Asides

U.S. Slump Predictably Spreads

By The Prince ⋅ April 3, 2008 ⋅  Email This Post ⋅  Print This Post ⋅ Post a comment

3 Apr 2008 - The WSJ’s article last night entitled" U.S. Slump Takes Toll Across Globe" gives a pretty good summarization of how the U.S. slowdown is already spreading to foreign economies.  These effects were obviously predictable but the WSJ does do a good job of putting some hard numbers behind how China is getting hit in comparison to Brasil.  "The U.S., the economy at the center of the turmoil, is dragging down world growth. On Wednesday, Federal Reserve Chairman Ben Bernanke gave his most pessimistic assessment to date of the U.S. economy’s outlook, strongly suggesting that a recession is likely. In testimony before Congress, he also said the Fed projects slower global growth over the coming quarters." The dichotomy that the WSJ points out between the growth in countries with natural resources versus the slowing of consumer-goods exporters is quite useful in the eyes of the Prince.  "Countries such as Australia, Brazil, the United Arab Emirates and Qatar are still expanding smartly, although down from 2007, because they have rich veins of high-priced oil, iron ore, alumina or copper. Old-line heavy-machinery makers such as Germany and Japan are riding out the problem because they have diversified their markets.  On the flip side, consumer-goods exporters of Asia that rode to prosperity by trading with the U.S. — Thailand, the Philippines, Malaysia and even China — are seeing their lofty growth rates sag. And the Baltic countries, Hungary and Iceland, which borrowed heavily to finance growth, are now watched by international financial institutions to see whether they will come unhinged by the credit squeeze."  The U.S. consumer continues to be the main player when it comes to global growth. However, the influence of the American consumer is clearly not what it once was and the article does a good job of pointing to this by focusing on the rising Euro and the diversification of some economies/foreign companies away from reliance on the U.S. consumer.  The Prince’s prediction?  Decoupling is still no where near complete and the consumer good exporting countries will shoulder most of the pain from the U.S. slowdown.  Time to start those shorts on the overvalued Chinese market or keep them on if you are already in those trades.