Talking to people we can sense people getting more confident that a recovery is underway. There is a pervasive belief that decoupling is occurring and that these emerging countries will lead the world out of the recession.
The US has been losing its advantage steadily for the past 50 years due to the increasing govt intervention in the economy and the size of govt. as a percentage of GDP. While the emerging markets have the exact opposite dynamic - decreasing govt size as a ratio of GDP.
The belief of decoupling is well and kicking. Sure, there may be decoupling in the next 10-15 years but we think it is too soon. For the past 10 years there has been just one trade in the world essentially - the Long/Short dollar or the liquidity trade. Dollar rallying => liquidity tightens => market down. Infact it almost seems like, there is so much liquidity sloshing around the world that fundamental supply demand picture is still noise compared to the excessive liquidity ebbing and rallying markets. This credit crunch is the cure for this excessive liquidity.
We respect the likes of Peter Schiff. Obviously he is way beyond us in economic understanding. But his pumping of china, while understandable seems a hyperbole. We have often found that Schiff (rightly) questions US govt statistics while taking chinese govt statistics at face value. In our travels we saw lots of empty high rises in the cities of these emerging nations. We don't think the deflation cycle is over. It is going to probably take another 3-4 years.
On that note, when we get back we will do a risque post, our guesstimate on a 4 year chart of the US market based on cycles (dow jones and dollar) and elliott wave and our deflation cycle analysis. Just to keep a record and as a learning process.
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