This article is brought to you by:
CONSENSUS

GLOBAL STRATEGY AND INVESTMENT TRENDS

Prepared by David Fuller

Respite For Equities Following An Uncontested Result In The U.S. Presidential Election,
Followed By Concern Over Profits Until Interest Rates Fall

Awaiting Ogre Or Hubs

(November 22, 2000) If lawyers had their way, this election impasse would probably drag on and on with Americans finally asking, why do we need a president anyway? The trouble with lawyers is that for them, winning is the only consideration. Of course if Florida's result had been decided on the same basis as the other 49 states, Bush would have become president elect following the machine recount. Should Gore lose after all the fanfaronade, I suspect he will regret reversing his initial decision to concede, which would have made him look gracious in defeat and perhaps even a martyr. That consolation prize was lost once he allowed in hired guns from the team that finagled OJ's acquittal and reduced Microsoft's Croesus Bill to a babbling incoherent. Amidst a blizzard of chads, will they be able to string this along until Gore wins? He clearly has the cleverer lawyers but public opinion probably won't allow it. Meanwhile, amidst a welter of partisan charges this drama resembles a Greek Tragedy, although with mercifully few casualties other than stock market sentiment and the candidates reputations. Gore and Bush (Ogre and Hubs if you like anagrams) have been diminished by what The Washington Post escribed as "campaigns using phony statesmanship as a tactic and offering phony compromises as public relations." However the new president will have many opportunities to form bi-partisan coalitions and govern. The markets have little to fear from razor-thin majorities in Congress that will prevent any radical agendas. A technical rally was underway up until Election Day and it will probably resume for a short while once an uncontested election result is announced, especially if Bush is president elect.

The Slowdown In Global GDP Growth Has Been Underestimated

The next president's stock market honeymoon is likely to be brief, as is appointing corporate profits will continue to worry investors, leading to further volatility. I do not believe earnings problems have been fully discounted because most analysts underestimated the extent to which global GDP growth would slow due to short-term interest rate hikes, the high cost of crude oil and a stock market correction that has thrown the wealth effect into reverse. The prospect of economic overheating has been replaced by the spectre of recession. While this risk persists, I prefer quality long-dated government bonds to stocks--cash bonds for investors, futures for speculators. Any profit taking in government bonds, coinciding with a post U.S. election result stock market rally, would create another buying opportunity in the fixed interest sector. Light at the end of the tunnel for equity investors troubled by profit concerns is the increasing likelihood of lower interest rates. The most bullish environment for stocks is often when central banks are lowering short-term rates. As global growth continues to slow, the dynamic U.S. economy should remain comparatively strong, preventing a major sell off by the U.S. Dollar. However, the greenback has commenced a corrective phase, coinciding with a medium-term rebound for the euro. Among eveloped economies, the risk of recession is highest in Japan and this will hasten the yen's decline. Some very oversold commodities should rebound during a pause in the U.S. dollar's overall uptrend against European and Antipodean currencies.

Interest Rates And Bonds

Deflationary Pressures Are Increasing

Over the last year, we have heard a great deal about increasing inflationary pressures due to stronger global economic growth, labor shortages in the U.S., the wealth effect from surging stock markets and rising emand for oil against a background of shortages, partly induced by OPEC's earlier supply cuts. Additionally, the weak euro nudged Europe's inflation higher by lifting import costs. At least some of these factors have now been thrown into reverse. U.S. GDP growth soared over 7% in the fourth quarter of 1999 but had fallen to 2.7% nine months later. This slowdown can only reduce growth in most other countries given their ependence on exports to the U.S. Japan has been unable to break its deflationary spiral, let alone stage the elusive economic recovery that its government has erroneously forecast. An overall decline in global GDP growth ensures another round of corporate downsizing in most industries. This will lift unemployment figures in coming months. With competition remaining intense there will be little scope for businesses to increase prices. The big decline in TMT stocks is having a negative wealth effect and slowing the formation of new businesses. Concern over corporate debts will make borrowing more difficult, even if central banks lower short-term interest rates next year as many will. The demand for oil will decline, especially following winter in Europe and North America and this will eventually lower energy costs. However, damage to the global economy from high petroleum prices is likely to linger for many months. In conclusion, inflationary pressures may remain for a little while longer but the global economic environment will gradually turn more deflationary in coming months.

Yields For Quality Long-Dated Government Bonds Should Range Sideways To Lower

Slower economic growth and waning inflationary pressures will be bullish for government bonds in North America, Europe and the Antipodes. However, inflation is unlikely to fall as quickly, initially, as GDP growth. There may also be some concern about the sustainability of productivity increases, particularly in the U.S. as corporate investment slows. Therefore, the decline in bond yields may remain gradual, punctuated by lots of ranging activity, until the latter stages of the trend. Nevertheless the yield charts for quality long-dated government bonds show clear evidence of top formation development and the path of least resistance is downwards.

Strategy For Bonds

North American, European and Antipodean long-dated government bonds continue to offer investment value and trading opportunities, and U.S. issues have comfortably outperformed stock market indices this year. My strategy reflects the considerable ranging that has occurred--buy only when yields edge upwards. I currently hold U.S. and UK bond futures and will probably add Eurobunds before long. Due to the ranging activity I will use the Baby Steps, buy-low-sell-high trading strategy, long positions only. I will not switch to primarily trend-running tactics until or unless bond prices establish more persistent uptrends. I regard JGB's as an eventual bear trade due to oversupply and their uncompetitive yield. However, this market is still supported by the Japanese government and deflationary pressures, so I will not be tempted to short without a clear signal on the charts. This may take time, as there is little prospect of another Bank of Japan rate hike anytime soon. I remain cautious on high yielding corporate bonds and developing country debt because confidence may not improve until there is an important catalyst, such as a rate cut by Greenspan.

Global Stock Markets

The Impasse In Determining A President Elect Is Fascinating And Unsettling, But Not A Constitutional Crisis

The delay in resolving an amazingly close election has created short-term uncertainty, which is always a problem for stock markets. It is also clamorous as Americans exercised their precious constitutional right of free speech. However, investors' worst fears over the prospect of either right-wing or left-wing policies will not be realized over the next two years. With no clear mandate and wafer-thin majorities in the House of Representatives and Senate, there will be no radical political agenda. Instead, the new president will have every incentive to form a moderate bi-partisan coalition. There will be some contentious debates and gridlock over any partisan issues, but this has seldom troubled the markets. The next Congressional election will be in 2002; historically, the president's party loses congressional seats at mid-term elections.

Corporate Profits Are Likely To Be The Main Concern For Investors

Analysts have been lowering earnings estimates all year and will need to do so well into 2001. The booming U.S. economy at year-end 1999 boosted GDP growth all over the world, but that juggernaut has slowed considerably due to interest rate hikes, high oil prices and the stock market correction. No other economy was strong enough to uncouple from the U.S. trend so they are also in the slow lane. The only exceptions are countries that derive most of their revenue from oil exports. Among developed countries, Japan will suffer the most because its economy remains stalled due to bureaucratic bungling and a cripplingly overvalued yen. Developing countries are especially vulnerable during this slowdown because their economies are very dependent on exports. Disappointing corporate profits will remain a problem for investors over the next few months. However, the next move for interest rates will be downwards. That eventuality will be bullish for equities as investors once again anticipate stronger growth and higher corporate profits.

Stock Market Action Will Remain Choppy

A generation of investors are learning that stock market index gains of 15% or more annually, in perpetuity, are not possible. There is a business cycle and price earnings ratios sometimes contract. Many of the world's stock market indices remain in lengthy trading bands. The price action is often volatile, with strong rallies followed by bungee jumps. We should get used to this environment because the overall market trend is likely to remain neutral, at least until interest rates decline once again. Markets can range for years, as we last saw in Wall Street following the boom years prior to 1966 when the DJIA first approached 1000. It didn't break decisively above that level until 1983.

An Email Question On The NASDAQ From A Subscriber At DKB

I had hoped to include this in last month's issue, but there was insufficient space. Fortunately the Q &A is still relevant. I have reprinted this word for word, with permission, plus my reply.

Dear David--23rd October 2000

I attended your Bloomberg, London seminar in July and enjoyed it very much. I see from your issue 128 that you're keen on the double bottom that NASDAQ has formed with the May lows as a key reversal and potentially bullish signal. If you remember, at the time of your seminar I proposed that on a very big scale, NASDAQ, which you argued had probably finished its sell-off (at the 3000 lows) appeared to be registering all your 3 key end of trend characteristics.

1. Acceleration: Especially November '99 to March '00.

2. Sharp Reversal: March 24 to April 16, 2000.

3. Volatile (sideways) range trading since then.

I was further under the impression that post the range trading bit, the previous direction (up in this case) would be reversed. Fundamentally NASDAQ's still very over-priced (47X those companies that actually have a profit, 127X in total), but now we're reversing the macro assumptions (from growth and widening margins to slowdown and margin compression). Is there not a case to say that we're still inside the top-formation period and the next move is the big one down?

Yours mischievously, James.

Hi James, well stated and nothing mischievous about your excellent email. You have articulated the question on all our minds. That's why I emphasized the short term in FMP128. At TCS in July, I do recall saying we had witnessed a climactic bottom and that we had probably seen the high and low for the year, although the low was much more likely to be tested than the high, in line with long convalescences following sudden crashes from peaks. Tactically, I'm not yet willing to look much beyond the short term because I don't know what happens further out (nor does anyone else) but the charts should guide us. I can certainly frighten myself when looking at very long-term charts of the NASDAQ Composite Index and I take your point on valuations. However I haven't a clue as to what the "right" valuation is, other than to say that some of the low valuations that we have seen recently for MSFT, INTC, etc., seem very reasonable to me.

Best regards, David.

Expanding on the above, I used the NASDAQ charts extensively during my recent presentations for the Australian Technical Analysts Association and at The Chart Seminar in Sydney, because it was of considerable interest to delegates and a great teaching example. Big movers provide terrific short- to medium-term chart signals, which is reason enough for our interest in technical analysis. However, the further we try to peer ahead, the more theoretical the analysis becomes. The NASDAQ's acceleration to its March 2000 peak (James' point 1 above) received much attention in this publication at the time because it warned of a major decline. The crash of nearly 40% qualified as a major bear market and provided a climactic ending. The subsequent question is Did the NASDAQ fall far enough to establish a sustainable low? I don't think this can ever be answered on valuations because it is a matter of sentiment. How high is too high and how low is too low? Most chart readers would agree that the NASDAQ could be a large top--type 1 (of 3) as taught at TCS, but that another big decline cannot occur without a sustained break of the May and October lows near the psychological 3000 level. I'll add that if initial resistance near 3500 to 3600 cannot be cleared relatively soon, the lows will certainly be broken. Conversely, if the NASDAQ can push up through overhead trading, let alone break above the July and September highs just over 4250, the 3000 level will look like a major floor. Meanwhile, we have seen three upward dynamics since mid-October. Therefore, I conclude that even if the May and October lows near 3000 are broken for more than a day or two, any additional decline would not be maintained for long.

As mentioned above, this was written for FM197, released in 31st October. Subsequently, the NASDAQ tested resistance near 3500 to 3600 and fell back sharply following the disputed U.S. presidential election result. It broke under the psychological 3000 level on 13th November, but rebounded the following day. Clearly nothing sufficiently dramatic has occurred to dissuade bears from believing that another big decline remains possible. I suspect most would not even consider revising downside forecasts unless the October high at 3535 is taken out. Meanwhile the NASDAQ Composite Index fell back under 3000 on Monday, 20th November, amidst further uncertainty as to when the U.S. presidential election would be resolved. I'm sticking with my view above--any additional decline would not be maintained for long--for three reasons. A year ago, anyone whose portfolio was not overweight in NASDAQ stocks was considered a dummy. Today the crowd is bearish. What goes around comes around, to coin a phrase. The upward dynamics that have occurred near 3000 indicate short covering and possibly new buying. A struggle between supply and demand frequently occurs near important market turning points. Finally, the U.S. election impasse has dominated market sentiment recently and there will be a relief rally once either Gore or Bush concedes.

Chart Review Of Topical And Representative Stock Market Indices

The Morgan Stanley Capital International Indicator (1251) has backed away from the underside of its top formation and must move over 1300 to indicate a further test of overhead trading. Conversely, scope for an additional decline would be signaled at 1215. The MSCII is capitalization weighted and calculated in U.S. Dollars.

The Fullermarkets World Market Indicator (2150) is easing towards its May and October lows down to 2090 and needs 2210 to demonstrate further support from this area. The FWMI is unweighted and calculated in local currencies.

The U.S. NASDAQ Index (3027) is barely steady near its prior lows and the psychological 3000 level. A move to 3500 is required to demonstrate significant support here and a test of overhead trading. The S&P 500 Index (1367) shows an overall loss of upward momentum and is drifting towards the October low at 1330. A move to 1440 is needed to indicate support here. The Dow Jones Utilities Index (401) is testing its range highs and requires 382 to remove pressure from here. The DJUI is usually a leading indicator.

Japan's Nikkei 225 Stock Average (14544) should eventually encounter support from its September 1998 to March 1999 trough extending own to 12900, but currently requires 15400 to remove pressure from this region.

Sweden's OMX Index (1128) remains barely steady and needs 1200 to question the downward bias and suggest a test of the top area evident above 1260.

Switzerland's SMI (8131) has been a strong relative performer since March. A decline to 7550 is required to reaffirm resistance from the July 1988 and August 2000 highs up to 8400.

The UK's FTSE 100 Index (6440) remains comparatively quiet within its long range, but has shown relative strength recently. Consequently a close under 6100 remains necessary to signal a further test of the lower boundary. Conversely, 6500 would suggest a test of the broad band highs.

Conclusion And Strategy For Stock Markets

Once again, there are lots of reasons for concern, especially the global economic slowdown and its impact on corporate profits, high oil prices, the increasing risk of bad debts, the slump in TMT stocks, a continuing Israeli/Palestinian confrontation and the U.S. presidential election impasse. I think economists are still underestimating the extent of this economic slowdown, which has certainly increased the risk of recession in 2001. Japan's economy may already be back in recession. Bubbles such as last year's TMT mania are seldom deflated without accidents, which can cause panic. These factors will keep stock markets on the defensive for a while longer and could spark an overall loss of confidence. Nevertheless, old economy stocks have already experienced a stealth bear market over the last two years, which brought valuations back to some of the lowest levels since the 1987 crash. Many of these shares are recovering or at least show evidence of base formation development. Utility stocks remain firm and in the past they have often been a good lead indicator. This is also true for government bonds, where long-dated yields appear to be completing top formations. While one can still argue that TMT valuations are not cheap, many of the excesses have been corrected. The recent rotational meltdown among high-flying technology sector leaders looks climactic. If there is a debt or evaluation crisis, as we last saw in 1997/98, the U.S. Federal Reserve and most other developed country central banks would be able to lower interest rates. Historically, this has usually been extremely bullish for equities. In conclusion, stock markets are still passing through a stormy environment, but the medium- to longer-term outlook is neutral/bullish. The best equity call that I made this year was in March when I opted for high-yielding and out of fashion old economy stocks in favor of TMT's, which were still all the rage. Unfortunately, I then started to recommend technology stocks following the NASDAQ's 40% decline. This worked initially, but has proved costly since October because I overlooked that many of the leaders are the last to be dragged own in a major sell off. However, if I were adding to a portfolio today, I would go against the consensus and average down on leading TMT stocks that have fallen a very long way from their highs. Some of these now appear to be bottoming out. Consequently, I will leave last month's list of TMT stocks re-recommended for additional buying on weakness, open for another month. These are: Altera, Intel, Micron, Motorola and WorldCom.

In contrast, defensive stocks understandably have their appeal when investor confidence is low. However, could many of these double or triple over the next few years? Perhaps a few will, but I suspect the better gains will come from many of today's hardest-hit, sector-leading TMT stocks. A problem for buy-and-hold investors, which I suspect will be with us for some time, is that the equity environment this year has been much better suited to trading on a buy-low/sell-high basis. I like to do this with futures and I wouldn't pay up for anything. My hunch is that we will see some short-term rallies once the U.S. president-elect is known.

Currencies

Traders Are Less Willing To Sell The Euro Due To Fear Of ECB Intervention
And Uncertainty Over The U.S. Presidential Election

Multilateral intervention in September started the bottoming out process for Europe's beleaguered single currency. Traders were asking questions about post-election U.S. Dollar policy before the first vote had been cast. Recently, they have seen the ECB, which has substantial reserves, scrap its previous policy of jawboning in favor of additional intervention on its own. On charts, the Euro had shown climactic action by accelerating to its September/October lows against the U.S. Dollar and yen. These developments fit my often repeated script for a medium-term low by the single currency in the 83¢ to 79¢ region. I expect the action to be choppy, including retests of this target trough because the Euro lacks credibility in the markets. Nevertheless it has discounted a considerable amount of unfavorable news and sentiment is gradually improving in line with the steadier chart action. From the current level near 85¢, there is probably more upside than downside scope over the next few months.

This Consolidation By The U.S. Dollar Against European Currencies Could Last Several Months

The main reason is not the U.S. presidential election, although that is a factor. More importantly, the dollar surged higher against European currencies in a two-year advance that carried it from a low against the German Mark in October 1998 at DM1.5872 to last month's high of DM2.3759, a gain of almost 50%. That is an extraordinary move for major currencies, mirrored of course by the dollar's advance against the ECU/Euro combination over the same two years. It certainly went a long way towards discounting fundamental factors such as GDP growth, interest rate differentials, investment trends and cash flow expectations, not to mention sentiment which could be accurately described as Euro revulsion. Consequently it would not be surprising if the dollar had commenced a very lengthy correction and consolidation phase that could extend well into next year. Thereafter I would not be surprised to see the dollar resume its primary uptrend, which commenced in 1995 and reflects the U.S.'s economic dynamism relative to Europe. Moreover, while a steadier performance will improve sentiment towards the Euro, many people believe that a European currency without a republic is fundamentally flawed. I share this view--see also FM196 & FM197.

Japan Cannot Fulfil Its Economic Recovery Potential While The Yen Remains Near Current Levels

Would the Japanese economy be growing at 3%to 5% if the currency was ¥40 to ¥50 lower against the U.S. Dollar and Euro? I believe so. Instead, Japan may be slipping back into recession, the destructive deflation persists and the alarming budget deficit is increasing. Paradoxically, the yen remains, strong not because of Japan's economic strength, but in spite of its weakness. The reason is defensive repatriation. Japan exported capital in the 1980's and early 1990's. In recent years, Japanese firms have been unloading overseas real estate, closing foreign subsidiaries and bringing money home to prop up parent companies. Simultaneously, Japanese investors have been cutting their currency losses, particularly in Euro-denominated fixed interest investments, and repatriating capital. In doing so, they are selling low and buying high, while losing interest rate differentials of 350 to 600 basis points. This can only increase the erosion of Japan's considerable capital base. Meanwhile, the maverick Bank of Japan is keeping money supply tight (2.2% on the latest figures) because it does not want to give the government a free hand on further pork barrel fiscal spending, which bought a minimal economic recovery while ballooning the budget deficit to over 140% of GDP. They have a point, but the government was democratically elected, unlike the Bank of Japan appointees. Also, Bank of Japan Governor Masaru Hayami apparently favors a strong yen, regardless of economic conditions in Japan. Remember, Hayami wrote a book called "The Day The Yen Gains Respect," published in 1995 after the Japanese currency had reached a crippling ¥80 to the U.S. Dollar. A less obstinate central banker would increase the supply of yen until the currency commenced a downtrend. That would encourage Japanese investors to export capital once again in search of higher yields. Sooner or later the yen must fall because a floating exchange rate will reflect that country's underlying economic conditions over the long term. Meanwhile, the yen's downward potential is increasing as its current strength continues to compound Japan's economic problems. I expect the U.S. Dollar to reach at least ¥160 over the next two years.

Strategy For Currencies

I like to trade what is arguably an undervalued currency against one that is overvalued, especially if interest rate differentials favor the unit that I am buying. The Euro's volatility has provided some of the best opportunities recently. I continue to purchase it on weakness against the yen and reduce these positions on rallies, using my Baby Steps buy-low/sell-high tactic, long positions only. I do this on a very conservative basis, operating well within the capital potentially required to fund margin requirements on a leveraged position that is not protected by stops. Provided that I do not over trade, I am reasonably relaxed about downside risk for the Euro because central bank support offers a safety net. The Euro moves into my current buying range when it approaches ¥90. I'll have to adjust this downwards, or more likely upwards, as the trading band changes. If I didn't have a full-time job, I would trade Euro/yen more aggressively within the narrow ranges that confine most activity. Meanwhile, using Baby Steps in what I suspect is a bottoming out phase, I don't mind whether the Euro's next move of ¥2 or more is upwards or downwards because I will buy weakness and sell strength. I hope for volatility but without it, the consolation is a favorable interest rate differential of 450 basis points. I prefer Euro/yen to Euro/dollar, but if the latter fell further into my target trough of 83¢ to 79¢, I might consider it.

As for dollar/yen, I mentioned last month that my change in tactics from Baby Steps within the developing base to an increased long position, protected with a tight stop, might be the triumph of hope over experience. So it was. With my stop near a breakeven level for the whole position, I had a slight loss overall, but bought back two-thirds of my dollar/yen longs during the reaction to just under ¥107. I was cautious because since early October the daily chart shows the dollar reacting from just over ¥109 more quickly than it rallies back to that level. This technical evidence of continued selling pressure has tempted me to resume the Baby Steps tactic. However, I maintain that upside potential for dollar/yen is much greater than downside risk, in addition to the interest rate differential of 625 basis points. Also, the deteriorating political situation in Japan could be a catalyst for a breakout above lateral resistance near ¥110 to ¥112, so I have leveraged up once again, using a tight stop on just over half of this position. Unfortunately, there are few calls more difficult than anticipating when a base formation will be completed. It could occur at any time, as the dollar is trading in the upper region of its band, or it might take a few more months. Either way, breakouts from lengthy trading ranges are often explosive.

Commodities

OPEC Worries The Market By Announcing That There Will Be No Further Production Increases

Petroleum prices had eased for nearly a month prior to OPEC's announcement, which may have been intended to firm the market. We should take it with a pinch of salt because most of these countries will operate on the sensible premise--"make hay while the sun shines." They need the revenue and higher oil prices can only lead to increased production from OPEC's cartel and all other oil exporters. Demand for oil can only ease as the global economy continues to slow. However supply is the key variable with any commodity and this remains tight, as we can see from the continued backwardations (premiums of spot petroleum products over futures prices). Meanwhile the rallies are encountering some resistance near October's highs and the overall churning activity suggests that top formation development may be underway, even though prior support levels are still holding. Top building can be a lengthy process and on past evidence petroleum contracts will commence their eventual declines before the backwardations disappear.

Lumber Has Broken Its Downtrend Consistency

Following completion of the top formation in April, lumber commenced a step sequence decline. Trend consistency characteristics during the second half of this move were lower highs, lower lows, resistance encountered near the underside of the steps, which were three columns wide. This consistency was recently broken by a higher low and higher high, suggesting that lumber is now bottoming out. Among other commodities trading near historic lows, orange juice has steadied prior to the U.S. crop's frost season. Understandably, traders are unwinding short positions in case cold weather sparks a rally. Statistically, frost damage to the orange juice crop is a rare occurrence, but the market's response is explosive when it occurs. Soybeans show some evidence of base formation development, following the ranging recovery staged by corn.

Strategy On Commodities

Following up on previous positions, my stop for the corn long was hit at a breakeven level--annoying as it then resumed its recovery. I thought of repurchasing but bought soybeans instead. I may buy lumber.

The Global Economy

Most Economists Continue To Underestimate This Slowdown

Remember those optimistic forecasts from the IMF and Goldman Sachs early this year? Overly influenced by trend extrapolation and stock market gains they projected global GDP growth of 4.2% and 4.5%, respectively, with that momentum carrying into 2001. The year certainly started strongly, especially in the U.S., but growth has been slowing ever since. The main reasons are well known today--previous hikes in short-term interest rates, the oil price rise and the stock market correction, particularly among TMT shares. The Federal Reserve lifted rates to slow the U.S. economy and it has succeeded. The European Central Bank's monetary tightening was primarily an effort to curb inflationary pressures caused by higher petroleum prices and the weak Euro. Higher rates can only slow economic growth relative to what would have occurred had they remained unchanged. Similarly, the oil price increase is equivalent to a tax on consumption by OPEC, while a significant stock market correction reverses the wealth effect that occurs when shares boom. Alan Greenspan has achieved his soft landing after raising the Federal Funds Rate by 1.75% between June 1999 and May 2000 to 6.5%, a much smaller increase than most had forecast. There is no chance of economic overheating over the next few months and the recent weakness in TMT stocks could slow U.S. GDP further, with a knock-on global effect. Given most other countries' dependence on the U.S. economy, deflationary pressures are building and the possibility of minimal growth or even a global recession in 2001, a prospect generally regarded as unthinkable a few months ago, should not be dismissed.

European Economies Will Not Outperform The U.S.

According to a long-running and favorite hypothesis in Euroland, the U.S. economy is supposed to weaken relative to Europe due to a Wall Street and dollar slump. I continue to disagree. Recoveries in Europe and Asia are not yet self-sustaining, so America remains the engine of global growth. The U.S. economy is also more self-contained, generally less regulated and confidence remains higher than in other countries. As it has slowed, the effects have been felt in Europe and Asia. Any correction by the dollar will certainly not hurt U.S. competitiveness and is unlikely to be significant until confidence in the alternative reserve currencies improves. A strong U.S. economy relative to other countries is certainly not a birthright, but factors capable of undermining it are not on the horizon. The UK's economic competitiveness is gradually being eroded by increasing regulation and an overall tax burden that is approaching Euroland proportions. Japan cannot fulfil its economic recovery potential until its currency weakens, just as we saw with European countries in the mid-1990's.

Neither Presidential Candidate Would Have A Destabilizing Effect On Either The U.S. Economy Or The Dollar

Even though Republicans will also hold the House of Representatives and Senate in the next government for the first time since Eisenhower's presidency in the 1950's, they do not have a clear mandate. Wafer-thin majorities in Congress will prevent any contentious programs from being passed. To be effective, the new president will need bi-partisan support on most policies. Consequently Congress will pass no contentious legislation from either the left or right.
 

November 22, 2000
David Fuller
FullerMarkets, Ltd.
A Division of Stockcube Research Limited
Suite 1.21, Plaza 535 Kings Road, London, UK
+44 (0) 20-7351-5751

Additional Company Contact Information

Back To Current Edition Index

Hosted by:
CONSENSUS, INC. AND INVESTORS CO-OP
P.O. Box 411128
Kansas City, MO 64141-1128
816-461-2800
Fax: 816-461-2801
editor@consensus-inc.com