Tuesday, March 15, 2005

Two Takes On The Global Scene

Over at Tom Brown's website, Bankstocks.com, Eric Miller, once Chief Investment Strategist at Donaldson, Lufkin, Jenrette, has written a really good piece on the long term implications of China's growth. Definitely worth a read: http://www.bankstocks.com/article.asp?type=1&id=9880606 We all know that China's growth has huge implications for the chip and chip equipment companies - whether it be the delivery of the most advanced technology or the servicing (see yesterday's news from Novellus) of older generations. What I find most interesting is that the emergence of China as a chip making country has not pulled the sector out of the performance doldrums - just look at share prices!
Then there is this short but sweet macroeconomic summary from Brookville Capital's Abraham Gulkowitz: Everlasting Bliss Hiring gains in the U.S. are still not spectacular when judged against earlier cyclical rebounds, but as underscored by the impressive gain in nonfarm business payrolls in February, there is enough evidence that the outlook in the U.S. remains far and away the best of the major economies. The U.S. economy's obvious resilience, combined with still relatively low inflation and the corporate sector's strong profitability, ample liquidity and access to credit - all characterize a wonderful business and financial backdrop. While the strong momentum is real, decelerating earnings, rising inflation, and gradually rising interest rates across the maturity spectrum may yet test this optimism. Low interest rates in all major economies, supportive forexreserves in Asia, declining credit spreads and docile equity market volatilities all point to an abundance of liquidity in the world economy and a "what me worry" risk attitude. However, a dangerous self-reinforcing circle has developed. Rapid reserve growth feeds back into the U.S. and supports low rates and a desperate search for yield. A high and rising appetite for risk in the global financial system, in turn, is nourishing strong growth in emerging economies, including China. The result is an unusual combination of amazingly low credit spreads and very high commodity prices. As commodity inflation and an ample risk appetite fuel speculative forces, the global financial system moves further and further into a domain where assets may become precariously overvalued. Imbedded in these developments are two obvious trends that we have highlighted previously --the rising role of housing's boom to feed consumption spending and the rapid expansion of manufacturing capacity in Asia. How's that for a summary take? Carl

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