U.S. and Asia Still in for a Downturn

4/7 - "...the real economy is characterized by an excess supply of goods. That, in conjunction with rising import costs stemming from a lower dollar, means that many US firms are in for reduced turnover and reduced margins, ergo reduced profits. Thus, brace for dramatically lower earnings of some companies...The only ray of hope is the earnings of price-sensitive exporters who are beating their European competition on price in markets with good economic times, such as China or, increasingly, Taiwan...The other sector that could provide robust earnings is "service staples" such as health care, if massive productivity gains have been recorded."

"The key link is psychological. When US markets fall, everyone gets scared globally, so the sell-off continues. This will dampen consumption in Asia as discretionary consumption is very much driven by the feminine "feel-good" factor...Then there is the "real economy" link. With America's consumption faltering, why should Americans keep importing goods from Asia? This reduction in the activities of Asian export manufacturers means layoffs/slower wages growth...Finally, with the dollar slump continuing, expect to see more imported inflation in places that are tied to the USD, such as Hong Kong. Also, expect weaker currencies in politically-wobbly places like Thailand."