Sunday, December 21, 2008
Peter Schiff called the financial crisis years ago. And Schiff has argued for years that - after an initially bumpy ride - Asia and Europe will decouple from the sick U.S. economy, and recover much more quickly than the U.S. Therefore, Schiff has advocated buying dividend-paying shares in European and Asian countries (and he's convinced enough people of his decoupling theory that he now manages over a billion dollars in investments).
But a new report by LEAP/E2020 - a bunch of forecasters who called the economic crisis and have been right about many other things (although, like Schiff, they missed the dollar rally), argues that decoupling will occur after all. Specifically, LEAP/E2020 argues that Asia and Europe will recover from the worst of the economic crisis some 8 years before the U.S. or the UK:
The crisis will affect in different ways the different regions of the world. However, and LEAP/E2020 wishes to be very clear on that aspect, contrary to the dominant stance today (coming from those experts who denied the fact that a crisis was coming up three years ago, who denied that it was global two years ago, and who denied the fact that it was systemic six months ago), we anticipate that the minimum duration of the decanting phase of the crisis is 3 years (1). It shall be finished neither in spring 2009, nor in summer 2009, nor at the beginning of 2010. It is only towards the end of 2010 that the situation will start stabilizing again and improving a little in some regions of the world, i.e. Asia and the Eurozone, as well as in countries producing energy, mineral and food commodities (2). Elsewhere, it will continue; in particular in the US and UK, and in all the countries depending on their economy, were the duration could approximate a decade. In fact these countries should not expect any real return to growth before 2018.It is still too early to know whether Leap (and Schiff) are right.
But there are interesting indications that Japan and India are faring better than the U.S. so far.
Specifically, the world's largest credit insurer, Euler, believes that Japan will largely avoid the wave of bankruptcies sweeping the globe:
With the exception of Japan, which recently emerged from its own "Lost Decade," Euler expects that almost every country in the world will see a rise in insolvencies far greater than previous economic downturns.And BreakingViews.com writes today (via their VIEWSFLASH email service):
In an article entitled How India Avoided a Crisis, the New York Times reports that while India has been severely affected by the economic crisis, it was not nearly as exposed as the U.S. Specifically, the Times reports that Indian regulators largely kept India's banks away from derivatives, securitizations, and other risky investments.Japan is the least sick rich economy.
Neither November's export slide, nor Toyota's profit woes, are what they seem. Corrected for yen appreciation, exports were down 8.9%, imports up 6.9%. Japan's recession is mild and its fiscal stimulus modest. The yen's strength is a sign currency markets see underlying health.
Of course, Western Europeans countries were all heavily exposed to derivatives. In addition, they loaned far more than the U.S. to emerging market countries.
So it is possible that Japan and India might come out of the crisis earlier than the U.S., but Europe might not.