Tuesday, July 21, 2009

China led recovery?

The largest consumers, US, EU and Japan are spent. US has domestic and corporate indebtedness. Japan still languishes from the lost decade. EU members sit across the spectrum between US style indebtedness to that of 1980s Japan. Only country who has the right cards is China. It is significantly big and fast enough to turn the course of the history. So then will China play its hand right?

Well, it is not inspiring any confidence to say the least. Micheal Pettis points to Notes on a real estate trip in China where we realize that Chinese policy of investment driven demand is banging against the wrong wall. China is looking for the final buyer that we discussed earlier.

Meanwhile, I notice market feedback, logic structures and arguments are regaining 2007 flavour. This definitely does not auger well for any of us. It is as if markets have noted Roubini near term possibilities but are still ignoring Taleb's long term solutions. (Taleb has attacked the root causes VAR, (ill-applied) probability theory, portfolio theory and algorithm trading framed on these.)