Something's Weird Here

Like Edward said, there’s something weird here. The lift-off in the US economy is simply stunning. Biz investment is picking up, and looks like it should run for a couple more quarters at least. Tech demand in some segments has actually been quite strong for sometime already.

Investments drive the cycle. So the economy is on the up. Yet the 10yr T-bond yields has been stuck at just above 4%, even as the US$ gradually slides. According to some, the Japanese economy, apparently, is having its best run in years. But the Nikkei hovers at 10,000 rather than 20,000.

In the EU, the demise of the stability pact seems pro-growth short-term at least (but how will the ECBreact?)

There’s commodity inflation, but deflationary pressures remain strong. International reserves continue to balloon and so, has the coiled spring finally sprung?

The US retains this great transmission mechanism, I think largely through its impact on business & consumer sentiment, rather than demand for goods per se. This time round though, there’s greater variety with regards to the response in Asia.

On the one hand, Thailand is hot anyways. Singapore is at the other end. Exports are picking up, but domestic confidence will take a lot longer to revive than in the past. Pricing power could be the key. I found this interesting .. For sale soon, a Walmart notebook? Imagine Dell vs Walmart. They’ll be squeezing Asian suppliers all the way down the food chain. And PC guys are already jumping into the consumer segment = HP in LCD TV, Dell in digital cameras (gee, and what happened to Sony?) China brands have flooded the lower-end = cathode TV, DVD players etc..

But what’s the price elasticity now? And how fast will they need to get the price down to the sweet spot in order to drive sales?

This survey by Grant Thornton of medium size biz in 26 countries was in our local biz paper recently. Consensus expects exports to rise (no surprise here given the current stage of the cycle), but most in Asia remain pessimistic on prices.