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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (551)	9/3/1998 10:15:00 AM
From: see clearly now	Read Replies (2) \| Respond to of 3536

"This was fueled by very cheap yen borrowing costs at the time. Yen interest rates were much higher than now but the extraordinary strength of the Nikkei at the time allowed Japanese companies to issue debt with attached equity warrants that generated, in many cases, negative interest rates. In other words they were paid to borrow. This free money fueled massive speculative investment throughout Asia."...I have witnessed this first hand as a consultant to the public Sector in Japan ..the projects built and contemplated were unbelievable from our western economic perspective..of using real money backed by taxpayer revenue! I too am an amateur in the world of the kind of financial "shenangigans" that were being deployed..but my instinct tells me that the financial techniques being used (world wide) by the industry to leverage the amnount of money made out of a dollar of real assetts have far exceeded the value they contribute to liquidity and human development and that what you describe as symptomatic in Japan is in fact likely the very reason that the world wide financial system needs a cleansing to get the huge industry of "middle men" who are not adding real value to the world out of that system..and to get the banks back on track for what they are legislated to do for and by us. My concern is that while this is being correced we will have an overreaction and their will be a huge liquidity crisis..hurting solid worthwile companies and endeavors to the detriment of us all...I guess in a nutshell its purging the global financial system of excessive greed!..IMO>

To: Henry Volquardsen who wrote (551)	9/3/1998 12:22:00 PM
From: Chip McVickar	Read Replies (1) \| Respond to of 3536

Henry, Did you catch the New Yorker article Aug 17th "Pricking the Bubble" by John Cassidy In it he states a fairly compitent argument that Greenspan is struggling to avoid another 1929. It is a correlation of facts between 1929-32 and 1996-July 17, 1998. Cassidy even finds time to point out the agreements between Friedman and his long time advisary Samuelson.....in that this is a bubble and Greenspan should have raised interest rates a longtime ago. Samuelson believes that "He is now dealing with the physics of avalanches." The article does not discount that your assesment is correct, but that the recessionary field that is building world wide, maybe a lot more significant and prolonged then either of us expect. With Canada, Mexico, Austrialia, New Zeeland, perhaps Latin America, Hong Kong, Asia, Japan and at the salad-bar we have Russia influencing Germany and France.....the prospects for international systematic banking crisis is growing enormously. If Alan Greenspan and the ECU and Japan do not learn how to cool down the water, our soft boiled eggs will be hard-boiled....Quickly. Chip

To: Henry Volquardsen who wrote (551)	9/3/1998 1:15:00 PM
From: Robert Douglas	Read Replies (3) \| Respond to of 3536

Henry, comments on your theory in which you wrote: In addition the currency's value vis a vis other currencies is a function of investors interest in holding investments in those assets. As significant portions of the Asian asset base prove to have been misguided investments and are written off the market is reassessing the value of the productive power of those currencies. Since the US is unlikely to be writing off assets to anywhere near the same degree the dollar is likely to remain better supported. In equilibrium, with all other factors taken out, investment preferences would be the sole determinant of currency movements. At the present time, however, the United States is far from equilibrium. The U.S. is running a large current account deficit and is a net "investment debtor" meaning that foreigners hold a greater amount of our assets than we hold of theirs. This net debtor status has come about from many years of the U.S. running a trade deficit, which continues to grow rapidly, putting ever more dollars abroad that must be recycled into U.S. investments- which then must pay interest, dividends or profits that also must be invested. Therefore the NET NEW INVESTMENT in U.S. assets must be large enough EVERY YEAR to offset this imbalance, and it is compounding against us. It's like spotting your opponent one run in the first inning, two in the second, three in the third etc. Sooner or later, no matter how good a team you have, you cannot overcome this handicap and something must give. That something will be the currency level, unless by some miracle the rest of the world starts importing many more U.S. goods and services than they are presently at this level of exchange. If we don't export more goods and services then our only choice is to export investments. What inning are we in? Since the U.S. is in the position of having to attract new investment every year it is more critical to us to maintain a healthy investment environment. So even if the ratio of bad investments to good is less in this country than it is abroad, it still might not be enough to prop up the dollar. It is a fact of life that sometimes people sell sound investments and keep the bad ones and it is not the quality of the asset being held that impacts currency rates, but whether or not it is kept or sold. This too may be a trend that is turning negative with the recent decline in the stock market. In yesterdays Wall Street Journal, we read the following: The process feeds on itself. "People with long dollar positions are watching their profit erode, which is encouraging some to take profits by selling their dollars," says Kevin Weir, manage of client advisory services as State Street Bank & Trust Co. in Boston. But "perhaps more pervasive and more worrisome is a general reduction in Japanese capital outflows, and there seems to be also some capital repatriation by Japanese investors and banks," adds Paul Meggyesi I know that in the short run investment flows swamp trade flows and determine the level of a currency. But eventually the pendulum swings too far and its' weight causes it to reverse course. I think this pendulum is changing directions as we watch. -Robert