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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (8400)	3/17/1999 11:26:00 PM
From: Les H	Respond to of 99985

Danger lurks in Dow Jones' surge Yomiuri Shimbun Several years ago, economists half-jokingly discussed the possibility of two reversals for Japan and the United States, amid a rising U.S. economy and sagging Japanese economy. One concerned unemployment and later became a reality when Japan's jobless rate surpassed that of the United States for the first time, in December of last year. The other reversal relates to share prices. The Dow Jones industrial average briefly surpassed 10,000 on the New York Stock Exchange Tuesday, for the first time. And while it may seem farfetched, the Dow might someday exceed the 225-issue Nikkei index, currently standing at above 16,000 points. The pace of the Dow's surge has amazed just about everyone. After passing 5,000 in November 1995, it has doubled over the past 31/2 years. In addition, not even a year has passed since the average topped 9,000 last April. Share prices in the United States are being propped up by the prolonged economic expansion, which has entered its ninth year. Although the U.S. economy has been growing at a relatively brisk pace, wage increases have remained small. Thus, there are few signs of the economy overheating. Remember downside This has fueled enthusiasm for investment in stocks among pension funds and other investors. But there is one thing that should not be forgotten. There is a downside to the good news from the go-go stock market, posed by the economic crisis in East Asia. Since the currency crises that hit Thailand, Malaysia and other East Asian nations since the summer of 1997, Asian money, including Japanese capital, has had few places to go, and is thus pouring into the U.S. stock market. The volume of capital inflow has nearly doubled compared with that before the summer of 1997. Speculative money flowing across national borders can push up share prices, but can also be withdrawn in a flash. The sort of money that has been instrumental in causing share prices to soar could also make them plummet. Delay in the recovery of the Asian economy poses a problem for the real economy of the United States. It could put the brakes on U.S. exports to Asia and push up imports, because of the strong dollar and weak Asian currencies. The U.S. trade surplus last year was more than 50 percent greater than the year before. Crash ahead? Factors working against the real economy have a positive effect on share prices. Thus the euphoria over the stock market in the United States is accompanied by concern over the possibility of an economic bubble. In other words, a hidden danger of the Dow average surpassing 10,000 is the disproportionate burden that the United States bears as an engine for the global economy. A stock market crash in the United States would deal a major blow to the world economy, one from which it could not recover easily. While U.S. monetary authorities must implement prudent monetary policies, Japan must expedite a recovery by dispelling anxiety about the financial system, which is at the root of the sagging economy. It is imperative that Japan share the burden that the United States has been shouldering alone to avert a crisis in the world economy. (From March 18 Yomiuri Shimbun)