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.

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

To: Brad Bolen who wrote (5892)	8/26/1998 5:20:00 AM
From: Frodo Baxter	Read Replies (1) \| Respond to of 9980

You ask such hard questions. I'm tempted to just say bunga bunga and leave it at that. Although I don't think I've said anything about China per se, I link a couple old messages and tie it all together so my brain doesn't explode. Message 5491773 Message 5570486 So what would happen to GE stock (America) if Yahoo and friends (third world) all of a sudden blew up? Well, the fundamentals for GE would be mostly unchanged, but inasmuch as the general exuberance that allowed the supreme overvaluation of Internet stocks in the first place is shaken, GE would probably take a hit in sympathy. We now have Contagion II, with Russia and a probably a couple Latins blowing up. Fortuitously, the move toward a common currency in Europe is distracting from the cracks and contradictions of that region from surfacing, at least for a little while. So it looks like the main stage for the remainder of this year is really going to be HK, China, and Japan. Here's how devaluations work: a) monetary expansion, creating screwy fundamentals b) speculators attack c) central bank fights back, depleting reserves d) reserves run out, currency devalues In HK, there is no (a) because of the currency board arrangement. But the fight is now being waged in the equity market, and I'm not sure exactly what the HKMA is doing. They will surely lose a drawn-out intervention propping up stock prices. Are they really that dumb? Maybe. The alternative is that they're setting up to hose the speculators (they take particular delight in the fact that they've been able to do it again and again up to now). In that scenario, the endgame is to wear down the speculators until only the die-hards remain. Then spring the trap and dollarize the economy. This would blow the remaining speculators out of the water as the HK$ and US$ inerest rates rapidly converge and the HSI rallies. Then, of course, just to rub salt into the wound, the HKMA can sell off its stocks and futures at a profit. In China, (b) is illegal. End of story. Well, not quite. (a) still happens. Which means that the more China delays, the more the eventual reckoning is going to have to be. But the point is that it'll be hard to predict. In Japan, the yen is freely floated (mostly), so none of this applies, right? But the monetary expansion is being used to fix bank equity, causing the currency to depreciate slowly. If they speed up this process, more money would enter the real economy, and the rate of yen depreciation would increase.