Specific recommendations for 2003 (page 4 of 4)

And while I don't think that this would be a devastating blow for Asian economic growth, it would nevertheless have a negative impact on foreign investors' appetite for Asian equities.

Therefore, markets may not perform particularly well under such a scenario. The second concern I have is that, although economic growth looks superficially strong, Asian consumers are increasingly purchasing goods on credit, which may in the long-term lead to some problems among financial institutions.

Finally, there is a potential geopolitical problem. I don't regard North Korea's decision to restart a nuclear reactor and a plutonium reprocessing plant that had been mothballed under a 1994 agreement with the US, along with its decision to withdraw from the nuclear nonproliferation treaty, to be a major problem per se. The problem lies in the question of who made the call to North Korea's Dear Leader Kim Jong Il and suggested that he use the current US engagement and paralysis in the Middle East as a golden opportunity to restart his nuclear program.

For sure, it wasn't one of the Western European nations, the US, Japan, or any of the Latin American countries, but what about Iran, Iraq, China, Russia, or even South Korea? Both Iraq and Iran have an interest in creating as much geopolitical trouble for the US as possible and in shifting the attention of the US away from the Middle East. The Chinese are also a likely candidate for such a call, since they may wish to use North Korea in future in the same way the Soviet Union used Bulgaria during the Cold War to carry out dirty jobs.

Russia could also be interested in North Korea as an ally, fearing the increased Chinese presence and influence in Far East Russia. Finally, the South Koreans know that unification with North Korea is only a matter of time. So, why not seize the opportunity to have the North bring into the marriage nuclear weapons, given Korea's small size and military vulnerability when compared to its powerful neighbours such as China, Russia, and Japan?

In any event, this new 'situation' is most embarrassing for the US, because it makes a war in Iraq more difficult to justify if the US fails to take any military action against North Korea, which seemingly is also interested in acquiring weapons of mass destruction.

In the course of 2002, we have repeatedly warned that US dollar weakness was only a matter of time. Since the summer of 2002, the dollar has weakened considerably and we feel that the 1995-2002 bull market has definitely come to an end and that, after a brief technical rally, more dollar weakness should be expected in 2003, as the US economy continues to disappoint.