James Lewis

If Fed Is Looking to Inflate, What Should Asia Do?

Yes Michael,

Japan will strengthen ties with India. However Japan and India are already very close. I think Japan will make it seems they are moving towards China, but this can only really occur economically. As the USA has treaty with Japan to protect them if they come under nuclear attack. Nuclear treaty like this does not come undone in less than 10 years. Also Japan knows full well that China's friends dont do very well out the relationship.

In terms of where the economy goes. I think we get mild stagflation in places and some growth in others. I do not see deflation as lots of new money has been created and the world economy is growing in size as economies get more developed (think Africa/South Amercia/Middle East). This will add to the demand side of the equation.

The USA will inflate but not by too much. After all, a lot of USA money is invested abroad and the USA wants to carry on printing fiat money through the fed; feeding it into the financial system and buy up large parts of emerging economies. Destroying the value of the USD is counter-productive. However a strong USD policy also is wrong.

Global Returns: Stocks Down, Bonds Down

Trading Russia/Brazil is the same as trading commodities.
If commodities carry on their rise or stabilise then Brussia is the way foreward. You start getting a drop in oil etc, then China is the market to be in.

Shortly we will start to see PE ratios in the region of 13-15 in some stocks in China. That suggest that China will improve its dismal performace, we just need the market to capitluate.