The
invisible hand
Read
Greek mythology. For a fair grasp of US economy and its ways.
Achilles struck terror. In the Hellenic war. None could stop him.
Not only because of his superior martial skills. He could be fatally
hit only at his heels. A secret not known to many. So he ran riot.
Till a chance arrow did him in.
The US economy is looking like the Greek hero. But without his
vulnerable heels. Greenspan's shafts are not reaching it. Even his
more effective sabre-rattling is powerless. The interest rates are
up. But the economy keeps growing. Its pace frightens him.
For Mr.Greenspan, the accused No.1 is the share market. Its wealth
effect defies him. At times it shows feeble signs of easing up. But
cozy in the bull grip. The indices are down but not to the levels he
feels happy about. His danger signals are ignored.
Of late, however, it has become far too tiring to pan the markets
for a periodical. For the mood out there changes in no time - often
at 180 degrees. A few weeks ago Nasdaq made huge territorial gains.
A rendezvous with Dow was in sight. Then there was the global
downdraft in technology stocks. A sort of second thoughts on its
virility.
That should make no dent in an objective analysis. But it can
distract. To avoid discomfiture we will take a cut off date.
February (2000) 11. That day the market cap of all stocks at Wall
Street and Nasdaq topped $17 trillion. Twice the GDP of US.
But there is a difference. Alan Greenspan's hard ball spooked only
the old economy stocks. The new technology sector is high-flying.
Enabling the investors to spend three or four cents a dollar gained
on the trading screens. Enough to set at naught Greenspan's gallant
efforts to tranquillise the market.
On the trading screen, it is two-way traffic. Dow has given up hopes
of an eyrie far above 10,000. For the time being at least. Though it
made sparkling gains earlier. But net-heavy Nasdaq has tripled in
just two years. And doubled in 11 months.
No let up in sight. Early March, Nasdaq crossed in the sunny uplands
above 5,000. Rising up to 25 per cent so far this year. And set to
overtake Dow. With no rhyme or reason. Pro-Nasdaq analysts work
overtime to prove that this time it's no bubble. The technology
sector is growing fast. So the e-leap is well in order. Forget if a
few companies earn little and yet their shares skyrocket. Earnings
projections are on the upside. Estimates of annual jump (for techs)
go up to 27 per cent.
The P/E ratio has long lost its lodestar role for investments. With
shares of companies with nil earnings fluttering high. Also taken in
stride are the whiplash of higher interest rates. It is taken for
granted that the Fed will hike the rates to even seven per cent this
year. High oil prices are in tow with a tight labour market.
But the hot growth areas are well insulated. Some analysts are more
optimistic. They predict a possible meeting of the two indices at
7,500 this November. For proof they point to the domestic equity
funds - almost three quarters of their fresh investments are now in
tech-stuffed mutual funds. It was only a quarter last year. The
market has factored in the huge sales likely from lock-up
arrangements.
Where is it all now? Wall Street's P/E ratio (of select scrips)
works out to 45. As on our cut off date. Perches preceded falls
earlier. Often leading to depression. Even as the elixir of its
wealth effect dried up.
But on Wall Street now pessimism is heresy. Fluctuations aside. The
bears have their claws drawn back. The market fundamentals, it is
claimed, have changed. The new economy is different. It can't be
measured with the good old long-lines. The knowledge industry has
rewritten the rules of production and productivity. It assures
non-stop growth.
In Lower Manhattan (and elsewhere too) not all are buying the
argument. The fundamentals so far laid bare are not sufficient to
explain the boom now bordering lunacy. So a few analysts are looking
beyond the conventional parameters. And suspicion is growing that
forbidden money is behind the IT (Nasdaq) shares reaching out for
the sky. The evidence gathered is more than circumstantial.
The feeling is gaming ground that narcotic money is entering the
mainstream in a big way. And IT shares are attracting a good deal if
it. The pension and mutual funds patronise the old brick and morter
shares. Dow's main components. With tangible assets. That is the
reason they are lacklustre. For the unwanted money, anything can do.
So Nasdaq is the favourite watering hole.
Earlier, it was not that easy to bring the tainted cash to high
visibility. For years it used to be parked in tax havens.
Switzerland was the first halt. Then the atolls in the Pacific and
Atlantic. Now banks are crazy about accepting the free
deposits.
But luckily for the drug dealers the entry points are far too many.
The interlinking of forex markets is a godsend. So also the
galloping share markets with IT companies up. The yen-carry trade is
a safe vestibule. The Hong Kong market rose 70 per cent in the past
one year. Dot.com IPOs there being oversubscribed 700 times.
The Financial Action Task Force has listed 31 countries engaged in
money laundering. Earlier, there were 66 on its provisional list.
Including 21 from Europe alone. Among them Great Britain and
Switzerland.
As many as 36 offshore money centres are girding up to stop money
laundering through financial markets. Among the offering cleansing
services for the ill-gotten loot is Cayman Islands. One of the
world's largest financial centres, it is home to 500 banks and trust
companies. Total assets: $500 billion. Now Cayman wants no dirty
money.
However, for the volume of narcotic money only guess estimates are
possible. Unofficially it is placed at $1.5 - 2 trillion a year. No
exaggeration, says a Mexican study. In 1999 alone the its
cross-border drug trade generated $30 billion in business.
Are the hedge funds in the business of money laundering? The
question is being raised. With no chances of a clear answer. But it
is a fact that the short term capital movements have of late seen a
sudden splurge. After a lull. And few have time for thoughts on the
international mechanism to regulate them. With no new crisis in
sight.
Non-governmental organisations (NGOs) work overtime to show how
Nasdaq is rubbishing the basic egalitarian norms. Mark the NGOs were
active in both Seattle and Davos. In independently researched papers
they bring home to the world how fast inequalities are breeding in
the name of information technology and tele-revolution.
Wall Street dealers received $13 billion in bonus for 1999. The
average income of world's 1.2 billion poorest people is only $1 a
day. The combined assets of just three billionaires (all IT
products) equal the GDP of 48 least developed countries. And 447
billionaires (jointly) are richer than half the humanity. Half a
billion people are under-nourished. Long live information technology
- Nasdaq. |
