Depression in the USA - Deflation verus Inflation

[shasta]

I see the FED put some fresh bandaids on the wounds last night and the US markets have reacted accordingly

Still seems to me, like putting a plaster on a shark bite!

[STRAT]

Still seems to me, like putting a plaster on a shark bite!

My point exactly but it will probably turn the herd for a day or two. All I need now is a stock or two to announce something big at the same time

[FarmerGeorge]

My understanding of this is that it is something more than a plaster. Of course it depends on exactly what you see it as trying to fix. This won't have an effect on the 'recession'. (I'm still not convinced the US is in recession, just my view). However the way this is put together may go a long way towards getting the ball rolling again in terms of credit, which is what is really the worry. Even if it turns out that the US is in, or is approaching, recession, this is not an issue for us investing in Australia. Major lack of liquidity and credit is a far scarier thing and this initiative may help. It's not a silver bullet, but it will help.

[STRAT]

My understanding of this is that it is something more than a plaster. Of course it depends on exactly what you see it as trying to fix. This won't have an effect on the 'recession'. (I'm still not convinced the US is in recession, just my view). However the way this is put together may go a long way towards getting the ball rolling again in terms of credit, which is what is really the worry. Even if it turns out that the US is in, or is approaching, recession, this is not an issue for us investing in Australia. Major lack of liquidity and credit is a far scarier thing and this initiative may help. It's not a silver bullet, but it will help.

Hi George,
I dont think Aussie investors are outside the loop and all aspects of our current situation are completely interconnected IMO. You only have to look to Europe or the ASX to see that. The US is still the largest economy even if it is on loan from everyone else and as the No1 consumer what ever happens there will have, is having a direct flow on effect. Im not planning too far ahead these days

[FarmerGeorge]

I agree mostly with what you're saying Strat. Our markets are moving roughly in line with the US markets, as tends to happen during periods of market stress, that much we can see. But I think we disagree on why this is, and I would certainly not agree that ALL aspects of our current situation are COMPLETELY interconnected. I simply don't believe that the US market is dropping as it is due to recession (or fears of recession) nor do I think that a recession in the US, even if it occurs (or if it's occurring right now) will have a marked effect on the Australian economy, unless it is long, deep and rugged.

But I should add that my blanket statement about 'us investing in Australia' was a bit over the top, of course it will depend on what you're invested in. My position is that the underlying fears of a lack of liquidity and credit are what's driving US market movements and that anything that moves to alleviate this will have far more positive effects on their market (and consequently the Aust market) than anything which is directed primarily at 'avoiding recession'. I'm also of the opinion that much of this US/Australian stock movement correlation is irrational on the basis of expected earnings and over time will give some investors here (hopefully including me!) some excellent gains.

[STRAT]

I agree mostly with what you're saying Strat. Our markets are moving roughly in line with the US markets, as tends to happen during periods of market stress, that much we can see. But I think we disagree on why this is, and I would certainly not agree that ALL aspects of our current situation are COMPLETELY interconnected. I simply don't believe that the US market is dropping as it is due to recession (or fears of recession) nor do I think that a recession in the US, even if it occurs (or if it's occurring right now) will have a marked effect on the Australian economy, unless it is long, deep and rugged.

But I should add that my blanket statement about 'us investing in Australia' was a bit over the top, of course it will depend on what you're invested in. My position is that the underlying fears of a lack of liquidity and credit are what's driving US market movements and that anything that moves to alleviate this will have far more positive effects on their market (and consequently the Aust market) than anything which is directed primarily at 'avoiding recession'. I'm also of the opinion that much of this US/Australian stock movement correlation is irrational on the basis of expected earnings and over time will give some investors here (hopefully including me!) some excellent gains.

Hi George. without going long winded on the topic ( we could probably chew the fat for hours and end up in agreement on most of the symptoms if not the causes ) the most significant connection I see for Auzzie and the US is via Asia. That is to say Australia is somewhat dependent on the satus of Aisia and Aisia on the US. In particular with regard to the mining sector which is where I like to play

[FarmerGeorge]

I think your point is sound Strat. Fewer US purchases from Asia logically should lead to less demand for the raw materials Australia is sending over there (and in which many of us have invested our money!) with the resulting disappointing returns. This argument has been made in the media and on this forum and it may well turn out that this is what happens. I think that this issue has been overdone and it won't be nearly as bad as many are anticipating. Of course this rests on my assumptions about an eventual credit market recovery and no, or at least a mild, recession in the US. If I turn out to be wrong, well I turn out to be wrong and I'll lose a lot of money. But I guess that's the nature of the beast. I simply don't see the data that gives certainty of any of the gloomy scenarios that are being talked about. Obviously I appreciate the knowledge of all the contributors here and I take the point seriously, I'm just not convinced yet.

[STRAT]

I think your point is sound Strat. Fewer US purchases from Asia logically should lead to less demand for the raw materials Australia is sending over there (and in which many of us have invested our money!) with the resulting disappointing returns. This argument has been made in the media and on this forum and it may well turn out that this is what happens. I think that this issue has been overdone and it won't be nearly as bad as many are anticipating. Of course this rests on my assumptions about an eventual credit market recovery and no, or at least a mild, recession in the US. If I turn out to be wrong, well I turn out to be wrong and I'll lose a lot of money. But I guess that's the nature of the beast. I simply don't see the data that gives certainty of any of the gloomy scenarios that are being talked about. Obviously I appreciate the knowledge of all the contributors here and I take the point seriously, I'm just not convinced yet.

Hi George, We all have to play it as we see it and even the most conservative investors here are speculators to some degree. There is a wealth of knowledge on this site and as a relative newbie I consider myself fortunate for the help I have received both directly and indirectly from other members.
I find myself unable to see the future with any clarity at all at the moment and am playing my hand accordingly. With the exception of ADY everything I am involved in is a very short term play.

[Laxmi]

http://www.ft.com/cms/bfba2c48-5588-...0779fd2ac.html

For those that are interested the analyst is John Authers.

John's analysis suggests the US is now is recession and the financial system is broken. (amongst other things)

I think the question that we should all be asking ourselves is how deep will the US recession go? and how much will it impact on Asia? (assuming that New Zealand and Australia are part of Asia)

Thoughts anyone?

[tricha]

Global Confidence Weakens on U.S. Economic Slowdown (Update1)

By Simon Kennedy

March 12 (Bloomberg) -- The outlook for the global economy deteriorated for a fourth month in March amid declining faith in Asia's ability to dodge the U.S. slump, a survey of Bloomberg users on five continents showed.

The Bloomberg Professional Global Confidence Index fell to 13.1 from 14.3 in February. Respondents in Asia were the most pessimistic about worldwide growth and a gauge of confidence in their own economy fell to 38.1 from 43.5. A reading below 50 indicates negative sentiment.

Asia, almost twice as reliant on overseas sales as the rest of the world, is being dragged down by weaker growth in the U.S., Japan and Europe. Purchasing managers' indexes in China, Singapore, Hong Kong and India already signal slowing manufacturing growth.

`No Growth'

``As the U.S. appears to lurch from modest growth to no growth, that could give a further negative impulse to Asian growth,'' said Edward Teather, an economist at UBS AG in Singapore. ``Evidence has been growing that exports in many countries have slowed.''

Sorry Sector another tacky article, the flow on effect


China factory output growth cools

China is heavily reliant on its exports

China's industrial output weakened in January and February as firms were hit by lower exports, official data shows.
The measure of factory production grew by 15.4% in the two month period, down from 18.5% in the same period of 2007.
Chinese firms are having to deal with higher raw material costs after crude oil prices climbed to record levels.
They have also been hit by a stronger yuan, weakening US demand, and poor weather at the start of the year, which hampered transport and distribution.
"Exporters are facing big problems and they are unable to make profit," said Andy Xie, an independent economist based in Shanghai.
Recent figures showed that Chinese exports increased by 16.8% in the eight weeks to the end of February, less than half the growth rate of 41.5% in the same period a year earlier.
As well as the external problems facing Chinese producers, the government also is taking steps to slow output in an attempt to stop the booming economy from overheating.
China's continuing economic expansion has pushed up the rate of inflation, and prompted higher interest rates. "With heightened inflation risks, we expect that further tightening measures by the government coupled with a gradual softening in exports will likely lead to downward pressure on industrial production," Goldman Sachs said.