Yeah, I believe these areas have a lot further to go on the downside. Now, it's interesting that the Asian markets had their problems in the late 1990s, because they were borrowed very heavily in dollars and other hard currencies. And when things started to come unglued, their currencies collapsed. So, they not only had huge debts, but they got bigger, and their local currencies fell against the dollar and other hard currencies.
Dugg on Forbes.com
They dealt with that problem. They built up reserves. They were running surpluses in a number of cases. That problem has shifted to Eastern Europe and the Baltics. It's amazing how that's really what their problem is. And of course, there you had even individuals who had their own little carry trade. They were borrowing in Swiss francs from Hungary to finance their mortgages.
The problem in Asia now, though, is their dependence on exports. Directly or indirectly, we estimate over half of them go to the U.S. consumer, and the U.S. consumer is in the tank. And for every 1% decline in U.S. consumer spending, our imports go down 2% to 3%. That's just the nature of the beast.
And this is a real problem, because Asia, ex-Japan, the last 10 years, they've gone from about 30% of GDP in exports, to 50%. China has been our favorite on this. [As] a matter of fact, in November of '07, when everybody thought that China was going to be strong forever--and, indeed, [that] China was going to support the U.S. if the U.S. slipped--we did a report titled: "The Chinese Middle Class, 110 Million is Not Enough."
What I was getting at in this report was that there are about 110 million people in China who have over $5,000 in income--and that's what it takes to have meaningful discretionary spending. And those are the people that can support the economy domestically. But 110 million is only 8% of the Chinese population. By contrast, in this country, it takes about $26,000, and 80% of us have that middle-class spending power.
So we concluded that China was in trouble as soon as the exports--most of them directly or indirectly to the U.S.--went down the tubes. And I think that's been the case. And now they're beginning to have civil unrest. And if you look back historically over many, many dynasties, civil unrest is what got a lot of them tossed out.
I think there's a chance that we're going to see the end of the Mao Dynasty here. Because they have 20 million people who went home for the lunar holidays [and] didn't come back because they didn't have any jobs. They're having civil disturbances--riots, if you want to call them that. They're trying to deal with this without shooting people, but it isn't getting any better.
Froehlich: I like China as a buying opportunity right now for what it's already gone through--not that it couldn't go lower. I'm not one to try to time the market. Goodness knows, that's almost impossible to do. But I do like what I see China doing, in terms of what they're spending on infrastructure, vs. what we're spending on infrastructure. They're basically spending $600 billion on infrastructure.
Shilling: Yeah, but Bob, a lot of that is double counting, smoke and mirrors. They're counting the recovery from the earthquakes last year. Two-thirds of that is supposed to be state and local money that's raised, and private money. I mean, when you get down to it, there's not an awful lot. And on top of that, their monetary ease--they're reining that in now, because people weren't putting that into bricks and mortar, that additional bank loan. They were putting it into stocks.
MyView
This piece is from Gary Shilling. He is not a bull for China, because he believe more than 50% of the GDP of China is made of exports, and exports are evaporating fast. My take, yes, although China pump in about USD1 trillion, it is mainly into infrastructure, but it is hard to replace the exports that had evaporated. No one talks about the unemployment in the manufacturing, it goes to about 30 million people, which is no joke. Mytake, as usual, against the crowd, China will suffer more first before it comes back later. And as usual, I am wrong, but I am betting that Gary Shilling.
However, everyone has their own arguement. End of the day, whoever reads it correctly will makes tonnes of money.
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