Comments on: Higher Prices to Hit Americans as Labour Costs, Demand Rise in Asia http://www.dailyreckoning.com.au/labour-costs-rise-in-asia/2007/09/27/ An independent perspective on the Australian and global investment markets Sun, 08 Nov 2009 10:25:55 -0600 http://wordpress.org/?v=2.8 hourly 1 By: Coffee Addict http://www.dailyreckoning.com.au/labour-costs-rise-in-asia/2007/09/27/comment-page-1/#comment-3452 Coffee Addict Fri, 28 Sep 2007 00:38:43 +0000 http://www.dailyreckoning.com.au/labour-costs-rise-in-asia/2007/09/27/#comment-3452 Yes Bill, the East Coast of China is moving up the feeding chain rapidly. I'm always willing to admit I was wrong in being a market bear. At the moment I'm a fence sitter. Please correct my back of the envelope metrics concerning global prospects. 1. The US economy constitutes about a third of the world economy. A severe US recession rolled out over the next 18 months (say 10% of GNP) that would knock 3% off world growth. This would be my worst case scenario. 3.Outside the US, the hardest hit would be exporter countries like Japan which due to ongoing economic stagnation and reliance on the export of high end consumer products will also move into recession. 4. I expect the growth in economies like China and Korea to at least halve but recession in the growth economies will be avoided. The Indian and Russian economies will also continue to grow. 5. Europe also constitutes about a third of the world economy. A major recession in the US would (intuitively) result in a minor recession in Europe. The Euro is likely to replace the $US as the defacto world currency. 6. The severely weakened $US may present good long term export tidings for the US automobile, technology, aircraft and manufacturing industries. This is one aspect how the invisible hand will shift the US economy. Americans may find that invisible hand adjustments force them to live with in their means for a couple of years at least. What a shock! 7. What will it mean for Australia? Well, commodity prices may l fall during the adjustment period but the world will in fact continue to spin. The world population growth and a growing middle class in Asia, South Asia and Russia will indeed overhaul the impact of a US recession within a year or two. That’s my prediction. 8. As for the detail of the credit markets that I now observe as very small part of my day job, who knows? The invisible politics of Wall Street clearly have an interest to ensure that the likes of Bear Sterns don’t fail completely. The bottom feeders have arrived. Central bank intervention seems to be taking the risk of wide range of imminent failures off the table. Adjustment will instead of occur through inflation and $US devaluation (as socialisation of private losses). 9. So what of the future of structured credit products? The market will return but only if there is significantly improved transparency and honesty which will in turn allow risk to be priced more accurately. I now think it likely (though not certain) that the large majority of Australian investors in structured credit products of their cash back on maturity. Yes Bill, the East Coast of China is moving up the feeding chain rapidly.

I'm always willing to admit I was wrong in being a market bear. At the moment I'm a fence sitter. Please correct my back of the envelope metrics concerning global prospects.

1. The US economy constitutes about a third of the world economy. A severe US recession rolled out over the next 18 months (say 10% of GNP) that would knock 3% off world growth. This would be my worst case scenario.

3.Outside the US, the hardest hit would be exporter countries like Japan which due to ongoing economic stagnation and reliance on the export of high end consumer products will also move into recession.

4. I expect the growth in economies like China and Korea to at least halve but recession in the growth economies will be avoided. The Indian and Russian economies will also continue to grow.

5. Europe also constitutes about a third of the world economy. A major recession in the US would (intuitively) result in a minor recession in Europe. The Euro is likely to replace the $US as the defacto world currency.

6. The severely weakened $US may present good long term export tidings for the US automobile, technology, aircraft and manufacturing industries. This is one aspect how the invisible hand will shift the US economy. Americans may find that invisible hand adjustments force them to live with in their means for a couple of years at least. What a shock!

7. What will it mean for Australia? Well, commodity prices may l fall during the adjustment period but the world will in fact continue to spin. The world population growth and a growing middle class in Asia, South Asia and Russia will indeed overhaul the impact of a US recession within a year or two. That’s my prediction.

8. As for the detail of the credit markets that I now observe as very small part of my day job, who knows? The invisible politics of Wall Street clearly have an interest to ensure that the likes of Bear Sterns don’t fail completely. The bottom feeders have arrived. Central bank intervention seems to be taking the risk of wide range of imminent failures off the table. Adjustment will instead of occur through inflation and $US devaluation (as socialisation of private losses).

9. So what of the future of structured credit products? The market will return but only if there is significantly improved transparency and honesty which will in turn allow risk to be priced more accurately. I now think it likely (though not certain) that the large majority of Australian investors in structured credit products of their cash back on maturity.

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