NEWS AND COMMENTARY October 20, 2000 Does an International Bear Market Mean World Recession? By Floyd Norris, The New York Times A Recession? We're Headed for A Depression ... Weiss comments NEW YORK - Remember 1998? 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 percent or more. And you were upset that the Standard & Poor's 500- stock index is down 5 percent. "Nobody is really thinking about the weakness of the world outside the United States and Europe," said Michael O'Higgins of O'Higgins Asset Management in Miami. "It means the world economy is a lot weaker than people think. The markets smell trouble ahead." There are signs of worry in this country, too. Junk bonds are trading as if recession and huge defaults are just around the corner, at premiums to Treasury bond yields that exceed those of the 1998 panic. 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. In Taiwan, down 42 percent this year, the government yesterday announced its second package in a week aimed at shoring up stock prices. Part of the package is an increase in the amount foreigners are allowed to invest there, a change that might be more effective if it came at a time when foreigners wanted to do so. A worldwide recession would be welcome if that's the worst of it. Right now, we're heading for a full-fledged depression. While some may point to the U.S. stock market as a safe haven because of the strength of the dollar, the dollar is too strong. We witnessed the weakness of the euro massacre earnings of U.S. companies. If currency weakness spreads throughout the entire globe, earnings for U.S. companies are bound to get much worse. And that's not a good thing for the stock market. Plus, skyrocketing food and oil prices will force Americans to cash out their investments in order to pay their bills. Remember that consumer debt has ballooned over the past few years and the savings rate is in negative territory. When faced with the choice of investing in a tanking stock or paying the bills, there isn't much of a choice.

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