Please elaborate on the "China" risk-- wasn't sure exactly which aspect you were referring to. I can think of two major China risks, I'm guessing you are referring to one or both of them: - economic forcasters are saying China's economy will be slowing down, possibly sharply over the next few years. This could in turn trigger slowdowns in many other Asian economies, and collectively they would be importing less from us, hurting us that way. - if China floats its exchange rate too quickly, they would no longer need to be net buyers of US Treasuries + Bonds, plus there are rumors they might slightly use gold or a fixed basket for foreign reserve holdings. In such a situation, this could add fuel to the fire of any US interest rate increases over the next few years. And that in turn could hurt the housing sector as well as others. I do see these as possible dangers.. but just don't know if they would really be all that severe at least in the first case. I mean look at 1997 (?), that was like an emerging markets nightmare. In fact that whole 6 year or so period starting with Russia's default, Mexico's bail-out, leading to the Asian + Latin American emerging market collapses, then Argentina. Also, look at Japan, the world's second largest GDP zone! They have been in a recession for 12 years and yet we did well during that period. So I'm not too worried about another slowdown abroad. And even if China does slow down, Japan might be finally turning the corner as of the last 3 months or so (still too early to say). True Europe is still growing sub-average but even there, we have some small countries at least that are on fire: Estonia and Ireland come to mind. That said, regarding case #2, I think that is much more likely as a potential severe threat. -Taric
Couple of May news pieces on China. Chinese banks told to sue debtors http://news.bbc.co.uk/2/hi/business/3719081.stm "Correspondents say the idea is anathema to Chinese bankers, despite bad debts of more than $200bn. According to international credit rating agency Standard & Poor's, non-performing loans at the four big state banks - between them holding 80% of loans - could amount to more than 40% of the overall loan book. " Is China's economic miracle in meltdown? http://news.bbc.co.uk/2/hi/business/3700921.stm China's inflation at 7-year high http://news.bbc.co.uk/2/hi/business/3713351.stm "During April, food prices jumped 10%, while the cost of grain rocketed by more than a third. " "The Asian giant is the world's sixth largest economy and fourth biggest exporter and its appetite for raw materials has pushed up prices worldwide. In 2003, China consumed 27% of world steel, 31% of coal and 40% of cement. "
Thanks for the links-- things are obviously much worse than I thought in China! I think this could negatively impact us of course. But I still don't see a 30s style Great Depression as the most likely outcome; as I was saying, Japan has been in not much better of a situation for the last decade or so and they are an even larger trading partner. But I do see these events in China could lead to higher inflation and lower growth in the US. -Taric
Only two? Slowing down from 10% economic growth and pulling back from the brink of double-digit inflation is scary enough. But, once upon a time there was the TienAnMen massacre, missiles fired toward Taiwan and a US response, SARS, did I mention AIDS raging across the countryside like a south African nation? How about a flotilla of PLA warships parading through Hong Kong harbor to get the HK'ers blood flowing? (Yes, the PLA did just that several days ago.) Or perhaps you missed that the independence advocate Chen Shui-Bian was just re-elected on Taiwan by a hairs-splitting margin. (China has threatened war if Chen moves toward declaring independence.) Or how about corporate scandals? With all of these recent ADR IPOs, do we now think Chinese companies are less corrupt than American firms? China Life, among others, is currently under investigation. China is emerging market risk defined. In my view it is kind of silly to try and hypothesize what will happen. Best to be aware that lots and lots of bad stuff can happen, and will happen repeatedly over time.
Correction: I think China is a larger trading partner than Japan now. But during the 90s, Japan was a much larger trading partner than China. They still have the 2nd largest GDP I believe. As long as China remains in free-trade mode I don't see it killing us though. If China were to stop its reforms and get protectionist than that could very likely cause a stagflation scenario here I'll admit. -Taric
Speaking of Japan, much of Japan's recent improvement is the combined effects of massive Chinese and American liquidity and stimulus. The US provided stimulus as prelude to war, and China as a means to recover from SARS. Without these two effects the Nikkei hasn't gone anywhere.
Here is the LONG TERM TREND on the NAS, 200 week ma... ALL MARKETS are at a critical stage, over the next several months we shall see challenges to these levels, and may even get a LONG breakout, though it could be a false move. Interesting times in this election year IRAG -OIL COSTS -STOCK VALUATION -ECONOMY - DEFLATION ??? -PERSONAL DEBT - THIS IS ALL THAT WOULD BE NEEDED FOR FEAR AND PANIC -HOUSING BUBBLE CHINA DEMAND ON THE WORLD RESOURCES
Will the political landscape mirror the 1930s as well? Is Bush our generation's Hoover (no pun intended)?