10/10/2011 7:46 PM ET|
Can China save us from recession?
Be prepared for several more months of struggle as markets fret about Europe. But next year, the markets are going to be focused on China.
The last few days -- and in particular, Oct. 6 and Oct. 7 -- have shown investors how markets are likely to work in at least the first half of 2012.
You need a little stock market history to flesh out the past few days and turn them into a road map for the next nine months or so, but I think the outlines are there.
I've written recently about the likelihood that sometime in 2012, the emerging stock markets of China, Brazil and the rest of the gang will decouple from the slow-growth developed economies and start growing independently. And they will drag the commodity economies of Australia, Canada and the rest of that global group along with them.
Around the middle of 2012 it will become clear enough to investors that China, to take the core case, isn't headed for a hard landing and that growth of 8.2% to 8.5% is indeed the likely bottom for this cycle. Global cash flows will move toward economies showing that kind of growth and out of developed stock markets where growth is stuck near 1% to 2%.
At that point, emerging stock markets will reverse the underperformance of November 2010 to now and begin to outperform their developed-country counterparts.
But what about the nine months or so (and maybe longer) until that certainty and outperformance arrive? What happens then?
This is where the action of the last few days and the lessons of stock-market history can suggest the likely details.
The pace of things
What we've seen in the bounce, or rally, or whatever, of the last few days from the stock markets of the developed and developing economies hasn't been a decoupling -- Hong Kong's Hang Seng Index ($HSI) hasn't gone up while the U.S. Dow Jones Industrial Average ($INDU)has gone down -- but rather a multiplication.
When the U.S. markets moved up on Thursday, emerging markets rocketed ahead even faster. When the U.S. markets pulled back a bit on Friday, emerging markets that were open when the U.S. markets were, such as Brazil's Bovespa, retreated even faster.
This is a classic emerging markets/developed markets pattern. Most of the time, when developed markets do well, emerging markets do even better. When developed markets do poorly, emerging markets do even worse. And emerging markets outperform and underperform with significant lead times; they tend not to lag the developed markets, waiting for them to get going, but, instead, precede them. They stage their initial rally while recovery still seems just a hope in developed markets.
(Much recent academic research has focused on whether, once you adjust for risk, emerging markets outperform enough in the good times to make up for this higher volatility. The conclusion reached by the papers I've read is that the risk-adjusted outperformance more than makes up for the additional downside risk. In other words, emerging markets can be very, very scary, but the emotional strain is worth it.)
So in 2008, China and the rest of the world's emerging markets began to outperform developed markets with the catalyst, I'd argue, of China's huge post-Lehman stimulus package. Developed markets wouldn't hit bottom until March 2009.
In 2010, emerging markets hit all-time highs in November. Developed markets wouldn't hit their peak until April 2011. From November 2010 through the beginning of the current bounce, emerging markets have lagged developed markets by 17%, the Financial Times calculates.
A simple formula might be: When fear recedes enough for investors to take on more risk, stocks all around the world move up -- and stocks in emerging markets move up fastest. When fear returns, as it did with Friday's downgrades of the government debt of Italy and Spain and of banks in the United Kingdom, stocks around the world fall -- and stocks in emerging markets fall hardest.
What this tells me is that for the next nine months or so, emerging-market stocks will want to move up, recovering some of the ground lost since November 2010. But that they'll find it hard to make lasting progress if news from the United States and especially Europe keeps periodically scaring the devil out of investors.
VIDEO ON MSN MONEY
Did any of you see the president of GE (Jeffrey Immalt) on 60 Minutes last night? He is the head of the special commission Obama created to create jobs. Oddly, he basically said he does not see himself as an American citizen but as an internationalist. He said he only serves the stockholders and is going to continue primarily only creating jobs overseas. For example, he just created 15,000 jobs in Brazil to create locomotives and other machines there during the last 12 months. He raved about Brazil. He created 400 jobs here during the same time. He has absolutely no intention of investing much here in the USA, only overseas, where most of the growth is. He had the same cold, dead, look in his eyes that one sees in the eyes of a psychopath being interviewed on a TV crime show. He was completely devoid of empathy for his fellow countrymen, I guess because he does not see himself as part of our country.
He was extremely proud of himself.
This is what we are up against folks. It was then that I first realized there is no longer any hope for us and no future. Coporatism is going to destroy our nation.
China prevent a recession? They, the Communist Chinese are the reason for the recession.
We have outsourced our selves into a third world state. Purchase Chinese made junk an help the communist prosper and help to further destroy the USofA.
What a pathetic,third world country we are rapidly becoming.Our economic prosperity is now reliant on the Asian slave labor our corporations blithely continue to exploit?When are Americans going to wake up?
As someone who studies actual economic science,I can tell you that the meltdown of the free market is accelerating,that is,the utility of the division of labor has been removed from the system and replaced with the permanent intervention of the world's Central Banks.Actual employment is no longer required in the West because of an unending supply of usury free money doled out to the banks whenever the threat of default occurs.The attempt by mortal men to manipulate the free market by completely removing recessionary/depressionary cycles cannot be achieved,and it will end with the destruction of what the free market deems to be actual money.
Debt is not bad when the manufacturing capacity of a productive working class supports it,but this organizing principle has been obliterated.The continuing exploitation of cheap foreign labor markets will not allow for a return to an economy devoid of clever banking monetary schemes and government meddling.We're three years into this thing and the free market continues to push back in attempt to find actual mark to market valuations,price discovery,and equilibrium.The globalists can delay the inevitable,but they cannot abrogate free will or reign supreme over the organizing principle which has shaped all of our lives:competition.
One last point:China has one major problem that the mainstream media NEVER mentions.Over 80% of its rivers,lakes and streams are so polluted that they no longer support aquatic life!THEY HAVE NO WATER.And since every single cell of every living thing requires water,you figure it out.The future of all nations is truly bleak.And the fact that we are even discussing how a third world,communist country will be our economic savior speaks volumes about how far gone our nation really is.
I'm not sure how the Chinese economy growing at 8.5%, or the increased lending that may be necessary to get that result in 2012 saves the rest of the world from recession. Our economy is being hobbled by massive unemployment borne of serious structural problems with our economic model. The government is delaying recovery by interfering through monetary stimulus and wasteful stimulus spending, which is keeping private industry on the sidelines waiting for the dust to clear. Until the meddling in housing, the currency markets, the PM markets, and countless other markets stops, we can't make any real progress.
We need a comprehensive plan to rebuild our employent base, and I'll give you a hint: it doesn't involve fixing a few bridges. We need to reward companies that create good jobs here in the U.S. and punish those that create jobs overseas. But we need to do it through tax policy, not intervention in markets themselves (Solyndra is the tip of the iceberg, folks. There will be more, trust me). Forget the graduated tax brackets, we need brackets for job creators, job outsourcers, and passive investors. The more people you employ to earn your money, the less taxes you pay.
What I would HATE though as a response from China would be "we've already helped you...without all those loans, how could you afford your very extensive warmongering in the middle East?" and they would have us there, wouldn't they?
Which makes me wonder. Unless Michael Moore and Oliver Stone are right about the U.S. motivation--blood for oil and so forth--and I'm still hoping they are not, then wouldn't you rather be employed by a corporation instead of the military? Safer, innit? So, what I'm wondering is, not really ironically at all, maybe it could be explained to me, why did the protesters choose to occupy Wall-Street (rather than the Pentagon)?
I sense a trend with a couple of these posts, both the 1/2 smart--sonofmanhattan, and the 1/2 way dumb--hemispheres. At the worst, what is being described is scape-goating China for the problems in the U.S. If you don't like policy made in the U.S. blame the U.S.-made policy--not the Chinese.
You know there is a Chinese expression: foolish man moving a mountain. A man is seen carrying one rock at a time and depositing it at the bottom of a hill. When asked what he's doing, the man replied, "moving the mountain." At this late date, those of you demanding that the last 35 years go back into a bottle with the genie, well, YOU are that man. The question is, where do we go from here?
Chinese made junk??? like the computer you just typed that message on? or the smart phone you use to contact people?
I'm not familiar with the American companies that produce these goods domesticly. please list them.
It really is a double edge sword. We need to keep every dollar we earn, which means paying less for the things we buy. Which items do you think are less expensive, those made in america, or those made in china?
A new law should be enacted where Republican, Libertarian, Neo-Con and Tea Party EMPLOYEES can only work for Republican, Libertarian, Neo-Con or Tea Party EMPLOYERS. These employees should be real happy with their slave wages and no health or dental benefits.
Also, all the Democrat, Liberal, Progressive and Socialist EMPLOYEES can only work for Democrat, Liberal, Progressive or Socialist EMPLOYERS. These employees will definitely be happy and prosperous with their Union living wages and full coverage health and dental plans.
Lastly, let every EMPLOYEE decide what kind of retirement plan of their choosing they prefer, be it Social Security, 401K, 403K, ROTH, IRA, or whatever other plan that might be available.
Have a nice day!
I like this guy Jubak...can china save us from a recession we never left a recession,what Jubak really means can china save us from a GREATER Recession....here is another BS headline from MSN "Oil prices rise near $87 as recession fears ease"...NO OIL rose in price because the dollar is falling!...what is amazing is that Wall Street is doing so well; the market is up again I didn't know the United States economy is doing well; the US must have some underground economy because the US real unemplyoment rate is 16% PLUS and very little job growth, one has to love the government's lying Media....RT tv tells the truth that is what I watch; to get the truth!
So the Free Trade experiment which I predicted to go awry 30 years ago has finally come to full fruition, I see. Actually, it's still going to get a lot worse! Let's all applaud and give a standing ovation to all our incompetent, corrupt and blithering idiots in government, banks, big business, legal firms and all the rest of those clowns that support crony Capitalism. Thanks again imbeciles!
There's an old Chinese proverb,..... Ummm..... so old in fact, that I can't remember how it goes?
Moving right along, there's an old American saying that says: "Why can't we just all kill each other".... or is that "get along"? Hmmm..... No big difference between the 2 I suppose?
Lastly, let us all whine together for whatever different reasons might be cramping our styles and upsetting our lives.
Nap time for me! Oh,... the joys of living!
China save us? Thats laughable.
We can save ourselves by pushing for sharply increased tariff's to stem the flow of poor quality garbage flooding in from China.
We have a pitence of tariffs on most Chinese goods @ ~2%, while they have enacted anywhere from 16% for US made goods to 100% recently for our exported chicken.
Should be the other way around with the circumstances.
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