Rosenberg: ‘Asia Revival May Be For Real’
David Rosenberg is out today with a bullish Asia commentary. In today’s “Breakfast with Dave” comments, he says:
Asia Revival May Be For Real: Unless the data are lying, we are seeing spreading strength across the continent. This is bullish for the commodity complex, which is now breaking out. Gold, copper and oil have all broken above their 200-day moving averages just as the U.S. dollar has broken below its trendline. The U.S.A. is still the largest economy in the world by far, but it is losing its dominance each year and the fact of the matter is that it is a mature service-driven economy. Emerging Asia in general, and China in particular, are still the marginal buyer of basic materials, and their economic success is more critical to the outlook or commodities.
This is a reading of the data that I fully support. In the past, I have mentioned the fact that Asia is looking to de-couple from the western currencies (see my post “Asia is De-coupling” ). However, they are also likely to recover before Europe given recent economic trends, one reason their equity markets have rallied significantly, well ahead of U.S. or European markets.
Rosenberg is still very bearish on the U.S. economy, as he sees D-cycle dynamics (deflation, depression and deleveraging – what I call the three D’s) as holding sway for the foreseeable future. You should notice that the Personal Spending numbers that came out today support that view as they showed Americans saving at the highest rate in 14 years, with a savings rate now well above 5%.
Is America likely to experience a depressionary balance sheet recession? In my view, this is a likely outcome of the bubble bursting in the U.S. and I will have more to say about this theme in later posts.
If exports are a very high percentage of Asian economies and the US PCE is decreasing, what is driving the Asian growth? Is there any real evidence of the Asian economies stimulating more consumption? If not, and if the growth is coming from investment in more production capacity, how long will this decoupling last?
the Asian growth story is a first derivative story. If your economy contracts 20% in a quarter as it did in Singapore, using annualized numbers, then you are going to find it easier to grow down the line. Growing from a base of 85 is easier than growing from a base of 100 (which is where Singapore might end up). This does not mean all is well.
Is the growth sustainable? I believe it is, especially to the degree the Asians use this as an opportunity to de-couple from the west i.e. develop an internal growth dynamic. This appears to be happening, but it is early days, so let’s see where this gets us.