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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Axel Gunderson who wrote (618)	8/12/1998 7:07:00 PM
From: Freedom Fighter	Respond to of 1722

Fleckenstein on Asia: I know that we have spoken about Asia, but I think this is an opportune time to recap the events that have caused all this turmoil. About a year ago the problems in Asia broke out, and Wall Street said don't worry about it. Then in the winter, they restated their comments, claiming it was all behind us. Come spring, their view became that the problems were real, but they had already been discounted. Let me reiterate: The people who have had no understanding about the consequences of the Asian fallout and how it would spread are the same people who are now telling everyone that it is going to be OK. You can't listen to them because they have already demonstrated that they don't understand how economic activity works. The problem that began in Asia takes time to spread. Economic activity is slow to react, while the financial markets are swift to react to different things. Financial markets implement head fakes, fits and starts, and crazy moves. Economies don't work quite like that. Asian problems are impacting Eastern Europe, Europe (because Asian countries were doing a lot of business there), Latin America and South America. Basically a global worldwide recession is unfolding, and when our stock market gets slaughtered (and I mean a really slaughtering before the year is out) it will exacerbate the situation. The only thing that has been powering world demand is U.S. consumers, and they have been spending their heads off because they are making all this money in the stock market. That, of course, is coming to an end. I am guessing that we are going to have a real panic sometime between now and the end of the year, when folks realize that there isn't going to be a second-half earnings rebound and time is running out on this story. They will also recognize that the 1999 earnings outlook is not that much better. I know that isn't a popular belief, but it wasn't popular last winter to say that Asia was going to get worse, either. Having said that, there are going to be some tremendous rallies. I would like to quote Justin Mamis: "This bear trend is not going to be monolithic and secondary recoveries are going to be, almost by definition, vigorous enough to convince the consensus, which is eager to be convinced, that everything is still OK." This is what people are going to have to be on guard against. As we head south, there are going to be some very seductive rallies to keep people in place, although from what level I don't know. You have to use these rallies to reduce your exposure, not to continue to build positions.