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To: PaulM who wrote (25171)	12/31/1998 4:30:00 PM
From: goldsnow	Respond to of 116779

THE BOTTOM LINE SA must rely on policy makers for a better year for markets PICTURE yourself a year from now, sitting in the sun sipping a beer. The drink in your hand is no longer unadulterated Charles Glass, SA Breweries' (SAB) most famous brewer. Now Anheuser Busch has a hand in the brewing. You turn on the radio to hear that the gold price is struggling to reach $200 an ounce. No wonder Anglogold and Gold Fields have merged, and the rand is at R10,50 to the dollar. Thank goodness the new Reserve Bank governor, Tito Mboweni, took drastic measures to curb currency speculators. Those unscrupulous traders have tried to sell SA short ever since Finance Minister Trevor Manuel abolished VAT on everything but luxury goods in his election budget. You are on holiday but you cannot stop worrying about money. Your bank, the newly merged Standard and Nedcor, is tired of your inability to meet your high mortgage payments. It is turning a deaf ear to your complaints that you thought interest rates would be much lower by now. You would not dare tell your personal banker that you lost a pile of money investing in the new listing of a small information technology company, as you should have seen that coming. Neither would you mention your biggest concern - the big company you work for has decamped for London and the move to greener pastures might cost you your job. Sound far-fetched? Of course - it is just a little silly season fantasy. But then, a year ago when the talk was about "the new paradigm" in the world economy - a smart phrase for a never-ending bull run - this year's crisis would have sounded as plausible as a B-grade horror movie. The silly season fantasy is not an effort to predict the future - which would be an exercise in futility anyway. It is just a bit of fun; some food for thought on the themes that are bound to dominate investment decisions in the coming year. Of course, there could be other themes, as yet unthinkable, lurking around the corner. During this past year, there has been a growing urge to merge, consolidate, reorganise and tidy up corporate structures - something which should continue with a vengeance in the new year. In the gold mining industry, the relationship between Driefontein, Gold Fields and Anglogold will remain a talking point until the shareholding structure has been sorted out. Driefontein is in talks to buy Gold Fields, and as Anglogold owns 20% of Driefontein, Anglogold could end up with a sizeable stake in Gold Fields. If that happens, Anglogold will have members on Gold Fields's board, and it is not inconceivable that it could push its shareholding up to 25% - enough to block special resolutions. Such a situation between the world's two biggest gold producers is inconceivable, which suggests that Driefontein's structure will have to change. The market is also waiting for Gold Fields to make up its mind about its core assets, with the biggest question mark hanging over Kloof. The company has quite a bit of tidying up to do before it heads for a secondary listing overseas. But the biggest restructuring exercises will not be in the mining industry, which has already done most of the hard work. The big corporate reorganisation this year will involve industrial conglomerates Johnnic and SAB, and financial services heavyweight Liberty Life. Rumours that Johnnic, Liberty Life and Anglo American are set to sell their stake of about 30% in SAB to a foreign buyer have been around for months. The major obstacle in the way of a deal appears to have been the low SAB share price; Liberty chairman Donald Gordon is not likely to sell for a song even if Johnnic is a keen seller. But the picture has changed with SAB's announcement that it is to move its primary listing to London. What the listing will do for the brewer's share price is an intriguing question. The market's initial response to the announcement of the London listing was positive, but the proof of the pudding will be in the eating. A rerating of SAB would come as a major relief to Johnnic's shareholders, even if Johnnic is unable to sell its stake in the brewer, as SAB's price should boost Johnnic's share price. A substantial rise in Johnnic's share price is essential if control of the company is to remain in black hands. The National Empowerment Consortium's purchase of Johnnic was financed through debt secured against Johnnic shares. The equity pledged as collateral will revert to the institutions that funded the empowerment deal if the share price does not rise enough. Will October next year see the second unravelling of an Anglo American black empowerment deal? That is unlikely. Restructuring of the Johnnic financing is a probable solution, as is a big effort by Johnnic to beef up the share price. Perhaps by this time next year Johnnic's plan to become an infotainment giant will be closer to fruition. Restructuring at Liberty Life raises the intriguing question of the Standard Bank group's future. After efforts at a "bancassurance" merger between Liberty and Standard failed, Gordon intimated that Liberty's stake in Standard is up for sale. There has been some speculation that Old Mutual will be the buyer and that it will merge Nedcor and Standard to create a rival for FirstRand. Where would that leave Sanlam and Absa? Old Mutual's listing is another major event, with the big question still whether the primary listing will be in London or Johannesburg. Manuel has made noises suggesting he does not favour emigration by the financial services giant; it is difficult to see, however, how he can change his mind after agreeing to Anglo American and SAB. Manuel has a difficult year ahead, balancing electioneering with wooing foreign investors. While there might be some sweets for voters in the budget, these are likely to be cosmetic. Manuel is not about to do anything that will jeopardise his hard-won credibility. Mboweni, who takes the reins from Reserve Bank governor Chris Stals in August, still needs to build credibility. He should start building a profile some months before the official changing of the guard. Will Mboweni err on the side of caution, or will he rush in where angels fear to tread? The macroeconomic picture does not augur well for the SA markets. A decline in interest rates from an already high base will not be enough to sustain a bull run on the Johannesburg Stock Exchange (JSE). Balance of payments problems could even slow down the easing in monetary policy. Corporate earnings will be under pressure due to the recession. It is no use hoping for gold to come to the rescue, as the yellow metal has failed to budge despite crises this year ranging from a hedge fund's near-collapse to the bombing of Iraq. Imaginative corporate deals could, however, go a long way towards firing up the market. If SA's economic policy-makers stay the course, one could begin looking forward to a reasonably good year on the JSE. bday.co.za

To: PaulM who wrote (25171)	12/31/1998 4:45:00 PM
From: paul ross	Read Replies (2) \| Respond to of 116779

Euro Tax War Could Spark a Major Depression by Martin Armstrong (sorry if this was posted before) pei-intl.com The true colors have now appeared on EMU. Like a pirate ship that disguised its true intentions until it came within striking distance of its prey, the EMU has adopted the same tactics. The EMU policies of "keep it simple stupid" and "never tell the truth" is perhaps a legacy of Bill Clinton. Nonetheless, Clinton style politics has certainly taken hold within the EMU. We have been warning about the coming federalization of Europe and how Euroland would NOT offer this new age of economic reform and booming investment prospects. Instead, all the dirty little insights we have been given by some high officials in Europe have been born out in recent weeks. EMU is nothing more than an attempt to take over Europe on the part of both France and Germany by imposing the worst of regulation and taxation upon the whole continent. Instead of looking to the US and the UK to learn from the lessons of deregulation, Europe has dug in its heels to forge ahead in the creation of a new "Social Europe". At last the truth has begun to surface as arguments over taxation emerge. The failure to lower unemployment and increase economic growth rates in Germany and France is now openly being blamed on "unfair tax competition" in Europe that must be stopped "as soon as possible" according to Germany's finance minister, Oskar Lafontaine. Germany 's recent attack upon Britain illustrates the true direction of EMU and the Euro. We will NOT see a new utopia of economic growth that will displace the United States, but instead we are about to witness the collapse in economic growth for the 11 members of EMU. Taxes are going to rise within EMU to the highest and most uncompetitive levels among the industrialized world and economic growth rates will collapse by one-third if not by 50%. The highest growth areas within the EMU-11 will now be strangled as their advantages of lower tax rates will be forced higher. Panic selling of German businesses is also taking place ahead of January 1st due to a jump in tax rates from 28% to 50% with the birth of the Euro. EMU may have been a success had a compromise been achieved that would have led to a general lowering of tax rates in Germany and France through equalization. However, the new socialist governments in both France and Germany see things differently. They hope to improve their own uncompetiveness by destroying the economies of their neighbors through forced tax increases and blocking any tax incentives to attract business into their economies. In an interview with the Financial Times, Mr. Lafontaine has insisted that Britain and Germany have agreed upon the need for tax co-ordination. "When we get rid of tax oases, we will have made a first step towards co-operation within the European Union," he said. Tony Blair could face the greatest challenge of his life and remains on the brink of either destroying the British economy or allowing its progress to blossom. The philosophy of the British people is much closer to their American brethren than to their European neighbors. Britain suffered greatly under the fanatics of socialism to the point that they too were once an IMF bailout case. Today, Britain has risen to become the financial center of Europe and on the eve of EMU, its long-term survival may now hang in the delicate balance of negotiations with Germany. Based upon sheer economic correlations, it would make better sense for Britain to join NAFTA than it would to remain within the EU or move into EMU. Effectively, this latest row over taxation comes on the eve of Germany taking the chair at EU next year. The German and French have stated their goals to push through "majority voting" on EU tax policies. This means, that the majority will clearly reside among the members of EMU. The EMU will not merely be dominated by Germany and France, it will also seek to dictate tax policy even to non-EMU members. In reality, Germany is particularly keen on closing down all the tax advantages that Britain currently holds relative to Europe. The reason why Britain has attracted nearly 70% of all overseas business seeking to get a foothold within the EU boils down to nearly a 20% savings in corporate taxes and a 40% savings in employee social taxes compared to Germany. Instead of Germany realizing that it has been its own tax code that has driven jobs out of its own economy by its own corporations, the German approach prefers to blame those economies to which business has fled. For this reason, Britain is now under attack to raise its taxes to equal that of Germany, end any tax incentives to attract jobs and shut down the Channel Islands as well as the Cayman Islands that serve as offshore havens for capital. This latest attack on tax havens is also being silently coordinated by G7 members that are intent upon going after the hedge funds. Some claim that even illegal activities have been taking place involving kickbacks, payoffs and outright bribes of some government officials in third world nations. The danger here is not whether or not these accusations are true or not. The core issue is that there appears to be an effort underway to use the hedge fund debacle as an excuse to usher in new exchange rate controls and restrictions upon global investment. While the dollar collapse against the yen has now endangered the Japanese economy by wiping out all profits, which in turn is likely to start sending unemployment in Japan much higher next year, the introduction of the Euro is also feared by G7 members privately. The concern about the Euro is that speculation could lead to the collapse of the Euro due to the fact that the economies within EMU have not converged. Consequently, speculation could undo the Euro by exploiting the basket as some economies begin to slip away from the stated criteria. Therefore, we must consider the reality of the situation that is now closing in very rapidly. A new aggressive policy against the hedge funds will have a serious impact upon the global economy. The reason we say this is due to the fact that in order to cut-off the supply of offshore capital that is invested within the hedge fund community, they are attempting to close down the tax havens. This will shrink the global expansion of capital markets and risk increasing the liquidity crisis. Mr. Lafontaine's words are serious indeed: "We stand for fair competition on corporate taxes. But in Europe the trend has been going in the wrong way. Taxes on mobile factors - assets, capital and company profits - are always going down. Taxes on immobile factors - that means on labour, wages and consumption and social security contributions - are always going up. That is a development a social democrat cannot accept." This is in effect an assault upon capitalism and the free markets. If Germany is too stupid to realize that it has been its own over-regulation and high taxes that have caused record high unemployment and a net flight of jobs from its domestic shores, then we are on the verge of a very serious tax war that could easily spill over into net capital movements. Even if Britain were to capitulate in the new assault from EMU, capital from both Britain and Europe will merely jump on any boat and head straight for the dollar. Will Germany then complain about the high growth rates and low tax rates of the US as "unfair competition"? On July 20th, something very serious happened. It was not only the peak in our global business cycle known as the Princeton Economic Confidence Model, it was also a major shift in capital investment flows and strategy. July 20th represented the PEAK in corporate profits in Germany, but it also represented new record highs in German unemployment. The German economic experience of cutting workweeks and reducing productivity in order to create more jobs is simply the work of an economic madman. Germany does NOT have a free market economy. No NORMAL economic model in history would support the current situation. Traditionally, when corporate profits reach a record high, unemployment should also be at a record low. The question that now faces us is simple. What will happen when the economy turns down in German taking corporate profits with it? Will this reduce unemployment or prove to be a base from which new historical highs unfold over the next few years? We suspect that the latter will prove to be the correct long-term forecast. This warns that EMU will become more aggressive in taxation and regulation as the socialists of Europe desperately try to hold on to what they have. In other words, the EMU outlook is extremely DEFLATIONARY into 2000 and perhaps highly INFLATIONARY as they seek to find a solution to rising social unrest beyond 2000. In conclusion, as we approach the eve of the birth of the Euro, beware. Just as investors were warned during the 19th century "all that glitters is not gold" we must learn that there is no free lunch either. The new Social Europe cannot continue to hold on to unrealistic economic dreams for much longer. They too must learn the lessons of Russia and China that ultimate economic control does not translate into economic success. The US and UK labor forces had to learn that militant left wing unions lowered productivity, economic growth and living standards as a whole. It is time that Germany and France also face their economic shortcomings once and for all. In the end, we could face a surge in capital flight from Europe to the dollar. The S&P 500 nearest futures have now just exceeded their July 20th high as the European markets begin to totter once again. While we had hoped for a sideways pattern into 2000 with a maximum downside of 30%, we fear that the capital flows could shift once the Euro begins. There remains a serious risk that the US economy could come under a significant capital inflow from Japan and Europe. Such a capital shift could send the US market up another 20% on the S&P 500 raising the stakes considerably for a major bubble top formation as early as April 8th. There is nothing that moves capital faster than sharp tax increases and more regulation. With a proposed 20% tax withholding on Euro denominated bonds, we must question just how long the hype can hide from the realities of the day. A tax war in Europe will merely perpetuate deflation and raise the risks of a major economic debacle in the years ahead. Just how will the new "Social Europe" cope with a collapse in tax revenues as currently forecast by our global computer models?

To: PaulM who wrote (25171)	12/31/1998 6:23:00 PM
From: goldsnow	Respond to of 116779

Business: The Economy Derivatives firms shut down Shades of Leeson: A new crisis for the options and futures exchange Big losses incurred by a London futures and options trader are believed to be behind the forced closure of two derivatives trading firms by the UK's Securities and Futures Authority (SFA). GLH Derivatives and the London arm of Chicago's Griffin Trading Company, responsible for clearing the local trades of GLH, were told to cease investment business on Wednesday. The action was taken because the two firms were in default after a single trader lost £6.2m on German derivative investments, the Financial Times has reported. The trader had exceeded - by ten times - the amount to which he was limited to trading, the paper said. The defaults are the first in the industry since the collapse of Barings in 1995 in the wake of massive losses incurred by rogue trader Nick Leeson. The SFA said in a statement: "Both firms may not be fit and proper to carry on investment business, that they had committed acts of misconduct under SFA rules and that SFA intervention was desirable for the protection of investors." Derivatives are options and futures investments, which see investors betting on the future levels of the markets for commodities, shares and other financial instruments. This financial tool can be used to hedge against risks like currency fluctuations, but also attracts speculators. Wider fallout The SFA action has also seen more than 100 other unrelated traders at the London International Financial Futures and Options Exchange (Liffe) having their capital frozen and they could lose half of it, the Financial Times newspaper said. This secondary action suggests the Griffin clearing house may not have adequately separated the accounts of different traders. news.bbc.co.uk

To: PaulM who wrote (25171)	1/1/1999 11:25:00 AM
From: goldsnow	Respond to of 116779

European papers not carried away by ''europhoria'' 09:19 a.m. Jan 01, 1999 Eastern By Crispian Balmer PARIS, Jan 1 (Reuters) - Historic? Yes. Euphoric, no. Europe's press on Friday took the birth of the euro firmly in its stride, recognising that the new currency represented a defining moment for the ''old continent'' but refusing to get carried away by it all. ''Rarely will an historic event take on such a sober appearance of a calculated decision, without collective enthusiasm, without the flapping of flags, nor the beat of the drum,'' France's daily Liberation said in an editorial. ''Monetary Union without Europhoria,'' Communist daily L'Humanite said in its front page headline. One of the architects of European Economic and Monetary Union (EMU), former European Commission President Jacques Delors, bemoaned the lack of excitement. ''It is a great moment for Europeans and we have not made a big enough party out it,'' he told Le Parisien newspaper. As usual, Britain's best-selling tabloid The Sun, saw things differently to Delors. The paper launched its euro coverage with two doom-laden headlines -- ''Gambling with the lives of 289 million'' and ''11 nations begin to die as Euroland is born.'' Britain is not among the 11 European countries signing up to the euro, and the arrival of the new currency highlighted once again the passions that the issue instils across the channel. While the Sun sounded the alarm bells, its great tabloid rival, the left-leaning Mirror, took a starkly different stance. ''Let us welcome the euro on its birth day. And look ahead to the day when we too can be part of it,'' the paper said. The Daily Telegraph said ''It is Europe's dream, not ours'' -- a view shared by the Times. ''Outside EMU Britain may rediscover its historic role as a great trading nation, deeply involved in Europe, but always independent..,'' it said in an editorial. Britain's Independent newspaper meanwhile urged the government to fix a date as soon as possible for ditching sterling and joining the euro. One country that has never had any doubts about EMU is Italy, which has made enormous sacrifices to get in shape for the euro. President Oscar Luigi Scalfaro told the nation on Thursday night that Italy's membership of the currency had boosted its international standing. ''Italy is reborn and it is indispensable that the resurrection continues,'' he said in a New Year's Eve address. La Repubblica newspaper, in an editorial on Thursday, welcomed the euro but complained that there was not the will to push ahead with political union. ''The money's there, the markets are there...the leader to govern is missing,'' the newspaper said. ''After the founding fathers...it's now up to the socialist leaders to give Europe a soul after giving it a currency.'' Another southern European state, Portugal, thought its membership of the euro was cause for celebration. ''Eureka!'' ran the headline in Diario de Noticias newspaper on Friday. ''Due to the euro, mortgages cost less and prices rise by less. Due to the euro, the Portuguese have access to a greater quantity of goods and obtain loans more cheaply,'' it said. On the eastern end of Europe, Greece failed to make the grade required to switch to the euro but it is determined to join as soon as possible. Unlike in Britain, that prospect holds no fears. ''Euro-genesis, the event of the century in European history,'' said the financial daily Express. ''Champagne, balloons and smiles of optimism as the European Union now has its own currency to stand up to the dollar and the yen.'' The New Year's holiday meant that newspapers in a number of other EU countries joining the euro, including Germany, Spain and Italy, failed to appear. But France's conservative Le Figaro newspaper took it on itself to speak for the whole continent. ''That the Old Continent is moving, that it has chosen adventure rather than immobility, that it prefers ambition to decline, is satisfying. Are there risks? Without doubt and all the better for it,'' the paper wrote. ((Paris newsroom +331 4221 5339, fax +331 4236 1072, paris.newsroom+reuters.com)) REUTERS CB Copyright 1999 Reuters Limited.