The Global Economy: U.S. vs. World Growth

This one ought to get TraderMark over at Fundmymutualfund.com all riled up. He has been over there pounding the table with his coined phrase "world of shortages" as an investment thesis for some time now. Then, Jeff Rubin over at CIBC World Markets comes out with a slideshow entitled "The Age of Scarcity." Hat tip to Paul Kedrosky, author of Infectious Greed who originally posted the link to the slideshow.

There are 31 slides in all, but I wanted to post up a select few of slides that really illustrate some macro themes we are seeing.

First, we'll look at Global GDP Growth. As you can see from the chart above, Emerging Markets are clearly the leader as an overall percentage of global GDP growth. In addition, this comes as no surprise, as pretty much everyone not living in a cave already knew that. What I am more interested in is the percentage that Central & Eastern Europe is accruing. If they were truly benefiting from Russia's emergence, then you would expect their share of global GDP to increase in the coming years as well. After all, they have already surpassed Japan (but I guess that's not much to brag about is it?). For my money, I really think Russia has the best risk/reward setup in terms of Emerging Markets.

Next, let's look at the slide above depicting other regions' dependency on the U.S. Market. Surprisingly enough, Europe, Latin America, and Asia are all less dependent on America than they were back in 2000. Obviously, the world has become a true global economy and nations have diversified their dependency, which is a good thing. Although I do not want to get into a coupling/de-coupling argument here, I do think it is worth noting that the overall trend the past seven years has been that other markets are less dependent on exporting to the U.S. market. However, at the same time, it must be noted that Emerging Asia easily is the most dependent on the US out of the three regions. There has been increasing chatter about how the US slowdown could be affecting China, and that chatter is warranted. The U.S. market represents 16% of their exports and we will have to monitor this situation carefully as numerous investment theses hinge on China's continued growth.

Thirdly, I want to stick with the China theme and glance at the Resource Demand Growth slide pictured above. As you can see, China consumes MANY more resources than we do, and they are seeing average annual resource demand growth of 30% for aluminum and 28% for nickel. This just goes to show that a) China is a hungry monster and b) they are a huge piece of the "age of scarcity" puzzle. Also, I just want to point out that this slide further reiterates my bullish stance on aluminum/Alcoa (AA), as I mentioned here. Demand for these resources is unreal.

Lastly, I want to turn to the housing sector in the U.S. This slide above shows what we already know: the housing market sucks and prices are falling. What's interesting though is that so many people out there are calling for a 'second half recovery,' yet they don't seem to realize that the housing market will STILL be in turmoil. In fact, it could very well be even worse by then considering that this summer another major wave of ARMs (Adjustable Rate Mortgages) are resetting back from their low teaser rates to sky-high interest rates.

This reset window will obviously take a few months to truly affect the homeowner, as they soon discover that their mortgage payments will increase substantially. Moreover, as this plays out months down the road, these homeowners will face foreclosure, guaranteeing the next leg down in the housing market. And, it will slap all those 'second half recovery' pundits right in the face. Interestingly enough, it is here that CIBC predicts that housing prices and subprime mortgage delinquencies will in essence stabilize towards the beginning of '09. Therefore, they seem to be calling for an early to mid-2009 housing recovery cycle.

What you cannot see from this chart though is prime mortgage delinquencies, which I anticipate will also see rising delinquencies as people who might have good credit were still baited into taking the teaser rate ARMs that will be resetting. So, while CIBC could theoretically be right in calling a stabilization of subprime delinquencies, you still have to take into account the various other types of mortgages (like prime) which will also undoubtedly see rising delinquencies due to the crazy mortgages people with various credit grades and people from all walks of life were signing up for.

Those are the main slides I wanted to highlight, as I felt they clearly depicted some macro themes we have been seeing and will continue to see. You can check out the entire CIBC World Markets "The Age of Scarcity" slideshow by Jeff Rubin and Avery Shenfeld here.

Comments

[CLH]

What are you trying to say? I guess you just wanted to show some slides which are meaningless.

[PastTense]

The first chart would have been more informative if you had pulled out the oil effect (not only from Mideast oil producers but from Russia, etc).

[dontcallmeamarter]

In your third slide and comment there you seem to be using growth and over all demand interchangeably. I am sure you are aware that is to different things and that the US consumes far more resources than China. This also explains why they have a higher growth rate.

The average US consumer for example consumes 25 barrel equivalents of oil per year while China is estimated at between 1 and 2. It would be quite easy for them to show phenomenal growth over a short period and still consuming nothing close to what we consume. So for every 1% reduction in the US you would need a 12% increase in China for demand to remain static.

There is an old saying that still holds true, "When the US sneezes the world catches a cold."

[gabe borenstein]

All said and done ,U.S is still the global locomotive.It is our search for a more cost effective output zones ,that has allowed India and China to boom . Emerging Latin American economies are dependant on the U.S as well-remember NAFTA?
As the consumers in the emerging economies have learned to utilize credit ,two things have occured
A) the consumer per capita debt in emerging market economies is at the record.
B) the emerging markert economies have gained momentum.
For sure the current U.S economic deceleration did not have the full impact on emerging market economies (lag)-but it will . In addition as the massive commodity speculation contributed to a record spikes on commodity prices,the emerging"economie... with the natural resources have benefited greatly.There should be no doubt that the U.S economic trends are still responsible for the global economic trends. I dont want to hear anymore about the mortgage delinquencies,that was an issue I was warning about in June of 2005 (Bloomber interview with Mark Gilbert) and again in the Bloomber interview (TV) with Brian Sullivan.
Various U.S agencies and the FED are still trying to address some of the "mortgage"is... real risks exist outside of the U.S ,because these risk issues were not addressed yet. In the period ahead we will see some key economic/geographic zones imploding causing massive inflows into the dollar assets.I am glad that CIBC referrs to the age of scarcity -but it is only a mirage caused by unprecedented commodity speculation.

[Jerbear]

Hey CLH,
You must be stupid.

[Cicero]

Temper your tongue Jerbear, though CLH should learn that not every post has to draw firm conclusions or even suggest possible conclusions. This was interesting info readers can use as fodder for discussion and input into the macro picture.