Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Mark Bartlett who wrote (2441)	10/25/1997 3:39:00 AM
From: Phil Varichon	Respond to of 116871

More from The Financial Post: Saturday, October 25, 1997 Market Eye Tumble proves it's a small world By WILLIAM HANLEY The Financial Post There are bubbles. And there are bubbles. The bubble in Hong Kong that began to leak air at an alarming rate this week was inflated by massive amounts of property speculation. The latest government auction of a nondescript piece of industrial land went for the not inconsiderable price of $667,000 a square foot. This, of course, is the type of nonsense that had the Imperial Palace grounds in Tokyo valued at more than the entire state of California at the height of the Japanese market in 1989. And we know what happened to that particular bubble. It will be worth an entire chapter in an updated version of Extraordinary Popular Delusions And The Madness of Crowds. Then there is the North American bubble. This is not so much a bubble of inflated financial asset values (though many would argue that case) but a case of Wall Street blithely believing our markets could live in a bubble, protected from pandemics such as the Asian flu that swept round the globe this week. Thursday's plunge in North American stock prices in response to the Hang Seng index's 10.4% reversal showed that globalization is a two-way street. This phenomenon, which has helped to foster world prosperity, has also made the Earth a smaller place where interconnectivity makes it impossible to avoid virulent financial strains. * Speaking of strange organisms, Friday was a crushing disappointment for the gold bugs, that particularly hardy but endangered speculative species. The bugs could be forgiven for expecting that this ill wind out of Asia might blow them some good. After all, gold is the favored bolt hole when a financial storm sends investors running for cover -- especially in Asia, where gold has an almost mystical allure. But the bugs had not reckoned on the Swiss popping out of the cuckoo clock to tell the world they might be selling some of their mountain of bullion reserves at some future date. Meantime, to add injury to injury, tales were circulating that some Asian investors were forced to sell gold to cover speculative market positions. The spot gold price in New York dropped 5% to a 12-year low of US$308 an ounce, dragging gold stocks with it and, no doubt, creating yet another glittering buying opportunity for the bugs. * That is precisely what the Hong Kong meltdown and world equities chain reaction gave bond traders, who profited handsomely from the flight into quality U.S. treasuries on Thursday and from the growing notion that recent events may stay the U.S. Federal Reserve's hand on interest rates. Slower growth in Asia may reduce demand for U.S. exports, slowing U.S. growth from what Fed chairman Alan Greenspan described as an "unsustainable" pace. Meantime, devaluation of Asian currencies will restrain U.S. inflation by making imports cheaper. Until this week it was an even-money bet that the Fed would raise rates at its next policymaking meeting on Nov. 12. It seems most unlikely now that Greenspan would put more pressure on Southeast Asia and its currencies with a rate rise. *** The flight to quality was also evident in the U.S. markets, where investors dumped stocks on Thursday to buy bonds. These markets can turn on a dime, or even a paradigm. Just a week ago, investors were fretting that too much growth would prod the Fed into boosting rates. Now the stock markets are wobbling on fears that the crisis in southeast Asia will shave enough off world growth that earnings -- the driving force behind stock prices -- will suffer. On Friday, Intel Corp. shelved plans for a new semiconductor plant, rattling the technology sector with visions of overcapacity and further falling prices in the computer industry. Falling stocks decoupling from rising bond prices is normal at the stage in the cycle when the economy begins to slow. Stock investors look six to 12 months down the road and see earnings dwindling. Bond investors take heart from what slowing growth means for inflation and interest rates. These are early days, but it may be that the death of the economic cycle has been greatly exaggerated. So much for the New Era. Could it be that the people who bought into this stuff are in danger of being given the paradigm shaft?