Asia's Overblown Growth Hopes And A 20-Year Bear Market?

Stephen Roach was on a CNBC interview and here is some transcript from the video: Hopes of growth from Asia overblown: Stephen Roach

• Q: How are you mapping economic conditions from hereon for the second half of 2009?
  
  A: Demand remains subdued at a low level and the recovery call is a tough one. It is not that we won't have it, but it is going to be a choppy recovery with periods of improvement followed by periodic setbacks. It will be a little better than an L but a long way away from a V. The markets after having panicked late last year and early this year have recovered from the panic, but now they are going to be rangebound for a while, echoing the choppy pattern in global economy. Asia is very export led, so with that much demand from the developed world, I think it is going to be a lot tougher for Asia than what consensus think. The consensus has fallen in love with Asia as the new engine of the global economy. I think those hopes are overblown at this point.
  
  Q: For the Asian space what happens to external demand and hence growth might be a bit stifled is going to be the key challenge?
  
  A: The numbers are clear for developing Asia. Go back to the Asian financial crisis in 1997-98. Exports were about 36% of pan regional gross domestic product (GDP) in 2007. Just before the world fell apart that number was 47%. So the region has increased its reliance on external demand significantly. The bulk of the finished goods to come of this region do go to the developed world which is still in a rare synchronized recession. This will be a challenge for Asia moving into the second half of this year and looking well into 2010.
  
  Q: Where does this leave commodities and the commodity cycle? If your view is that we won’t get a very solid recovery from hereon, economically speaking, what does it mean for the commodity complex you reckon?
  
  A: I don't think we are in a depression. We are through the worst of the global downturn, although the recovery is going to be limited. I think the deflation call for commodity prices is largely behind us. We could see some normal ups and downs. These are obviously sensitive prices that trade both ways and have done so for a long time, but I don't see a pronounced downturn in commodity prices like we saw in the immediate aftermath of last crisis.
  
  Q: Give us your thoughts on what has been happening with China as a market because a lot depends on that by way of demand and where the market moves from here?
  
  A: The Chinese consumer is one of the big question marks in the global outlook. You are right to raise that as an issue. The Chinese want us to believe that they provide a lot of stimulus for internal private consumption. But if you look carefully at this four trillion Renminbi (RMB) stimulus package that was enacted last November, over 70% of it went to infrastructure and earthquake reconstruction, very little of it went to the Chinese consumer.
  
  Yes, they had a healthcare insurance bill that went through and expanded nationwide medical coverage. If you do the math, it works out to about USD 30 per year over the next three years for each Chinese citizen. So, it is not exactly giving consumers the confidence that they have a much of a safety net which will enable them to draw down excess levels of savings and starts stepping up as spenders. Same is true with social securities, pensions, unemployment insurance. Chinese families save because they are scared of future and current income prospects. Until they overcome those fears, I think the Chinese consumer is going to be missing in action.

Link to the video clip: http://www.cnbc.com/id/15840232?video=1167820563&play=1

Everyone's talking about China.

Professor Pettis latest piece rather interesting. Look at the size of the loan growth posted in his latest posting, China’s loan growth isn’t boosting my confidence in China’s “green shoots”

• Credible rumors suggest that new loans in June will hit RMB 1.2 trillion or more, as banks rush to inflate their quarterly loan numbers, just as they did in March, on the assumption that any cap in quarterly loan growth will be based on the previous quarter’s numbers. I would argue that new lending in 2009, running at 2 to 3 times the new lending over the same period in 2008, is not at all normal and is very unlikely to be healthy.

See also The China Accident Waiting To Happen To Every One Of Us, Would China Have A Debt Problem? and Andy Xie Calls It Speculative Inventory And NOT Commodity Stockpiling!

And John Mauldin features David Galland's summary of the June's Casey Report which features an interview with Neil Howe. Author of the book, The Fourth Turning. John Mauldin's outside the box is called A 20-Year Bear Market?. The following passages caught my attention.

• You don't need me to tell you that the United States and in fact the world are now facing a plethora of intractable problems. The world's former powerhouse economy, the U.S., is now the world's largest debtor nation – and by a wide margin. The nation has trillions in unpayable liabilities coming due on Social Security and Medicare, to name just two of many broken government programs weighing on the country. And our much vaunted democracy is increasingly dysfunctional – rotten to the core, truth be known – thanks largely to entrenched special interests and a voting public clamoring for their own piece of the pie, while trying to hand the bill off to somebody else.
  
  Meanwhile, the economy – despite rigorous jawboning by the government and its many friends in the large banking institutions -- is in serious trouble, with the housing market buffeted by tsunami-like waves of defaults, foreclosures, overvaluations, historic levels of personal debt, and tight credit that has left the U.S. government as the sole lender in many markets.
  
  Bernanke and his ilk may see green shoots, but what they're really seeing is the deep, green sea rising up once again to bury the economy.
  
  That's the bad news...........

• Most importantly, if Howe is right, this crisis is far from over. In fact, when I asked him where we are today on a scale from 1 to 10 -- with 10 representing as bad as the crisis will get -- he replied that we are at either 2 or 3. In other words, the worst is very much yet to come. And, per above, he expects this period of turmoil to take 20 years to play out. Thus, if nothing else, you may want to continue approaching matters of personal finance cautiously.