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

To: Stitch who wrote (7842)	1/11/1999 1:31:00 AM
From: Carl R.	Respond to of 9980

In my opinion, the US is up to that.... for awhile. I think that Y2K spending is boosting semis, which in turn is helping SE Asia. But I also expect a recession next year in the US for two reasons. First any Y2K spending on hardware is simply accelerated from next year, not new spending. Second, if (when??) the stock market takes a major tumble sometime this year and doesn't get back up, it will impact consumer spending. Then the question is, what impact would a US recession in late 1999, early 2000 have on the rest of the world? Carl

To: Stitch who wrote (7842)	1/11/1999 3:27:00 AM
From: Frodo Baxter	Read Replies (2) \| Respond to of 9980

Head in sand? This ostrich is confused about exactly which region you're talking about... Asia? Well, it's a year and a half since the baht devaluation and all the other fun activities. What's up now? Well, Thailand has a new guy up top, has been a model IMF ward, and has bounced off its tush. South Korea has a new guy up top, DJ Kim, the greatest democrat the region has ever known, is slowly reforming its ridiculous chaebols, and has bounced off its tush. Indonesia has a new guy up top, slightly better than the old guy, done a few things with its financial structure, and has bounced off its tush. Malaysia has... kept the same old bum and closed markets and fixed the currency, so market indicators are all distorted. Even so, it has bounced off its tush, although long-run sustainability is in question here. As markets are discounting mechanisms, their recover has preceded actual GDP growth. The World Bank screed says this: "Despite the crisis, real per capita income at the beginning of the 2000s is expected to be higher than at the start of the 1990s, especially for Korea and Thailand--and substantially higher than at the start of the 1980s. Growth was so robust in the 1990s boom that, despite the large declines in real income projected for 1998-99, real incomes in Korea and Thailand are expected to be 45-50 percent higher in 2001 than in 1991 (and about 15 percent higher in Indonesia), cautioning against drawing overly negative assessments of East Asia's structural problems." If instead you're refering to America, every macroeconomic indicator is awesome. The risk of deflation is nonexistant; alarmists may disagree. Consumer spending is fine, hapless government statistic notwithstanding. Question, if people are spending too much, I guess that means they're not saving and investing enough, right? Then wouldn't investment inflow decline? Of course, it hasn't. What this assessment has failed to capture is the wealth effect, wherein 1-3% of investment gains gets spent. The other 98% or so gets reinvested. That Richardson fellow has the tail wagging the dog. People aren't wealthy because they spend. They spend because they're wealthy. Don't forget, household net worth is six times household income. In any case, the idea that America can import the world out of recession caused by stupid politicians and stupid businessmen is overstated. The World Bank concurs. This is because if your trade good is produced using distorto-economics (you're selling at a loss or more likely, your cost of capital is too cheap), you get malinvestment and you end up like Japan. I see 99 GDP growth at greater than 3%, but I'm not sure how we get there. As I've said before, the Fed will probably lower to 4.5% in the first half, but I don't see it going much lower. Indeed, I think inflation will eventually reappear. Nothing major, but the different between a long bond of 5% versus 6% has huge implications for fair value of equity prices. The most proximal risk right now is Brazil. It's unfortunate the legislature hasn't kow-towed to Cardoso, who's a real champ. But my experience with legislative politicians in general is that they're ruled by two things only, brinksmanship and cowardice. The most likely scenario remains that they'll back down eventually. What really keeps me awake at nights (well, not really) is the monetary shackle of the Euro. As a big fan of hard money, I think the idea of a stable currency is not only sound, but absolutely a huge net positive. As a realist, though, I have a hard time fathoming the French competing on a level playing field with the Germans, Brits, and Americans. Eventually, this is gonna unravel, perhaps even before the first paper Euro starts circulating. But it doesn't have to happen this year.