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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Robert Douglas who wrote (5260)	7/23/1998 5:07:00 PM
From: Lee	Read Replies (1) \| Respond to of 9980

Robert, My three potential scenarios are as follows (in brief): 1) Tight labor markets boost inflation. The Fed raises rates vigorously. The US enters a recession. US consumer's belts tighten and this increases demand for Asian goods and makes worse the situation in the US. Subsets of US workers in new growth markets do well. Inflation hits Asia. US import inflation. The dollar falls and adds to inflation. The difficult time lasts for awhile. Probability 15% 2) Profit squeeze and competitive squeeze puts a lid on wage and employment pressures. US companies take productivity increasing measures to compete with the increased flow of foreign goods (read layoffs). Inflation hits Asia. Asia simmers in its own soup, but does not significantly worsen or improve. Fluctuations in both directions do occur. US import inflation. The Fed deals with this inevitability in a restrained manner. Growth slows, perhaps even dips negative for a quarter, but a recession is avoided until late 2000 to sometime in 2001. Probability 30% 3) Japan and China crack and the backlash hits Europe and US. The world loses confidence. The dollar does well. Small subsets of US workers in new growth markets continue on well. Competitive devaluation's of currency hurt most other markets and leads to calls for protectionism. Probability 15% I guess most likely (the remaining 40%) is some combo. I do feel pretty strongly that the lid on the labor situation is cracked and letting off steam. Despite the boom in Boston I already notice declining demands from new hires. I feel strongly that the US will import inflation from Asia, and this will be followed by currency induced inflation when the dollar weakens. The Fed must be restrained in a fight against this fire. Japan and China remain wild cards to me. I'm less convinced China will devalue than 30 days ago, and more convinced Japan is imploding. These two are in conflict. Keep up the good work thread, I'll be at sea the next two weeks. A welcomed break from the PC, the office, and the wonderful shrinking globe. Cheers, Lee

To: Robert Douglas who wrote (5260)	7/24/1998 9:28:00 AM
From: MikeM54321	Respond to of 9980

"Generally this means higher interest rates, a slowing economy and a lower currency".... "Asia continues to fade and the US economy cools. This is the most talked about outcome among the "Bears" and those who fear recession. Under these circumstances interest rates would decline, the US dollar would decline".... "This would enable the US dollar to decline and a shrinking trade deficit to pull the US economy up just at the time it needed it".... "I believe the flows will turn when the dollar turns and makes investing in US assets more an exercise in swimming upstream"..... Robert, I take it you aren't bullish on the greenback. :) Now, in the "for what it's worth" department, and this may scare you, Jimmy Rogers on CNBC this morning, agrees with most of what you said. I agree with you about a weakening dollar would stem foreign inflows(key part of our good old "liquidity" argument), but (IMHO) I don't understand, from a layman's viewpoint, how the greenback could trend towards weakness. It is going to be a long time before there is a "perception" that Japan's economy will be stronger than the US. After all, isn't this supposed to be a primary driver of the currency markets? It just seems to me, forecasting the weakness of the greenback, for the reasons you state, is sort of putting the cart before the horse. But I know for a FACT, you can run circles around me when it comes to economics! So I don't have much too stand on except what may be my naive views (and my propensity to be contrary to what Jimmy Rogers thinks.<g>). Thanks very much for your opinions, MikeM(From Florida)