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Is the World Decoupling from the US?

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  • Sat, May 09, 2009 - 12:30am

    #1
    mikek31

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    Is the World Decoupling from the US?

From Peter Schiff’s latest article, Don’t Be Fooled by Inflation:

It is important to point out that despite an impressive rally, U.S. stocks have substantially underperformed foreign stocks. In the past two months, while the Dow Jones has risen 30%, the Hang Seng and the German DAX have risen by over 50% in U.S. dollars. Commodity prices are also rising, with oil hitting a five-month high. And gold is shining as well, with the HUI index of gold stocks up 30% during the past two months, and 2/3 of those gains occurring in the past month. If this rally really were about improving economic fundamentals, gold stocks would not be among the leaders. Further, during those two months, the U.S. dollar index fell by 7%, with commodity-sensitive currencies such as the Australian and New Zealand dollars surging 20%.

To me, the relative strength of foreign stocks and currencies indicates that perhaps the global economy is not as impaired as many have feared. It has been my view all along that after the initial shock wears off, the world will be better off – once it no longer subsidizes the American economy. The shrinking U.S. current account deficit is evidence of this trend in action. Renewed strength in foreign stocks and weakness in the dollar may indicate that not only is the world decoupling from the U.S., but benefitting as a result.
 

I see visions of Icelandic Krona dancing in my head.  At least during the Great Depression, prices for consumer goods fell.  This time around we should be so lucky, considering that most of our goods are imported and our resources depleted.  Granted, we can do away with a lot of this "stuff" and other junk we certainly don’t need, and probably be better off as a result. 

With that said, recent trends show rising oil prices, rising interest rates, and a weakening dollar.  The fundamentals are pointing to price controls, food and energy shortages, blackouts, exchange controls, and government confiscation of wealth and private property for the sake of national security.  Will they still be talking about "green shoots" then?

 

  • Sat, May 09, 2009 - 01:08am

    #2
    Peak Prosperity Admin

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    Re: Is the World Decoupling from the US?

[quote=mikek31] Granted, we can do away with a lot of this "stuff" and other junk we certainly don’t need, and probably be better off as a result. [/quote] Charles Hugh Smith expressed a similar sentiment in his excellent blog entry today: http://www.oftwominds.com/blogmay09/consumerist-gods-fail05-09.html

  • Sat, May 09, 2009 - 04:57am

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    Peak Prosperity Admin

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    Re: Is the World Decoupling from the US?

 If they’re not, they will.

 If they won’t, they should.

 If they can’t, they would!

  • Sat, May 09, 2009 - 05:11am

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    Re: Is the World Decoupling from the US?

I think these "green shoots" have been a fallacy created to induce a rally in the stock markets. Fundamentals never got better, just the crafting of lies about them did. Sooner or later I see it catching up with them, but again, I’m not a person of capacity to make those judgements.

  • Sat, May 09, 2009 - 08:27am

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    Re: Is the World Decoupling from the US?

Schiff has made some bad predictions about the economy just before the crisis. See: http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html 
So don’t buy in to his warnings just yet.

In all developed countries the same mistake has been made: overinvestment in real estate, mostly with borrowed money. At least Europe is heading the same way, and that’s a lot of world not to decouple from. Also, I sense there is something wrong with the idea that China can just use the products they wanted to sell to us for their own. I don’t think many Chinese can afford the American dream at American prices. I don’t believe that Chinese industries can afford to sell their products in China for lower prices. So somewhere, some people are loosing a massive amount of income due to falling exports. Before some serious changes have been made in the Chinese economy, they too will see a recession.

  • Sat, May 09, 2009 - 01:52pm

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    Peak Prosperity Admin

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    Re: Is the World Decoupling from the US?

Kudlow starts out with an economic party, then enters the party pooper,

http://www.europac.net/Schiff-CNBC-5-4-09_lg.asp

  • Sat, May 09, 2009 - 05:57pm

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    Re: Is the World Decoupling from the US?

I always love kudlows rosy predictions.

  • Sat, May 09, 2009 - 06:56pm

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    Re: Is the World Decoupling from the US?

Also, I sense there is something wrong with the idea that China can just use the products they wanted to sell to us for their own. I don’t think many Chinese can afford the American dream at American prices. I don’t believe that Chinese industries can afford to sell their products in China for lower prices. So somewhere, some people are loosing a massive amount of income due to falling exports.

Of course there are some initial losers among those Asians who profit from the export arrangement.  However, those profits only came at the expense of greater losses borne by the entire Asian population.  They own over $1 trillion of our debt, and they now know we’re not good for it.  All they have to do is redirect their resources to domestic consumption, much like we retooled our production after World War II.  To think that they will somehow continue to throw good money after bad because their own citizens cannot afford their own production, is simply the most ludicrous thought I’ve ever heard.

Warren Buffet said in 2006 that "the rest of the world owns $3 trillion more of us than we own of them."  It only makes sense that the faster Bernanke prints money, the quicker our creditors will want to get out of US financial assets.  This can only mean one thing: rising interest rates, rising raw materials prices, and a weakening dollar.

So domestically we have a double-whammy.  The price of housing – our greatest asset – continues to fall while the price of oil, food, and the cost of borrowing continue to rise.  These are real losses that can’t just be papered over.  And the more they do it, the more they distort, misallocate, and further undermine the economy, making the inevitable correction a crash.

I mean, come on, Kudlow and co. talking about "new home builders", when we have over 19 million homes either unoccupied, for sale, or in foreclosure?  This is their answer to recovery?  To correct all of the misallocation of resources and malinvestments with even more misallocation and malinvestments?  Insanity!

I’m just getting really frustrated and my patience is wearing thin.  I’m getting sick of these guys from investment firms begging people to buy stock with their rosy economic indicators.  They’re either downright ignorant or intentionally misleading people.  Though Schiff has a similar agenda investing abroad, at least he understands the big picture and the inevitable consequences that will result.  Chris Martenson has an even longer-term view, and I have no doubt we’ll be hearing from these guys a lot more in the near future.  Good for us. 

  • Mon, May 11, 2009 - 02:39pm

    #9
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    Re: Is the World Decoupling from the US?

[quote=woupiestek]

Schiff has made some bad predictions about the economy just before the crisis. See: http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html 
So don’t buy in to his warnings just yet.

In all developed countries the same mistake has been made: overinvestment in real estate, mostly with borrowed money. At least Europe is heading the same way, and that’s a lot of world not to decouple from. Also, I sense there is something wrong with the idea that China can just use the products they wanted to sell to us for their own. I don’t think many Chinese can afford the American dream at American prices. I don’t believe that Chinese industries can afford to sell their products in China for lower prices. So somewhere, some people are loosing a massive amount of income due to falling exports. Before some serious changes have been made in the Chinese economy, they too will see a recession.

[/quote]

 

I just wanted to let you know Schiff in all honesty got majority of his predictions right. The only way he could feasibly be counted as wrong is if the crisis had ended in December 08. The game isn’t over yet. In-fact many aspects of his predictions are starting to come to light now (the rise in bonds, drop in dollar….decoupling) let alone the EXTREME rises in all the other stock markets comparatively to the DOW, and the dollar.

This was his response letter when MISH’s letter came out.

http://www.europac.net/externalframeset.asp?id=15312&type=schiff 

This post is mearly to inform, Hopefully the tone doesn’t come out wrong…

Mike

 

  • Mon, May 11, 2009 - 02:47pm

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    Peak Prosperity Admin

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    Re: Is the World Decoupling from the US?

I also wanted to add I don’t know Schiff personally or have an account there. I just remembered when MISH’s report came out so I did a bit of research on my own, and read his books to see his forcast in more detail……

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