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gence criteria, I don't know why I would want to put any money there. Europe is a decade behind the United States or more in terms of restructuring; I think those markets are going to be a tough place to make any money next year.
MR. SPEIDELL: Well, we are in a very optimistic mood about all of the non-U.S. markets. We think that after years of advocating allocating increased assets internationally, there is going to be a significant payoff for investors who have done this in 1996.
Part of it might be that the U.S., although a good market, is not the most spectacular market. But we think there are some very broad general positive repercussions from the end of the dollar crisis worldwide, and that has colored the attitudes and policies of many governments. They can now get back to business.
There are on my mind three wild cards for next year, and I am optimistic about all three. The first one is progress in Russia. We have read with confusion the many reports coming out of Russia in the last 12 months. It appears the country continues to move, irregularly, in the direction of positive reforms. But there could be some alarms raised there.
The second is China. The transition to the new regime has caused tremors in Taiwan, Washington and Hong Kong, and we are getting closer to the 1997 reunification of Hong Kong with China. I am optimistic China will continue on the path of reform and capitalism and gradually become more open.
Lastly, is the Mexican peso, which I blame single-handedly for the debacles in emerging markets around the world over the last year. It looks to us like the Mexican peso is seeking a bottom; and yet there are, from our sources, indications of further political developments needed in Mexico. And some of those could unsettle the peso. But with those three wild cards in play, our call is positive international.
MR. ARNOTT: I would agree with Larry, but come at it from a somewhat different vantage point. In terms of the outlook for non-U.S. markets, these markets in general have not benefited to nearly the extent the U.S. market has from the global plunge in the interest rates. They have got some catching up to do, and that is likely to occur.
We are not yet bearish on the United States, but we aren't strongly bullish either at current levels. On most of the European and Asian markets, we are in fact quite strongly bullish on equities because of the likely continued ripple effect from the plunge in interest rates that has not just been a U.S. phenomenon, but has taken place all over the world. Even on non-U.S. bonds we are more bullish than we are on the United States because the plunge in interest rates has been smaller than in the United States. And there is a tendency for many of these markets to fall in response to U.S. movements.
I also would single out Japan as a particularly interesting market. It isn't our most favored market, but it's our most favored large market. We have a situation in Japan where that market is priced at - if you use the Nikkei Index - just over three times what the U.S. Dow is priced at. And at the end of 1987, it was priced about 12 times the Dow. That is a huge drop in relative valuation.