United States seen facing symptoms of Asian crisis

The United States is facing the same symptoms that plunged Asia into a financial crisis in mid-1997, with its stock market vulnerable to a crash in the second half of this year, a top Standard Chartered Bank economist warned Tuesday.

Gerard Lyons, the bank's London-based global head of treasury research, told a media briefing here that a US stock market crash would bring down the robust US dollar and could hit Asian central banks that built up greenback-led reserves.

"In fact there are four similarities between America now and some of the Asian economies which got into trouble back in 1997," he said, citing lack of control in bank lending, asset price inflation, huge trade imbalance and dependence on foreigners to finance that deficit.

Lyons said unlike in Asia, when international investors bailed out when they first sensed signs of trouble, foreigners had delayed taking out their capital from the United States because of lacklustre growth in Japan and Europe.

He said the crunch would come when the market suddenly realised that corporate profits expectations needed to be revised downwards on the back of a a series of interest rate hikes by the US Federal Reserve Board.

Private investors, meanwhile, would persist in buying stocks because they believed corporate profits would keep going up, he said.

"The test will come when the Fed has to keep hiking rates," he said.

"Could the US market come off more abruptly? Yes, because it has come up so abruptly. And, therefore, the dollar could be hit hard in the second half of this year," Lyons said.

"Historical valuations suggest that the US stock market was overvalued a year ago, and now more overvalued. I think we are already in the bear market for bonds," he said.

Lyons predicted that the Federal Reserve would push its key base rate from 5.50 to 6.75 percent between now and the end of 2000.

The US stock market plunged in the first week of 2000, sending panic across the globe, but pulled back to become even stronger despite Federal Reserve Board chief Alan Greenspan's warning that soaring equity values could provoke economic overheating.

On the repercussions for Asia if the US market collapsed, Lyons said Asian stocks markets which were strong in the first half of 2000 could be vulnerable. http://www.voila.co.uk/News/afp/eco/000118124132.6fx0kcc5.html

-- Ponzi (Pop@goes.thebubble), January 18, 2000

Answers

Nothing like a rational analysis to give one a warm, fuzzy feeling...or is it heartburn?

-- Mad Monk (madmonk@hawaiian.net), January 18, 2000.

MM,

Rational analysis - a post y2k oxymoron.

-- Michael (m@m.m), January 18, 2000.

Thankfully most will ignore this. Because, its different this time. The difference is the bell tolls for you and me instead of some name in a dusty history text.

Remember those old photo's from the depression?

-- Squid (ItsDark@down.here), January 19, 2000.