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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Mannie who wrote (7530)	9/27/2002 11:53:32 AM
From: Jim Willie CB	Respond to of 89467

OLD WORLD, NEW WORLD by Eric Roseman The consensus is bleak - and not just for the U.S. economy. I recently returned from a nine day visit to Europe. Bankers in Copenhagen and Zurich believe that the U.S. dollar will continue to struggle going forward, but at the same time, they're not particularly excited about the Euro, either. European GDP growth is slowing this fall. Germany, Europe's largest economy, is barely expanding her economy, accompanied by rising unemployment. The country is the key to Euroland economic vitality, at 36% of GDP. But you certainly wouldn't get that impression from her stock market: The Frankfurt DAX is down a dizzy 57% from its all-time high back in March 2000. Earnings are generally poor, the rising Euro is hurting exporters and companies are not spending capital. The only good news in Europe is that stocks are generally much less expensive than Wall Street. But again, the consensus here in the Old World is that corporate earnings projections are still too high and that 2003 will not be particularly good for European companies. Both the U.S. dollar and the Euro are like two drunks after a big night of partying. They walk in tandem, occasionally stumble, intoxicated by spending, sluggish growth and deteriorating trade balances. But in a relative world, Europe is indeed healthier, still harboring a positive trade-balance and current-account surplus versus massive deficits for the United States on both scores. The Euro is simply a better currency at the moment. The key word here is at the "moment." Europe is now embarking on a huge spending spree after the worst floods in over one hundred years delayed tax cuts in 2003 for several countries, including Germany. This is not bullish for personal consumption, but might give the economies a short-term boost because of billions in government outlays. Bonds are still favored by some heavyweight money- managers over here, though durations have been cut to just three years for many clients. Bankers in Denmark and Switzerland believe interest rates can't go much lower from these levels. And what about stocks? The advisors I spoke to were generally avoiding equities. Values, however, do remain in the emerging markets. The big money to be made over the next few years will generally not be in common stocks. With the exception of short-term trading opportunities, the bulk of profits will come from foreign currencies, alternative mutual funds, gold and commodities. You'll also make good money betting against U.S. stocks. In August, after flirting with a summer rally, global stock markets failed to rebound and ended the month flat. Usually following a dramatic decline in values (such as in July), equities would stage a big recovery the following month. Remember last October? Though the Dow and S&P 500 Index are up 15% since the July 23 lows, they both ran out of gas just over a month ago. This is going to be a bad decade for most common stocks, similar to the 1966 to 1982 bear market. During that period, and adjusted for inflation, the Dow did absolutely nothing for 16 years. That doesn't mean we'll have the same boring market this decade, but it is extremely fundamental to understand what possibly lies ahead in the 2000s. After a stock market bubble has burst, it can take years for the public to return en masse, years for stock prices to recover and years for domestic and international stability to re-emerge. During bear markets, the economy turns sour; the government gets bored and decides to make war. They also print their way out of misery, discontent and ultimately, invite Mr. Inflation as a consequence of stupid policies. That is exactly the scenario unfolding around us today. Take a good, hard look around you...Does 2002 feel or look anything like 1999? In the space of just three short years, the world is a completely different place. We just finished the greatest bull market mania of all time, in 2000. And now, I hear some pundits predicting a new bull market, starting in 2003. While this is dangerous thinking, what we are likely to experience in 2003 is a huge mini-bull market in the context of a secular bear market. From 1966 to 1982, stocks did enjoy some terrific gains - but these profits were wiped out by big spills in between, and of course, by inflation. But you earned fat gains in 1975, 1976 and 1978. Over the next four-to-six weeks, you could try very speculative index-based trades. Notice how I said "trade", and not an investment? That's because the "buy- and-hold" mentality we enjoyed over the last 20 years is finished. If you don't get out with nimble but quick profits in this mess, you'll get clipped by the bear. It's that simple. Sometime, very soon, I'm looking for a strong BUY signal on the stock market. We're not there, yet. But that day is coming. I'm betting that most of 2003 will be a superb year for global equities. Yes, I realize you may want to have my head examined. But in a secular bear market, the bull visits, but just for a short while. His goal is to take as many suckers as he can to the cleaners, making them believe the bull is REAL. But I don't plan to stick around for that to happen. If I'm right about 2003, we're looking at 35% to 50% profits by Christmas next year. Sound bold? Maybe off the top? Yeah, I'm pretty alone on this call, and that makes me feel quite confident. The indicators I follow continue to be extremely bullish for the stock market near-term. All the key ratios I track are flashing BUY. I'm just standing by and waiting because September is statistically the worst month for stocks - even worse than infamous October. We're going to see a rapid acceleration of these trends over the next 12 months. It is very important that you diversify, diversify, diversify...and stay tuned. Regards, Eric Roseman, for The Daily Reckoning P.S. In August, the gold stocks were the best performing stock market constituents, up an average 15%. We did very well last month with a few mining shares that were in the midst of a big sell-off earlier in June and July. Those who followed my advice are easily ahead about 20% by now. I'm currently telling my members to continue to sell the U.S. dollar, buy gold stocks, buy commodities, avoid most bonds and continue to carefully add to your value- based stock positions. And if you're able, move a portion of your IRA overseas or purchase an offshore variable annuity to invest in hedge funds. Editor's note: Eric N. Roseman is the President of a Montreal-based investment consulting firm specializing in offshore portfolio management. The firm currently manages $27 million in assets from individual investors and private organizations around the world. Mr. Roseman also sits on The Sovereign Society's Council of Experts and is editor of The Global Market Investor.

To: Mannie who wrote (7530)	9/27/2002 2:21:08 PM
From: Jim Willie CB	Respond to of 89467

Spain's answer to JPMorgan is Banco Santander finance.yahoo.com if/when Brazil defaults on their colossal sovereign debt, the principal loser will be Banco Santander their exposure is something like twice the total of all US banks e.g. Citibank at $11B, JPMoron $3B I believe Santander's exposure is roughly $30B watch this SAN stock head into low single digits now 18.2 / jim

To: Mannie who wrote (7530)	9/27/2002 2:44:58 PM
From: Jim Willie CB	Read Replies (2) \| Respond to of 89467

A Lopsided World, by Stephen Roach (New York) Sept 27, 2002 The growth dynamic of the global economy continues to be amazingly US-centric. When America boomed in the late 1990s, the world was quick to follow. The reverse has been the case in the past two years, as a slump in the US economy has been more than matched by growth shortfalls elsewhere in the world. Lacking an alternative growth engine, an unbalanced global economy is now on increasingly precarious footing. What will it take to rebalance the world? The numbers speak for themselves: At market exchange rates, the United States accounted for fully 64% of the cumulative growth in world GDP from 1995 to 2001. That’s essentially double America’s 32% share of current-dollar world output in 2001. And that’s only the direct contribution. A US-led global trade cycle has also played a powerful role in driving world growth since the mid-1990s. The surge in global exports over the 1995-2001 interval explains 51% of the cumulative growth in world GDP over that period. To be sure, some of this outsize growth contribution reflects the impacts of an appreciating dollar. Using the IMF’s purchasing power parity (PPP) metric, which attempts to adjust for currency fluctuations, our estimates suggest that the US accounted for approximately 40% of the cumulative growth in PPP-based world GDP since 1995 (direct US GDP effects plus trade impacts, combined); that’s also about double America’s 21% share in PPP-based world GDP. Consequently, no matter how you cut it, it’s safe to say the US has been the sole engine of global growth for over seven years. This conclusion has been validated once again by this summer’s pronounced slowdown in global growth. America’s flirtation with a double-dip recession -- an anemic 1.1% increase in 2Q02 real GDP -- has reverberated quickly around the world. A surprising vulnerability in the European growth dynamic has been unmasked. With domestic demand accounting for a mere 0.1 percentage point contribution to Euroland GDP growth in 2Q02, a weakening in the external growth climate has brought the region to the brink of its own double-dip scare. Since stabilization policies are lined up in a disturbingly pro-cyclical fashion, European growth risks are skewed very much to the downside. The lagged effects of an earlier strengthening in the euro won’t help matters either. Nor will politically inspired setbacks to reforms. Meanwhile, the Japanese economy is also feeling renewed pressure. Long lacking support from domestic demand, a US-led deterioration in external demand is worrisome, to say the least. Japanese exports fell for a third consecutive month in August, with shipments to the US especially weak. Moreover, while the cyclical growth climate has improved elsewhere in Asia, there are increasing signs that export and production comparisons are now in the process of peaking out. All in all, it didn’t take much to expose the fault lines in a US-centric global economy this summer. Which, of course, raises an obvious question: If the world weakens so much in response to a mere double-dip scare in America, what would happen if the dreaded double dip actually came to pass? As I travel the world, I find that most investors would be delighted if this US-centric global growth dynamic were to be sustained. They’re happy to have their respective economies grow by exporting products to America and her suppliers. Who needs domestic demand if you have access to the richest and deepest markets of all, as well as the opportunity to tap the voracious appetite of the overly indulgent American consumer. My answer: Such a lopsided global growth dynamic is simply not sustainable. It leads to huge imbalances in the world economy that can only end in tears. That’s certainly the message from America’s massive current-account deficit, a direct by-product of this global misalignment. With America’s external gap already at a record 5.0% of GDP in 2Q02, another surge of US-led global growth could easily take the current account shortfall to 6.0% over the next year. That, in turn, would compound an already huge external-financing burden on the US -- taking it up to close to $2 billion of capital inflows per day by 2003. While that wouldn’t be such an onerous requirement if Nasdaq were back at 5,000, at Nasdaq 1,200 it could well be a different matter altogether. It raises the distinct possibility of a correction in relative asset prices -- with a weakening of the over-valued US dollar at the top of my list. In its latest assessment of world economic prospects, the IMF sends a clear warning about this ominous build-up of global imbalances (see the IMF’s World Economic Outlook, September 2002). Three data points drive the message home: First, there is now an extraordinary gap amounting to 2.5% of world GDP between the current-account surplus economies (mainly Europe and East Asia) and the deficit countries (led by the US). Second, as scaled by the trade flows, America’s current-account deficit and Japan’s current-account surplus have, in the IMF’s words, "risen to levels almost never seen in industrial countries in the postwar period." Third, and a by-product of the first two points, the US economy is now importing 6% of total world saving, whereas Japan is exporting about 1.5%. The IMF goes on to conclude that the biggest risk of these extraordinary imbalances "is the possibility of an abrupt and disruptive adjustment of major exchange rates." This is policyspeak for sounding the alarm on the vulnerability of an overvalued dollar. In my opinion, the imbalances of a lopsided world are a by-product of a fundamental misalignment in relative prices. This shows up in the form of an overvaluation in the world’s most important relative price -- the dollar. At the start of 2002, our currency team estimated that the dollar was overvalued by at least 15%, maybe more. While the trade-weighted dollar fell by 6% in the first half this year, it has since recouped half that decline and currently stands just 3% below its peak. Moreover, in a climate of heightened uncertainty -- both economic (double dip) and geopolitical (Iraq) -- the dollar could well move further to the upside. That would leave the world’s most important relative price as overvalued as ever. Given the imbalances this currency misalignment has fostered, I continue to favor a weakening of the dollar as a major policy initiative of US authorities. My suggestion for a weaker dollar has been met with great consternation in official quarters. I have been accused by some of endorsing a strategy of competitive currency devaluation that could lead to ever-treacherous beggar-thy-neighbor trade policies -- smack out of the 1930s. That is the furthest thing from my mind. But I am struck by the obvious: An unbalanced world needs a realignment of relative prices, and a weaker dollar is the most sensible way to achieve this, in my opinion. It also happens to be the one option with the greatest potential to stave off America’s deflationary endgame by arresting the ongoing deflation of US import prices. But a rhetorical shift in America’s "strong-dollar policy" may not be enough. Aggressive Fed rate cuts, possibly on the order of 75 basis points, may well be required to trigger and reinforce this long overdue adjustment in the US currency. Such an easing would also be helpful in putting a floor on American domestic demand -- yet another advantage in the battle against deflation. Which takes us to the biggest risk of all: Global imbalances are all the more treacherous for a world on the brink of deflation. A lopsided world is in increasingly desperate need of a policy fix. That won’t happen, in my view, without a weaker dollar.

To: Mannie who wrote (7530)	9/29/2002 4:13:59 PM
From: stockman_scott	Read Replies (1) \| Respond to of 89467

Even friends abroad decry America's arrogance By HUBERT G. LOCKE SPECIAL TO THE POST-INTELLIGENCER Friday, September 27, 2002 One of the delights of being in London this past Fourth of July was the opportunity to read the commentary in the British press about the United States on the occasion of our national independence holiday. The comments, by the way, were not those of America-bashers (in spite of what is still considered our impertinence in revolting against His Majesty's government several centuries ago!) so they can hardly be dismissed as the ranting of our enemies. Instead, they were reflections of people who looked with admiration at 200-plus years of the American democratic experiment, with sympathy at our present travails and with genuine concern about our future. One observer of the American scene was especially insightful. He describes, after a number of recent visits to the states, our nation as "split so deeply and irreconcilably over almost every key issue of politics, lifestyle and culture that it is sometimes better to think of (the United States) as two, distinct nations, rather than one." One half of America -- the one "that is feared, distrusted and increasingly disliked in the rest of the world, and especially in Europe," this commentator writes, "is the conservative country that constitutes George W. Bush's political heartland in Texas and the South -- the America of self-righteous Christian fundamentalists, of military machismo, of gun shops, lethal injections, anti-abortion zealots and gas-guzzling pickup trucks spewing out greenhouse gases." It's the America of the pastor who delivered a fiery invocation (just before Bush spoke at a West Virginia Fourth of July celebration) in which he decried multiculturalism, along with the nation's being "forced to honor sexual deviance in the name of freedom of expression" and killing "our unborn children in the name of choice." Bracketing this smug, self-satisfied, insular America is the other half of the nation -- on both coasts -- the one "that Europeans find fascinating and beguiling, albeit a bit frightening because of its shifting moral compass." It's the America of Hollywood, Manhattan and Silicon Valley -- the America of grandeur, glitz and glamour but also the America that is forced to look outward toward the rest of the world and recognize that, superpower though we may be, we cannot behave like a global bully without courting disaster for ourselves and the rest of the planet. Our friends in Europe find it incredible, for example, that we cannot muster an apology for massacring 40 people -- including one entire family -- at a wedding party in Afghanistan. They find our reasons for wishing to withdraw U.S. soldiers from the police-keeping mission in Bosnia to be arrogant and deceitful. And they are very worried, as another commentator writes, that "the meltdown in U.S. corporate ethics is not just a blip on Wall Street's radar screen but one of the deepest threats to the orderly function of America's capital markets since the 1930s." Or as yet another observer, viewing the shambles of the U.S. economy, asked, "Will America drag Britain down?" Friends are such because occasionally they have to tell us what we need to hear about ourselves, rather than what we might like to hear. The U.S. Supreme Court, however, has installed a government in Washington that has announced to the rest of the world our national intent -- since we consider ourselves the only nation of might left in the international arena -- to do whatever we please to advance our national interests and to compel those who might have other ideas to accept our way of thinking. The signs are abundant everywhere that this national arrogance simply will not wash with nations that have been our closest and strongest allies over much of the past century. We are being warned almost daily that the course on which the White House seems fanatically set will bring immeasurable chaos to the Middle East, more damage to our already shattered economy and put us and the nation at the mercy of terrorists to an even greater degree than we already are. Such prospects are as chilling as they are unnecessary. They hang over us because we are saddled -- thanks to the Supreme Court -- with a government that does not seem to grasp the fact that imperialism is as loathsome an idea in the 21st century as it was in the 19th and 20th, and especially so when it is brandished by the only alleged superpower left on the planet. The ancient admonition that "pride goes before a fall" can be as true of nations as it is of individuals. We have to hope it does not become the epitaph for a once proud, free and responsible people. (More on this next month.) ________________________________________________________ Hubert G. Locke, Seattle, is a retired professor and former dean of the Daniel J. Evans Graduate School of Public Affairs at the University of Washington. seattlepi.nwsource.com