(October 25) – “Remember 1998?,” asks New York Times columnist, Floyd Norris. “As Asian currencies crumbled and stock markets crashed, panic spread around the world. Amid fears of global recession, the Federal Reserve aggressively eased credit.
“Markets recovered as it became clear that disaster would be averted. Now those gains have been wiped out. Measured in dollars, half the value of stock markets in such countries as
Indonesia, the Philippines, South Korea and Thailand has melted away this year, leaving them close to their 1998 lows. Japan has lost a quarter of its value. In this hemisphere, the markets of Argentina, Brazil, Chile, Mexico and Peru are all down by 15% or more. And you were upset that the Standard & Poor’s 500- stock index is down 5%.
“All this is happening as the world economy hums along with high demand pushing up prices of oil and copper. Even Japan is showing signs of rising domestic confidence and demand. The Japanese central bank’s decision to raise interest rates was widely scorned, but the expected damage has not appeared.
“The conventional wisdom is that the world is slowing, whatever the current numbers say. High oil prices are hurting growth while the Fed’s tightening earlier this year alarmed overseas investors who recall it was the Fed that bailed out the world in 1998.
“Signs of a technology slowdown scare investors in such computer-component exporters as Taiwan and South Korea. The implicit investment thesis that has developed is that the United States stock market is the safest place for money in a slowing world. Our market is populated by growth companies that are supposed to do well even in a slowdown, while parts of Asia have replaced the American Midwest as the region that makes the products whose sales would plunge during a recession.
“The unsettled nature of world markets may help to explain the wild rides the American market is experiencing as traders try to figure out if this is a turning point in the global economy.