Portable Alpha

Can China Take Up Consumption Slack From the U.S.?

CDH, here is a note concerning your concerns as to where "all this talk of the US consumer 'saving' comes from"[as you've mentioned]:

Quote -

"US Private Savings Rate Is Rising Sharply

In a note we issued on November 15, 2007 (To Gisele and Jay-Z: US ‘Twin Deficits’ Are Shrinking), we pointed out that the dominant driver of the US C/A deficits has been the US personal savings rate. Until recently, it had been in a secular decline since the mid-1980s. In trying to determine the key drivers of this variable, we found that three factors – (i) US net housing wealth, as a percentage of disposable income, (ii) US net equity wealth, as a percentage of disposable income and (iii) the long bond interest rate – explain 83% of the movements in the US private savings rate. Of these three variables, the most powerful driver is US net housing wealth, which had been in sharp decline for four quarters.

After remaining close to zero from 2005-07, the US private savings rate surged sharply from 0.1% in 1Q08 to 2.7% in 2Q08 – a level last seen six years ago in 2Q02.

This sharp recovery in the US private savings rate was predicted by our three-variable model. In fact, based on what we know about the determinant variables, the US savings rate could rise to 5.7% by end-2009 – a level last seen more than a decade ago, in 1997. "

www.morganstanley.com/...

Which cements Michael's point.

btw, how are you guys holding up on PE business, CDH? :)