Summary:After almost a decade of robust economic expansion, efforts to correct excessive capital spending and inventory accumulation, briefly led the U.S. into a recession. However, increasing real estate values enabled homeowners to leverage the equity in their properties to finance consumption levels that prevented the economy from falling into a deeper recession.
Donald Straszheim noted that in March 1998, the NASDAQ Index was above 1700, and only two years later, the Index had peaked at above 5000 as a function of the extremely generous valuations that high technology companies, the major component of the index, were obtaining in the market. Now, only two years later, the index is back to the 1700 level. In contrast, and although most major U.S. indices are lower than they were two years ago, six out of 10 broad sectors that compose the S&P 500 index are at new highs.
The excess of capital made available through the markets in the late 1990s, allowed many companies with flawed business models to obtain funds and even challenge conventional valuation models. Furthermore, the dynamics of the market allowed investors to enjoy handsome returns for simply buying almost any stock, without regard for fundamentals. This is no longer the case, and we have returned to what is known as a stock picking market, where research and timing become critical in determining the outcome of your investment.
From an international perspective, the main focus was on the Asian region, where China has been attracting an ever increasing amount of foreign direct investment, mainly from Japan and the U.S. On this issue, the question was raised whether greater inflows of foreign direct investment into China were at the expense of FDI into other Asian countries like Thailand, Malaysia, Singapore and Philippines, with the consensus being that it was not.
In regards to the problems that affect the Japanese economy, most panelists suggested that the main obstacles in solving them are political in nature, and that action must be taken now to solve them. In this context, the Japanese current economic situation was compared to the Argentine situation of 70 and 80 years ago; then, Argentina was one of the ten biggest economies in the world, but because of political unwillingness to correct its economic problems, the country lost its importance in the world economy. In closing, the panelists recalled that in the 1980s, many economists thought that if Japan′s economy stumbled, it would have a tremendous negative impact on the world economy. However, and in reality, although the Japanese economy has failed to recover in the past decade, the rest of the world economy has steadily progressed.
Likewise, they cautioned, though the U.S. is the main driver of world economy, if it were to falter, it would undoubtedly be quickly replaced as the strongest kid on the block.
