[lbo-talk] Still decoupled - so far (1)

boddi satva lbo.boddi at gmail.com
Mon Sep 1 11:45:52 PDT 2008


On Mon, Sep 1, 2008 at 6:09 AM, Marvin Gandall <marvgandall at videotron.ca> wrote:
> Although the report below states that "hopes that emerging markets could
> power ahead regardless – a theory known as decoupling – now look misguided",
> the evidence it presents suggests otherwise:
>
> 1. Demand for commodities is still strong in China and other rapidly
> industrializing nations outside the core OECD countries;

Demand for commodities is strong, but commodity prices are clearly in a huge and rapidly-deflating bubble. There's just no question about it

Exxon is trading with an implied oil price of about ninety bucks, last time I read.

2. The BRIC's, in
> particular, have abundant foreign exchange reserves;

The BRICs have huge reserves and have enjoyed negatitive "carrying costs" while keeping their money in U.S. and European bonds - including mortgage-backed. There are all sorts of interesting implications for the central banks in holding these huge reserves as the credit crisis and other situations unwind.

3. their banks have
> limited exposure to the bad debt plaguing their American and European
> counterparts, and

Well, now that we know that Fannie Mae was somehow (inexplicably) holding 12% of its assets on Alt-A mortgages, things are looking a little dicier. Obviously the central banks are mostly holding sovereign debt. But may not be an absolute shelter. Again - interesting implications

4. a steadily growing percentage of their foreign trade
> is with each other, easing their dependence on the advanced capitalist
> countries. While some smaller, heavily-indebted and highly export-dependent
> countries could be pulled under by the financial crisis and economic
> downturn in the West, indications are that China and the other big new
> economies should stay afloat and help stave off a global depression.

As a *percentage* of trade, trade within the developing world will surely grow - maybe more quickly than they would like. Because in terms of absolute numbers, the amount of **high-growth** trade is surely with the First World. If that goes down, developing world percentages may rise while total growth falls.

It's still good news, in the long term, but it has to temper assessments like the following:


> According to one analyst, "...the period between 2005 and 2015 (will be) a
> remarkable decade – remarkable because of the transfer of wealth from
> developed world to developing world. In the next few years, you will
> continue to see the economic power shift east."
>
> -MG
>



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