreciation 3- Chinese devaluation All disclaimers apply, including the right to be wrong. sg

To: Henry Volquardsen who wrote (1757)	6/14/1999 12:21:00 PM
From: Chip McVickar	Read Replies (1) \| Respond to of 3536

Henry, Here's an interesting Analysis pursuant to the topic you are covering....Feds do look ahead some months out? >>While we haven't seen anything like the Japanese capital spending boom of the 80s in this country I believe the Fed is very concerned about letting it get started.<< investorsalley.com Market Cap Booming World Economy Just Beginning The Day Ahead: Seeking that Elusive Rebound Friday's efforts at a rally came and went. The Bond market was too spooked about something, to even manage an intraday rally of any significance. So far there are no real indications of any inflation in the economy, but that may not be what is really behind the veritable waterfall decline that seems to have befallen Bonds in recent weeks. The bigger picture may be being driven by a good old fashioned supply demand imbalance. The demand for money is overwhelming the supply and this has been moderately exacerbated by the additional strains that the situation in Kosovo has placed on the monetary system and forgiving 70 Billion in third World debt did not improve matters either. Whilst this is an honorable gesture, it is really a 70 Billion tax increase on the G7 nations whilst at the same time, could represent huge stimulus to third world growth. The other major negative that might be weighing on Bonds, is maybe, just maybe the US could be headed for the mother of all economic booms. If we are not already well into one, it actually might get even stronger, if the following conditions eventuate, which very much appear to be in the process of unfolding at this time. Necessity is the mother of invention and can also be its cure. The United States has a massive trade deficit problem, caused by its ability to remain an island of prosperity, and strength in its currency over the past four years in an ocean of weak economies and weakening currencies. That is beginning to change. Even though the US domestic economy appears to be weakening in the manufacturing sector and the awesome pace of job creation is beginning to decelerate, in the short term, as the rest of the World continues to recover, its economic recovery could outpace that of the US and if their currencies rise against the US Dollar along with that, over time that could re-invigorate the US export led economy and could not only extend the US growth cycle for many years ahead, the effect of a booming World economy creating a larger than expected demand for US goods, could put excessive strains on the already strong US economy for the foreseeable future. Remember, many countries that have been hurt by a super strong dollar and their own home grown currency problems, has in essence led to the postponement of purchases of US goods. Since the US is the World's technology leader and the sole producer of many of the World's must have products, sooner or later these countries will be obliged to increase their imports from the US and will be emboldened to if the exchange rate begins to improve and increases their buying power. That could be enough to at least stem the tide of red ink in the US trade situation, if not reverse it. In just the same way that the budget deficit seemed to have no end in sight six years ago, the same good fate could await a seemingly out of control trade deficit. The price to be paid for this will be some measure of inflation caused by some weakness in the Dollar that may have started as recently as last week. Whilst an overnight pop in the Dollar is correcting the very sharp reversal from last week, this may also give the Bonds reason to rally some Monday morning and this may be supportive of the market for that elusive pop we have been looking for. It makes sense. The US economy with or without the anticipated action of the Federal Reserve is finally succumbing to a period of rising rates that has not hit it this hard as this since 1994. It is somewhat intriguing to recall how October 1998's top in Bonds was created by a frenzied fear of absolute deflation, that has since turned into the exact opposite fear of just nine months ago. Not so fast. As FI has espoused recently, this calls for delicate treatment, as the curtain of deflation has not entirely been lifted from the US or the rest of the World for that matter. Still, on the positive side for the rest of the World, is the fact that the most coordinated rate cut program ever undertaken in history, following the October crisis of last year, has been having its desired effect on many of those countries and by all accounts they are continuing to apply this much needed medicine, as was amply demonstrated by the reduction in the minimum lending rate last week by the Bank of England to its lowest level in 22 years. The net effect of this aggressive stimulation by those countries that have had stagnated growth at best in recent years, is that these economies should begin to grow very strongly in the years ahead and could inspire a major World boom. Assuming we don't get into any more conflicts hopefully for a very long while, then the post war boom and reconstruction of Kosovo and the rest of this hard hit region should jump start European growth. Even though the Euro has been hammered hard of late, the creation of this currency's long term effects are very stimulatory to a recovering Europe and this currency would have to be now considered at the low end of value. Meanwhile, the Pacific Rim that was summarily written off for the next 10 years by most pundits, but not by FI, which called for an unexpectedly rapid recovery on more than several occasions, appears to be doing just that. Recovering more rapidly than anyone could have imagined. Part of our reasoning for those who may remember was our belief that in today's fast moving World, the ever quickening pace of obsolescence is capitalism's best friend and this trend is likely to continue ad infinitum. No matter whether were talking cell phones or computers, or the new combinations of both, the technology is moving so fast that it is creating intense demand for that latest and greatest must have product that a certain group of consumers find irresistible. The bottom line is the Global balance has been altered. Currencies get into situations where they become overvalued and correct and this can alter the dynamics of trade quite markedly and it this can play havoc with economies. Having enjoyed a very strong and disinflationary currency advantage in recent years, the very fact that US interest rates are now rising very sharply versus interest rates falling sharply in most other countries, (for the time being), could indicate a major shift in Global trends and monetary havens. This does not mean that the US stockmarket cannot move higher at some point in the near future and shrug this off. Rallies will come and I remind readers of what happened in the UK during its similar period of very sharply rising rates to cool off its boom some eighteen months ago as stock prices continued to defy gravity. Whether the US can replicate this remains to be seen, but one absolutely cannot rule out the possibility of one more unexpected 'run for the roses' unfolding sometime this year with some Millennium influence being factored in. What is particularly noteworthy at this time is that the broadest sector of the market continues to gain strength indicative of strong economic times ahead and as of last weeks many of these small and Microcap issues are displaying reluctance to go down and many look ready to rally.