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To: goldsnow who wrote (21224)	10/8/1998 11:46:00 PM
From: Brad Bolen	Read Replies (2) \| Respond to of 116753

RE: >> If so, what happened today?>> I missed it..Something happened? Yeh...the dollar got killed and gold stocks dropped. If the dollar is the reason gold has been rising, as has been implied, then 'what happened today'. B.

To: goldsnow who wrote (21224)	10/9/1998 9:40:00 AM
From: Alex	Read Replies (2) \| Respond to of 116753

HOW SOARING TREASURIES, SINKING DOLLAR SCORE ONE-TWO PUNCH By JOHN CRUDELE ------------------------------------------------------------------------ THAT safe haven for investors suddenly has become a trap. As equities markets in the U.S. and around the world collapsed over the past few months, investors found themselves rushing headlong into the U.S. bond market - the safest of havens. Bond prices rose in one of the biggest scores ever in that market. And the parallel result was that interest rates collapsed to a point where borrowing money in this country is cheaper than it has been in years. Forget about the mock action taken by the Federal Reserve last week. the real move in interest rates came over a period of months when U.S. government bonds became so sought after by investors that prices soared and yields collapsed. ut now it may be payback time. In recent days, the U.S. dollar has been annihilated in the global currency markets. At one point on Wednesday the U.S. currency was fetching only 118.90 yen It had been as high as 147 yen-to-the-dollar earlier in the year. Then yesterday it collapsed again - to around 111 yen to the dollar before the U.S. government intervened. The lower yen does provide some advantage in terms of trade. U.S.-made goods will be cheaper in the world market. But since economies around the globe are already in terrible shape, it's unlikely that even cheaper American goods will find buyers. So much for the advantages of the sliding dollar. The problems far outweigh the benefits. And the dynamics that have caused the greenback to decline could also cause a spiral that has the potential to be the next big global financial crisis. First, the reasons for the dollar's sudden slump. It isn't a coincidence that the American currency is taking a beating the same week Congress decided that an investigation of President Clinton will move forward. Events like this - especially when they are open-ended and confusing - cause a crisis of confidence around the world. The American political systen isn't well understood in normal times. It's baffling these days. To the global investor looking for the safest haven, even Europe is looking a lot more havenly right now. But the most extraordinary thing is that investors are suddenly picking down-on-its-luck Japan as even a better bet than the U.S. That's why the yen all of a sudden is strong and the dollar weak. And all it took was for the Japanese to start pretending that they have an idea about how to reform their economy. In next Monday's column I'll tell you what I think will happen in the Washington scandals. But let me just say here that this is simply the eye of the storm - even if the eye right now may not seem to be all that serene. There's another reason besides Washington for the dollar suddenly getting whacked. As difficult as the Washington situation is to fix, this one is even harder. Interest rates in Japan have been under 1 percent for the last four years. Because of this, hedge funds - many of which are headquartered in this country - have been borrowing in Japan at the remarkably cheap rates. The hedge funds have been using those loans to make investments around the globe - many of which have gone bad. By its nature this action makes these hedge funds short the yen, in much the same way a person would short a stock as a bet on that stock's price going down. To understand this, remember that when the hedge funds have to repay these loans, they must do so at whatever the going rate is for yen. So when the yen rises in value - and it has risen 20 percent in recent weeks - the cost of the loans that have to be repaid in Japan become much more epensive. Currency moves like the ones the world has recenlty experienced could turn the slightest miscalculation on the part of hedge funds into a fatal error. So the strengthening of the yen and the weakening of the dollar, which also was precipitated by a softening U.S. economy, seems to be setting off a chain of events that could become the next big crisis for the hedge funds and for the financial markets. The Fed already coordinated the bailout of one hedge fund. If others suddenly get sick, the financial system probably won't be able to cure the disease. The hedge fund dilemma is a new wrinkle in a problem that has been predictable - and predicted in this column - for months. But that's not the worst of it. As I've been saying for years, Washington needs to worry most about all the U.S. government debt held by the Japanese and other foreigners. With the dollar falling it is already in the best interests of Tokyo (Beijing and everywhere else for that matter) to start repatriating their assets - which means dumping U.S. bonds. There were rumors on Wednesday that this was already occurring. Even if those rumors were false, it won't take much more of a drop in the value of the dollar before the Japanese understand that they are losing a bundle by not taking their money out of our currency and putting itback into their own. If the Japanese do sell U.S. bonds, the reaction will be as predictable as it is simple. Bond prices will collapse and interest rates will soar. And the moves could be so sharp that anyone who has been making a bundle in the bond market these past few months might see the gains disappear. Washington could try to boost the value of the dollar. But these markets are so immense that past attempts to change the direction of currencies have failed miserably and expensively. In fact, probably the only way to improve the dollar's performance would be for the Fed to RAISE interest rates. It would also have to forget rate cuts even if the U.S. economy slides into a recession because that would weaken the dollar more, chasing away foreign investors. None of this is likely to help the U.S. stock market. While the flight from stocks helped the bond market rally, the reverse won't necessarily be true. Stocks aren't anybody's safe haven right now. nypostonline.com