-Caveat Lector- from: http://www.aci.net/kalliste/ <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- Currency Markets Is the Upward March of the Mighty Dollar Near an End? All those capital flows: borrowed money Movements in the world's big three currencies - the dollar, the euro and the yen - are critical to global stability. Of late, the euro has grabbed the headlines by sinking close to parity with the dollar, prompting Wim Duisenberg to hint that interest rates might rise in an attempt to talk up the currency. The yen has also attracted attention, with the Bank of Japan forced to intervene heavily to prevent it from strengthening further. Yet it is the potential for a prolonged fall in the dollar that is set to become the really big issue in the currency markets. The fall in the euro is not a sign of the failure of the single currency project, but a reaction by investors to economic weakness and low interest rates (as well as a correction to an outbreak of pre-euro euphoria at the end of last year). Growth in the euro-zone remains sluggish, particularly in Germany and Italy. There are some signs of improvement, but as yet these are too tentative to have an impact on the currency. In fact, the economic boost provided by euro weakness is helpful at this stage of the recovery. Which makes Mr Duisenberg's comments on Thursday all the more puzzling. With inflationary risks absent across most of the euro-zone, his statement that the European Central Bank is moving towards a bias to tightening can only have been an attempt to talk up the exchange rate. As such, it is unlikely to succeed. Speculation of a rise in rates is not credible (though further rate cuts now look less likely). His remarks also add to a damaging impression that Europe's politicians and central bankers are divided over how to react to the euro's fall. Mr Duisenberg and his colleagues should be patient; as the European economy recovers, so the euro will bounce back. The yen also rises Looking at the latest Japanese growth figures, one might be tempted to conclude that just as the euro-zone economy is weakening the euro, so the strength of the Japanese economy is putting upward pressure on the yen. The truth is not so simple. There is much scepticism over the annualised growth rate of 7.9 per cent for the first quarter. There are still many signs of economic weakness. Another supplementary budget to prop up the economy looks a virtual certainty later in the year - and as Japan's fiscal position deteriorates further, a slump in the bond markets cannot be ruled out. The yen's strength has been driven mainly by western investors looking to cash in on the wave of restructuring hitting corporate Japan. Tiring of bloated western stock markets, investors have been rushing in their droves to the Japanese market; the Nikkei index has risen a remarkable 37 per cent this year, compared with a rise in the Dow Jones index of just over 20 per cent. But there is still uncertainty over how far restructuring will go; so far there has been rather more talk than action. A series of poor economic figures, or signs of delays to the reform process, could see Japan fall out of favour pretty quickly. The dollar marches on Against this background, the strength of the US dollar looks unassailable. The high-growth, low-inflation paradigm appears intact, with the consumer price index up just 0.1 per cent in June. The prospect of higher interest rates is also an attraction for investors. Even the pound, which tends to move in tandem with the dollar, has been left trailing in its wake. But it is still strong against most other currencies, meaning that the prospect of a fall in the pound is a serious inflationary risk. But the exceptional performance of the US economy masks economic imbalances elsewhere. The private-sector deficit (the gap between savings and investment) reached 4.2 per cent of gross domestic product last year, as booming stock markets have encouraged households to save less. This deficit has been financed in part by the budget surplus [budget surplus? What budget surplus?--Orlin] and in part by capital inflows. These inflows have resulted in a current account deficit (the inverse of a capital account surplus), and a strong dollar. With the US economy set to slow, and the rest of the world recovering, sooner or later either capital flows will become less forthcoming or the private sector will readjust its savings. The closest parallel is probably the period between 1982 and 1985, the main difference being that the deficit was in the public rather than the private sector. Then as now, huge capital inflows financed the deficit and kept the dollar strong. But after 1985, the dollar slid into a decline which lasted 10 years. Dollar weakness looks a distant prospect now. Yet that is what the economic fundamentals are pointing towards; the appetite of investors to fund America's yawning current account gap has its limits. Predicting just where these limits lie is the challenge for investors. The Financial Times, July 17, 1999 China vs. Taiwan China Calls Taiwan's Leader a "Sinner" Forgive me, Mao, for I have sinned . . . BEIJING - China's Communist government issued another blistering attack on President Lee Teng-hui of Taiwan on Friday, vilifying him as a ''sinner in history'' who, with his policy shift toward the mainland, hopes to ''wreck the peaceful reunification of the motherland.'' But the commentary issued by the official Xinhua press agency, which came on a day of rumors of a possible Chinese military response to Mr. Lee, sought to make a distinction between Mr. Lee and the rest of Taiwan's 21 million people, hinting that talks with a senior Chinese envoy scheduled for this autumn in Taipei might still be held. ''Taiwan compatriots have expressed the hope that cross-strait dialogues can continue, and they are looking forward to Wang Daohan's visit to Taiwan later this year,'' it said. Mr. Wang is China's top negotiator on Taiwan. In Taiwan itself, meanwhile, there were signs of a brewing political battle as James Soong, a powerhouse in the governing Nationalist Party, announced he was running for president as an independent. He criticized Mr. Lee, saying: ''Taiwan needs a courageous but not reckless leader.'' Mr. Lee said over the weekend that ties between China and Taiwan must be treated as ''state to state'' relations. Monday, his government dropped its ''one China'' policy. Beijing warned that such ''separatist'' moves to ''split the motherland'' could lead to ''disaster,'' and it announced Thursday that it possessed the technology to build neutron weapons, which are designed to kill people and leave buildings standing. The verbal back-and-forth across the 160-kilometer-wide (100-mile wide) Taiwan Strait is the most serious crisis to face the two sides since 1996, when China launched missiles near Taiwan in an unsuccessful effort to scare Mr. Lee's supporters in the island's first democratic election. Taiwan's insistence that it be treated as an equal to China is a clear rejection of Beijing's notion that the island is merely a province. Add to that the complex mix of constituencies in China, Taiwan and the United States who are all taking part in this dispute, and the drama is fraught with hazards. Washington has drawn its own line in the crisis, warning China earlier that it would not tolerate a violent solution to the future of Taiwan. ''We would determine and consider any effort to determine the future of Taiwan by other than peaceful means as a threat to the peace and security of the Western Pacific area and of grave concern to the United States,'' the State Department spokesman, James Rubin, said Thursday. ''That's about as strong a statement as one can make.'' Taiwan's stock market has dropped more than 13 percent since Monday, mostly on fears that China might launch new missile tests or respond in some other way militarily. On Friday, the Taiwanese finance minister, Paul Chiu, called Hong Kong newspaper reports that China may be preparing to seize one or two Taiwan-controlled islands in the Taiwan Strait ''unfounded rumors.'' The Taiwanese Defense Ministry said there had been ''no signs of abnormal troop concentration'' by the People's Liberation Army. Analysts said the Chinese president, Jiang Zemin, and prime minister, Zhu Rongji, were under pressure by conservatives in the government not to appear weak in dealing with Taiwan, analysts said. At the same time, military action would result in people rallying around Mr. Lee, which is what China is trying to counter. The government remained unclear about Mr. Wang's trip to Taiwan. On Monday, China said it might not occur. On Friday, the China Daily said it would be ''impossible'' for Mr. Wang to go unless Taiwan offered a ''clarification'' of its new policy. But the Xinhua agency cast the matter in a more positive fashion. ''Taiwan compatriots are looking forward to Wang Daohan's visit to Taiwan later this year,'' according to the commentary. In Taiwan, Mr. Lee's actions were part of his effort to put another imprint on Taiwan's history before he steps down next year, and he is unlikely to back down, observers said. The idea that Taiwan, with its vibrant economy and democracy, could only be described using the previous formulation of ''political entity'' grated on many who live there. Mr. Lee also hoped to force Mr. Soong, a former ally who has consistently outperformed Mr. Lee's own hand-picked successor and presidential candidate, Lien Chan, in opinion polls, to take a clear stand on how he would deal with Beijing as president. Mr. Soong recently called for closer ties with Beijing. Reaction on Mr. Lee's latest moves has been mixed. Roughly half of those surveyed in several public opinion polls in Taiwan this week supported Mr. Lee's new characterization of ties with China as ''special state to state'' relations. About a quarter of those surveyed were opposed to the move, with the rest not responding. International Herald Tribune, July 17, 1999 Megabits Microsoft's Market Values Tops $500 Billion $100 becomes $50,000 in 13 years Microsoft yesterday became the first company in the world to top $500bn (�322bn) in market value making Bill Gates, chairman and chief executive, a $100bn man. Shares of the Seattle software giant, founded in 1975, jumped to an all time high of $99 7/16, up more than five per cent on news of a favourable verdict in a private antitrust lawsuit in Connecticut. The stock also got a boost from speculation that Microsoft might issue a tracking stock linked to its internet operations. An anticipated strong quarterly earnings report, due on Monday, added to the stock's momentum. Microsoft shares have risen by 1,440 per cent over the past five years and by an astounding 51,830 per cent since the company went public in March 1986. Adjusting to stock splits, one share of Microsoft worth 19 cents in 1986 is now worth almost $100. In other words, an investment of $100 at the initial offering would be valued at $50,000 today. Mr Gates' holdings in Microsoft will reach a value of $100bn if his company's stock reaches $100 7/8. His other assets already put him well above the $100bn mark. However, Mr Gates is not alone in profiting from the rising value of Microsoft shares. As many as a quarter of Microsoft's 30,000 employees have become millionaires based on stock options. At yesterday's closing price Microsoft was valued at more than 30 times the company's sales over the past year, compared with just 3.5 times for General Electric, the second most valuable company with a market capitalisation of about $390bn. Yesterday's run up in Microsoft's shares began with a report in the Wall Street Journal that the company might issue an internet tracking stock. However, the company declined to comment except to say that like many companies it had considered such a move several times over the past two years. The Financial Times, July 17, 1999 Russian Follies Russian Nazis on the March "Society supports us" RUSSIA'S neo-Nazis are on the march, taking to the streets and preaching their message of hatred with a zeal viewed with growing alarm by the Kremlin. Black-uniformed toughs from the most well-organised group are particularly visible in the south and have covered one of its largest cities with their swastika-like emblem and sinister slogans. Parallels between the Russian National Unity movement and the Nazis are too striking to ignore: virulent anti-Semitism, the uniform, a stretched-arm salute, and a war cry "Glory to Russia" in addition to a cult of the group leader, Alexander Barkashov. Yet they operate with impunity in Voronezh, a city almost wiped off the face of the earth in fighting between the Red Army and the Wehrmacht during the Second World War and a Communist stronghold to this day. Visitors could be forgiven for concluding that the group's red and white symbol - based on an ancient Slav design according to RNU claims - is the city's coat of arms. It decorates almost every lamppost and covers bridges and walls. Members have held party conferences and parades in Voronezh and regularly turn out in uniform to distribute their newspaper Russian Order to passers-by. Last winter local members patrolled the streets, SS-style, in long leather trenchcoats with alsatian dogs at their side. Recruiting films show members practising with firearms and learning martial arts at a network of secret camps throughout Russia. A number of anti-Semitic outrages, most recently a stabbing in Moscow's main synagogue, the increasingly high profile of groups such as RNU and the reluctance of local authorities to take action against them are worrying the Kremlin. Boris Kuznetsov, President Yeltsin's representative in Voronezh said: "I am extremely dissatisfied with the reaction of our local authorities to this sort of extremism. Basically, there is no reaction." Gauging RNU's size - or even how much support it enjoys - is not easy. Members despise journalists and when they do talk to outsiders like to hint at a huge number of secret sympathisers in the police, security services and army. RNU may have less than 10,000 full members nationwide. But they are only the highly motivated core of a much bigger movement, running to tens of thousands of supporters, untried recruits and young people. "The media tell lies and creates an image of a gang of bandits and society rejects," one member of the Voronezh organisation said."But society supports us." Vladimir Firstov, a former member who set up the Voronezh branch but has now split from the party, said: "RNU is not political, it is more of a sect. It has its own internal laws and doctrines and exists mainly to recruit acolytes for the faith." Touchstones of the faith include violent anti-semitism, dressed up as opposition to "Jewish fascism" which aims "to destroy the Russian people", and hatred for all non-Russians, especially those from the Caucasus. * Tim Brown in Madrid writes: A 500-strong mob led by skinheads wearing swastikas and other neo-Nazi emblems attacked shops and vehicles owned by Moroccan immigrants in a second night of violence in the industrial town of Tarrassa outside Barcelona. The London Telegraph, July 17, 1999 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance�not soapboxing! 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