| Investment Views (September 7th 1998) |
But we still have plenty of problems next week. Will the
Russian Duma
confirm Jelzin's appointment of Prime Minister Tschernomyrdin
on Monday? Will the
Latin American currencies and stock markets start to stablize?
These are all very unlikely
to happen. So while we do expect some recovery next week, we're
not optimistic that
the Dow has bottomed. As Wall Street goes, so too Europe, although
we're finally
able to detect a little bit of positive divergence. But we do
not think Europe will be
able to turn around without a turnaround on the Dow. So we expect
the European
markets to trade sideways, albeit slightly upwards, unless the
Dow breaks 7400 on
the downside. On the Dax, the level to watch is 5000. If we manage
to overcome
this level, we should see a bit of a pop upwards. On the SMI,
the level 6950 must
be overcome to see the markets recover up to perhaps 7350 level at
least. On the
downside we see good support around the level 6250-6350.
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The Russian situation has finally given some signs of improvement.
Everyone seems to think that a currency
board will help to calm down the markets. If the Russians tie
the ruble to gold and foreign exchange,
we believe the ruble will probably stablize. The problem is where
are they going to get enough foreign
exchange to set up the currency board? The IMF is running out
of money. Germany's Kohl is
more interested getting elected than giving the Russians more money.
Bill Clinton is in no position
to do anything. So we're not optimisitic that the currency board
will be set up in any time soon.
The Latin American currecies and stock markets are in full-blown turnmoil,
ever since Columbia was
forced to devalue its currency. The finance ministers of 11 Latin
American countries met last
Friday with the IMF and Rubin. But nothing concrete came out
of that meeting. IMF has no
money and Rubin gave only moral support. Greenspan's speech on
Friday indicated that
he's monitoring the situation. But he said nothing concrete about
lowering the interest rates.
Since markets deteriorate at almost speed of lightening, we think this
cautious slow reponse
is mistaken. The confidence of the world financial markets is
disappearing fast. It's
better to arrest the deterioration a bit earlier than too late.
It is time that the fed should finally
accept its responsibility as the central bank of the world.
After this current crisis stablized, I think it is paramount for the
world to re-consider the
current flexible exchange rates arrangement. Most importantly,
the world markets should
raise the margin requirements for trading currencies substantially
and introduce the up-tick rules
and circuit breakers on a worldwide basis. The world should also
introduce more stringent
capital requirements for all the banks and a more transparent
reporting system for their derivative
positions. Also the countries must stop the beggar thy neighbor devaluation
policies. The west,
especially Europe need to reflate their economies and encourage consumption.
As we have written last week, we think Hong Kong is finally making correct
policy
changes to fight this wholesale attack by speculators. On Saturday
they announced
seven technical measures to eliminate some of the weakness of the currency
board.,
giving it more options to act like a central bank rather than a pure
mechanical
currency board; especially breaking the automatic mechanism of raising
interest
rates, when the currency comes under attack. We feel optimistic for
the first
time, that the Asian crisis is on the mend. Latin Americans,
take note of the
Hong Kong policy changes. You will need it. Don't let IMF's
and the US's
religious ferver for "free" markets mislead you. Total
chaotic markets are
not freer than a judiciously regulated market. New York is prime
example
of a well-regulated market with enough depth and breadth to withstand
manipulations.
| *The stock prices are provided for informational puruposes only and not intended for trading purposes. The opinions expressed in these pages are what they are: opinions! |
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