Bad News and Worse out of Malaysia

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Here is the bad news on

Malaysia

: First-quarter gross domestic product shrank 1.8%. That is worse than expected. Now, here is the really bad news: Imports into Malaysia fell 18.6% and exports out of Malaysia fell 10.6%, both measured in U.S. dollars. What this tells me is that domestic demand is contracting rapidly. And why not? They are busted. Now, the export figures are even more ominous. Sure, the market demand from the United States and Europe is growing but the problem is Asia. And with the news out of Japan, well, let's just say it doesn't look good. Talk to anyone from there recently? Bet I know what they are saying to you -- it's all the fault of the evil foreign speculators. Denial is an expensive hobby.

Meanwhile, we have

Mr. Suharto's

adopted son,

Mr. Habibie

, trying to run

Indonesia

. Elections are promised but it is not at all likely that any meaningful recovery can take place until someone, somehow restores confidence in the government. You can forget about stabilizing the rupiah -- what was it the Bank of Indonesia was saying, 6,000 to the dollar? Huh. It's trading around 12,000 right now. Many things influence the value of a currency -- current accounts, monetary policy, fiscal policy, interest rates -- but nothing matters more than whether there is a basic state of confidence in the government. Beyond that, I am waiting to see what can be done to bring some stability to the situation of the ethnic Chinese Indonesians. By my reckoning, Indonesia goes nowhere without the Chinese business community -- and there is a lot of fence-mending left to be done.

Pressing on all of these countries is the weakness of the yen. I note that one bank after another is revising its forecast to 150. Its always nice when markets tell you a nice, clean story. The deeper

Japan

goes into the economic dumper, the lower goes the

Nikkei

, the higher go the Japanese government bonds, and lower goes the yen. Japan in a nutshell. Very simple. How bad can it get? A lot worse, I am afraid. So much for the Asian century!

So why is a shrewd operator like

Sandy Weill

buying into

Nikko Securities

? Because, in spite of all the doom and gloom, there is money to be

exported.

And who better to find that money than a firm like Nikko. When it comes to pounding the pavement, nothing can beat a well-trained dojo of samurai securities salesman. A good securities salesman should wear out one pair of shoes per month -- actually, that metric came from the former head of Nomura, but the shoe still fits for Nikko, I am sure. So I look at Weill's bet as not so much that Japan rebounds. It is rather more like hooking up a long hose to a spigot. Its also interesting that the Salomon Tokyo arbitrage group is not part of the deal -- I can't think of a higher compliment to the

Salomon

traders.

Pakistan 6, India 5

Didn't you just know it --

Pakistan

had to go one step further.

India

did five tests, so Pakistan had to do one more. Meanwhile, we see that the Indian rupee is now cruising around 42 to the dollar. The fate of the Pakistani currency is not yet known because their leader took the pre-emptive step of closing down the banks. He also announced that he was moving out of the prime minister's official residence -- a smart move considering that it is probably fairly high up on India's list of targeted sights.

Farewell AuH20

Sen.

Goldwater

-- now there goes a real senator, whether you liked his philosophical views or not. Too bad there aren't a hundred more like him.

David DeRosa heads a trading research firm and is an adjunct professor at the Yale School of Management. His column on international finance and trading appears Mondays, Wednesdays and Fridays. He welcomes your feedback at

derosa@derosa-research.com.