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Jan 13, 1998, 3:00:00 AM1/13/98


Tsunami Tidal Wave of Stock Market Loses Wash Over ALL Asia

During the last six months of currency chaos and stock market havoc -
both which continue as I speak - the average citizen of the average
country of this Southeast Asia, who had the foresight of converting his
currency into GOLD, would now be about 76% RICHER - reflecting the
average increase in gold's value in the five besieged paper currencies.

Five charts showing the explosive price rise in Asian currencies
(Indonesia, Korea, Thailand, Malaysia & the Philippines) will indeed
convince even the most skeptical that only GOLD is providing a safe
harbor for local investors. The rising gold price trend in local
currencies is literally ORBITAL.

The universal and timeless truism is STILL VALID: GOLD IS THE ULTIMATE
STANDARD OF VALUE, and paper is just paper!

To read the entire report :

Khun Stan

Jan 15, 1998, 3:00:00 AM1/15/98

<Q>What's in store...will governments really allow deflation to occur...or
will they at some point be forced to crank up the printing presses, driving
the world to inflation and perhaps - as crazy as it sounds -

<A>I want to devote some time to this subject, because this is the question
many investors are asking right now and the answer will dramatically impact
one's investment activity. In my opinion, this is a very tricky issue, and
I must admit I don't have the answer. However, I do have a certain outlook
and a HISTORICAL perspective of how these things have worked out. Wall
Street has used the term deflation off and on for the last half-dozen
years. However, we have only been going through a period of low inflation,
not outright deflation. Since the depression of the '30s, the closest thing
to deflation has occurred in Japan, which has been laboring through a
recession for seven years.

My bias is that all roads lead to inflation in a social democracy. Why? We
simply won't tolerate the consequences of deflation. America will forever
fight the battle of economic depression. Now, every time I say things like
that, people go berserk, so let me explain. I don't mean we won't have a
blood-curdling recession, accompanied by price declines and the like. Those
things can happen. In fact, they are going on now in many of the Asian
countries. So the rhetorical question is: Are they experiencing deflation
or inflation? The answer is "both." They are experiencing inflation because
of the currency problems while prices are collapsing for certain domestic
goods and services.

It's impossible to know how this situation will turn out, but I can tell
you that 2,000 years of history suggests currencies always go to zero. So
in the long term, we will always, always, always move toward inflation. But
we are all dead in the long-run, anyway, so that doesn't really matter for
those worried how an investment will do in the next two years. However, it
is important to know what the long term forces are. That being the case, we
won't let credit be destroyed (at least we will try not to let that
happen). That's what these IMF bailouts are about: trying to avoid the
destruction of credit.

Examining the other side for a moment, credit destruction is precisely
what's going on in Japan. The country has tried to avoid that for seven
years, and now it is swimming in the morass of its banking system. At the
same time, massive problems have been brought on in Asia by currency
mismanagement and other things we have discussed previously in the Rap.

Now, the major global problems, from my perspective, are the consequences
from the worldwide stock-market mania. We have too much capacity in
virtually all industries. After all, this has been the first post-Cold War
economic boom (and we may be about to have the first post-Cold War economic
bust). Booms and busts have happened throughout HISTORY; they're part of
the business cycle. But the "new era" people wanted to believe that we
would never see this again. Well, here we are. We simply have too much
capacity, especially in everything related to technology. The consequence
of too much capacity is falling prices. Now, if over-capacity continues in
only a few industries, it's not out-and-out deflation - but the bust side
of a boom. In order to have a real depression, and out-and-out deflation,
which I find unlikely - mistakes would have to be made when the inevitable
economic problems show up. By mistakes, I mean ill-advised moves within the
banking system that cause some sort of credit collapse.

Even if we have a very severe, synchronized worldwide recession - which I
think is a decent probability - that doesn't necessarily mean we will have
deflation in the broad sense, because governments would try to fight it off
tooth and nail. Those who are angered by my opinion always ask: What about
pushing on a string, like they are doing in Japan? They never cleared away
the deadwood from their banking system. Whether you push on a string or not
depends on whether the banking system has been impaired and whether credit
is being destroyed. In 1990, lots of people said we were pushing on a
string in the United States, when in fact that wasn't the case. We were
able to re-inflate the banks. The Japanese have not been able to do that.

The bottom line is that the dye is not cast. The long-term problem is
inflation; the short-term one is over-capacity. It's important to be
cognizant of these opposing forces and see which gets the upper hand for
the time being. It is the fear of deflation that brings inflation. It would
take serious policy mistakes and the destruction of credit to bring
deflation to this country. After all, officials will print money and create
programs like mad in an attempt to stop deflation dead in its tracks.
That's what these bailouts are all about.

Now, let's turn to the subject of gold for a moment, because it is
intertwined in this discussion. First and foremost, gold is a commodity.
Whether it is a good investment or not is a function of how the price
relates to its cost of production. In my opinion, gold can only do well as
an investment WHEN PEOPLE LOOSE CONFIDENCE in the more popular investment
instruments, and actually become fearful of their own prosperity (as we are
seeing in Asia now). So, as long as the world views the stock market as a
25 percent-a-year return investment and sees no risk, it's hard to see how
gold can do well.

But now, the apple cart has been upset. There are huge problems in Asia.
PEOPLE IN ASIA WHO OWN GOLD have done better than those who own ANYTHING
else (i.e., stocks) except for dollars (for now). Now, I am not a believer
in the ultimate soundness of the dollar. At some point, it too may come
under pressure as all currencies eventually will. Right now, gold is locked
in a down trend as miners try to hedge production and central bankers
continue to pound away. It has been a self-fulfilling prophecy. If gold can
stabilize and start to turn around, given the psychological backdrop, it
may turn into a pretty interesting asset class. This is the time to pay
attention to gold. It is interesting to note that, in certain parts of
to believe in gold as an investment for it to do well. Right now gold is
viewed as only a commodity. So if the psychology turns and gold begins to
gain popularity as an asset, the move could be explosive. Only time will
tell if this happens.

William A. Fleckenstein <>

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