“All I can say is thank goodness for the rise of the Asian consumer as they are now the consumer of last resort,” said Jonathan Pain early this week. He’s the chief investment strategist of hedge fund HFA. Mr. Pain sees what should now be quite clear to everyone with a brain: the subprime credit-crunch is leaking over into America’s economy via layoffs. People who lose jobs tend to spend less money.
America’s consumer economy and housing economy were linked in many ways, through home-equity lines of credit, through employment in real estate, mortgage lending, construction, and household furnishings. If it’s not already in recession, it won’t be long. The layoffs in the pipeline from the housing bust are going to put a serious dent in American consumption. And that dent won’t be restored by credit-card borrowing. Lenders are doubly wary.
Just how many jobs are we talking about? “Since the start of the year,” reports Forbes magazine, “more than 40,000 workers have lost their jobs at mortgage lending institutions, according to recent company layoff announcements and data complied by global outplacement firm Challenger, Gray & Christmas Inc. Meanwhile, construction companies have announced nearly 20,000 job cuts this year, while the National Association of Realtors expects membership rolls to decline this year for the first time in a decade.”
While it’s possible the whole world will go down with the American consumer, we’d expect to see a transition. Who has money? The savers of Asia. Those Asian savings grow in purchasing power as the value of the US dollar declines (as it surely will when the Fed bows to market pressure and cuts rates in the next three weeks). Australia’s resource industry is counting on the rise of the Asian consumer.
Dan Denning
The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- None Found
About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by dubious pete in melbourne on 24 August 2007:
Dr Pain is a legend. I'd drive a hundred k's to her him speak. Just to clarify HFA is not a hedge fund but a Fund of hedge fund's, and were Net Short on sub prime and so have cleaned up. Their investment manager Lighhouse in USA was instrumental in this, I'd love to see their figures for July/ August.
Jon's been criticised for saying the same thing for the last 4 years- US trade defecit, fiscal defecit, china recycling US treasuries, tech boom housing boom LBO M&A boom, synthetic products boom, all to go bust, with China left to rule the world. He's the reason I'm speaking Mandarin now. Some of his articles are openly available on the web from here http://www.hfainvestments.com.au/IRM/content/news_jonathanarticles.html. Their web site has a recent article on it too re sub prime, but it looks like 6 pages of advertising their fund rather than an article.