Asian Update Bangkok Thailand Nov. 10,1997
Copyright 1997 Coast Investment Software, Inc.
May be redistributed unaltered, in total.
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The face of economic implosion has a different complexion when you're sitting among friends and business contacts who are being relentlessly pummeled by its effects. While I am used to dispassionately viewing economic crisis on a monitor from my comfortable island home in Sarasota, for the past week I have been in the midst of it as I move about Bangkok. At this writing, the Thai Baht has fallen from 25 to the dollar to 40. While I take advantage of this reality with each Baht I spend, the fear I see from the hard working and responsible people around me makes me cringe. No sector of this economy has gone unscathed. The tin cups of the street lepers fill more slowly and the highflying entrepreneurs and speculators are having their luxurious penthouse condos snatched from them as quickly as "short time" nightclubs process foreign customers. The Business Day, Thailand's financial daily, has column after column of Mercedes at auction bringing less than half their value, when and if there are any bids! As the free market works, some 30,000 taxies have fled the streets. Those who can, walk while others crowd already stuffed busses. The reduction in taxies would have been even more striking were it not for the considerable number of banking and professional staff that have become taxi drives in order to put food on the table. Of 92 financial institutions 58 have been shut down and more are on the way! An unanticipated advantage of this nation's widespread catastrophe has been the crawling rush hour traffic, a big advantage from the standstill phenomena of just a year back. It is said that total traffic volume is down some 30%! Street food vendor sales are thought to be off 50%. When I asked my former financial products distributor, a middle class hard working Thai businessman, if this meant people were eating at home, he looked puzzled and said "perhaps people are eating much less". He is my former distributor because he is no longer able to sell my products, they have effectively doubled in cost! This as well as other effects of the current economic situation have put him totally out of work. Now he's planning on going abroad to search for employment. The stock exchange of Thailand (SET) has never faced a crisis of this proportion. While measuring techniques (Chart 1) ably forecasted a likely break from the high 1700 down to the high 400's no one in or out of power believed it could happen, even as it unfolded before their eyes! Stubborn optimism, as well as gross mismanagement of financial matters went unchecked even among warnings from the IMF. In an effort to stabilize their currency, the Thai government lost such a significant portion of their reserves that they are essentially bankrupt. Why did they bother? Don't we know that devaluation helps exports and strengthens a country's balance sheet? Well think about this... Yesterday I had breakfast with a representative of a large multinational pharmaceutical cooperation. He said imports had doubled! "So they're buying more Valium to help weather the storm", I coarsely remarked. No he answered, imports have doubled in dollar terms, and quantities have remained about the same. It turns out that hospitals have had to lay off nursing staff to help compensate for their increasing costs. The rational for the valiant but fatal attempt to stave off devaluation was instituted to protect the country from dollar denominated debt. Imagine the effect if your home mortgage or business debt in the early to mid nineties was denominated in yen, i.e. you had to pay interest on yen denominated debt! How much of your growth or hard won efficiencies would have translated to wealth and how much would have gone to Japan Inc. Now imagine that happening in the midst of a capital implosion. None of this means I have a problem with free market mechanisms. I have made a comfortable living from understanding and interacting with them. Sure I've seen fellow speculators go belly up when they have failed to heed their own indicators and I have been through a few scrapes myself. I have simply not seen the kind of destruction of wealth and fear of the future from people who have so little control over the events that cause the situation they find themselves in. Money is imploding! Deflation is causing the huge sucking sound that is tearing wealth and prosperity from everyone. First Japan, then Korea, Thailand, Indonesia, Malaysia and now even Hong Kong and Singapore are in the same vortex. (More charts) Our chief financial officer Alan Greenspan is inflation vigilant! He sees his lifetime goal of zero inflation at hand. Mr. Greenspan take a look behind you! For those complacent soles among you who think the effect on the US economy will be negligible, I've got news for you --WAKE UP! A LEG OF THE ECONOMIC TABLE WE ALL SIT ON HAS BEEN BROKEN OFF AT THE KNEE! It doesn't matter if we crash from here or somehow manage to muddle through. What does matter is that prudent speculation (the only kind that has longevity) demands we exit overpriced assets. Now! Not tomorrow or next week! I'm the apostle of acting on retracements and I say unless you are expert in this area, don't wait for one! Then, watch what is likely to occur from the sidelines or be ready to play the short side. Our job now is to nail down that 5 or 6% in bonds or money market funds and use cotton baton to shield us from the dreamy-eyed that know not where they tread! As if things are not bad enough, lets look at some likely future support levels. Places where these markets are apt to visit before the devastation is over. Joe DiNapoli is a registered CTA and President of Coast Investment Software Inc (www.fibtrader.com). He is a widely traveled lecturer & trader for over 25 years. He has most recently authored Trading with DiNapoli levels -The Practical Application of Fibonacci Ratios to Investment Markets. He is reputed to have called the Dow top at 2700 in 1987 as well as predicting a 500 single day decline some months earlier. ---------------------------------------------------------------------------- The following comments are not a part of this article and will of necessity contain terms those of you familiar with my trading methodology will recognize. In a deflationary environment, bonds should do very well. A monthly OP projects up to the 12903 level (p.187 Trading with DiNapoli Levels). The primary (*) monthly resistance Node was taken out some time ago which also confirms higher prices. Watch out for a "Wash & Rinse" at the old highs around 122. (Fib tactics DiNapoli Levels & The Trading course). Fundamentally two things could go wrong. Japan might repatriate huge sums of money thereby dumping US Bonds or a financial dislocation could occur from the extent of insolvency of the Asian region. I think the first scenario would just give us a great buying opportunity while the second would be a real reason for concern. At fib Confluence resistance levels, watch gold!. If gold breaks through them to the upside, the world financial system is in trouble. On US stocks, I'm looking for a Double RePo on the monthly to confirm that the party is over. With all the glassy-eyed optimism out there and managed news, it's likely a rolling top will occur, for distribution of more equities to the public. Look for Directional signals and negative trends to support short sales. TRADER JO cisinc@fibtrader.com www.fibtrader.com VOICE 941 346 3801 FAX 941 346 3901 COAST INVESTMENT SOFTWARE INC. 6907 MIDNIGHT PASS SARASOTA FL. 34242