Don that is not a mute point...If Japanese and Aussies Euro CB's that are about to decide how much Dollars/Yens?Gold they need and others know that Gold is going up every day that dollar drops-it is wize for you/ us to know...
Global Deflation Now a Certainty; Warning First Issued by World Research Advisory -WRA- in December 1997
10:41 a.m. Sep 02, 1998 Eastern
RESTON, Va.--(BUSINESS WIRE)--Sept. 2, 1998-- Shareholder value will erode due to global deflation, which will exist for at least 3 years. US corporations must plan now to protect owners.
They must recast their international investment strategy to take
advantage of the coming changes in geoeconomic opportunity
in Asia, Latin America, and Eastern Europe.
World Research Advisory (WRA) has just issued a fresh warning about China to corporate America.
Despite highly publicized, strong disagreement from Merrill Lynch, WRA asserts that China will devalue the yuan in the fourth quarter of 1998. This devaluation will force the problems in Russia and Southeast Asia to go from bad to worse.
Southeast Asia was the darling of US corporate investment during the 1990s. The thought of rapidly developing markets-all investing heavily in infrastructure, stable politics, low inflation, and educated workforce-made corporate executives jump on opportunity in the region.
No one predicted the degree of the financial collapse last year, and no one predicted the duration of the collapse, which remains incomplete.
China is the last piece in the puzzle, and its fall will be dramatic. China's collapse will force US corporations, from GE to Enron, to rethink their strategy toward a region that will be punctuated by political upheaval, volatile markets, low liquidity, and decaying infrastructure.
This crisis will force a Lost Decade on Southeast Asia, and US companies must look for alternative markets. Falling prices, combined with rising real debt burdens and declining credit growth, are sure indicators of growing deflationary forces in China today-in spite of the Chinese government's fundamental policy objective of defending its currency.
Beijing's vigorous campaign to stabilize the yuan is having little effect on the growing (though still manageable) spread in the black market price of 8%-9% discount to the official 8.6:1 US dollar rate. In what appears to be an organized campaign, the government in Hong Kong is also lining up to defend the Hong Kong dollar.
Craig Macdonald, WRA's Senior Vice President and Research Director, commented on this apparently well-orchestrated campaign:
"Oddly, these warnings cannot be directed at currency speculators because the yuan is not traded on liquid markets. Chinese government rhetoric is focused on convincing non-Chinese investors that China is not going to permit the yuan to decline-despite the fact that foreigners have relatively little influence over that decision."
Mr. Macdonald continued, stating that "the how and why of China's defense of the yuan is intriguing. The how is well known: China continues to assert that it holds $140 billion in foreign currency to defend the yuan. This claim encourages US companies to continue investing in China and financing dollar-denominated Chinese commercial paper. It also allows the non-Chinese to conduct dollar-denominated business with China.
"We believe this claim is false. Whatever the true level of Chinese reserves, past claims throughout the region of currency reserves, banking liquidity, and bad loans have all proven to be false. Why should this one prove different? Without these reserves, the infrastructure of Chinese export trade will evaporate.
"Why would China defend its currency so vigorously? Maintaining the currency level allows the banking infrastructure to maintain a higher asset value in yuan. Devaluation would undermine the banking system's asset base, bringing on the same liquidity crunches that are suffocating Indonesia, Thailand, South Korea, and now Russia."
When China collapses, it will take Hong Kong and most of Southeast Asia down with it. This collapse will mark the start of an extended period of political instability, market restructuring, infrastructure collapse, and anti-West paranoia.
US companies must shift their international investments to take advantage of this crisis. They need to focus on Latin America and Eastern Europe (except Russia), where mature political, legal, and corporate governance structures make political risk much lower. This stability will generate faster returns for these regions' foreign investors and strengthen their regional growth during the coming decade.
Headquartered in Reston, Virginia, World Research Advisory (WRA) is a syndicated research firm founded on the premise that leaders never have complete information to make decisions.
The best a leader can do is harness the thinking of people trained to apply useful insights to solve a specific problem at a specific time. WRA believes that the best strategic and tactical advice a leader can get is unbiased and timely, relevant, and useful.
This advice is delivered to clients via weekly faxes, monthly research notes and teleconferences, other annual events, and-most importantly-direct inquiry, where clients discuss their current concerns and issues person-to-person with WRA analysts. For more information, please visit our website at www.worldresearch.com.
Copyright 1998, Business Wire
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