Sure, Chairman Greenspan's three rate cuts averted financial Armageddon, took us to Dow 9500 and reopened Silicon Valley's IPO window, but loan spreads, risk premia and liquidity crunches are still intact in the Eurocurrency markets for emerging markets borrowers. Two, the existence of the credit crunch means that fiscally profligate Third World governments cannot count on foreign money to finance their deficits and grandoise projects. Since export prospects for commodities as diverse as crude oil, copper, cotton and bananas remain poor, the credit crunch means recession, high real interest rates, debased sovereign risk and Draconian belt-tightening in domestic demand. Without sound macroeconomics and solid GDP growth, bull runs in stock market are impossible. The collapse of oil prices has devastated the economies of the Middle East, Russia and Mexico with no hope in sight.
Brazil has the highest interest rates in the world.
Pakistan has de facto defaulted on its dollar debt. Indian macroeconomics, despite the lifting of UN sanctions, are as awful as they were on the eve of the Rao-Manmohan Singh reforms in '91. Three, Third World earnings shock continue. Asia's financial carnage occurred at a time when its Chinese owned conglomerates had leveraged their balance sheets to the hilt with borrowed dollars. In the Gulf, bank earnings in '99 will be killed by the collapse of local stock markets, downsizing in petrodollar government project finance, shrinkage foreign trade volumes and, as usual, the leveraged post-bubble property lending hangover.