Canada escapes recession?

I dunno... sounds liek the old (now defunked) decoupling theory to me.

Here's the logic:
The logic behind Desnoyers's logic is this: Export income in Canada will be cut by the U.S. downturn and a big drop in prices for Canada's resource products.

That's why we're entering a slowdown.

But to have a severe slump with soaring unemployment, we'd also need a swoon in domestic spending by consumers, businesses and governments.

That's not happening.

Domestic demand, which makes up three-quarters or more of Canadian economic activity, is on track to keep growing, thanks to a central bank that has already slashed interest rates and stands ready to cut even more.


OK, but how are we going to fund that three-quarters domestic consumption if there is a drop in demand for Canadian exports, namely our rocks and trees? Please don't tell me we're going to fund this consumption through added debt.


Why Canada looks likely to escape severe recession

Decoupled or diversified?

LatAm equities (specifically Brazil) have had quite a run so far this year but questions are starting to surface if the party's over. Can LatAm markets really be "de-coupled" from the US's? How long can LatAm ride the commodity wave which seems to be lifting the region's equity boats?

Personally, I'm not a huge fan of the decoupling theory, the US is still something like +40% of the global economy so if it tanks, everyone’s going to be impacted. But it is a question of how badly and Brazil in particular is (relatively) better shielded from perturbations in the US, mainly because it can rely somewhat on a huge internal market.

If commodity prices drop, that may have a negative impact on the region as a whole. But I think people aren't aware at how diversified the BOVESPA is. Of the 800 or so companies listed, about 80 are in oil, gas, and basic materials and about another 80 are in construction/transportation. Just by eyeballing the sectors represented, it looks like various financial institutions make up the plurality of listed companies.

Sure, this is a very quick look at the BOVESPA and I'm glossing over a lot of key questions (what percentage of the BOVESPA's value is in the commodity/construction companies? how much do the other companies ultimately rely on the functioning of commodities?) But that said, the BOVESPA is more diversified than many seem to think and that may be contributing to some of its gain and resilience.



FT.com / Columnists / John Authers - The Short View: Latin America

Brazil tops MSCI

Brazil is now the largest stock market on the MSCI emerging markets index, and as a long-time investor in the Brazilian equity market I have to say this news has brightened up an otherwise less than stellar day.

So, why is Brazil doing so well? The FT has some thoughts here (watch the video too).

While I buy the argument that the commodities is fueling the bull run, I don't have much support for the "decoupling argument" -- that perturbations in the US market have less and less impact on the emerging markets. (How can the world markets be simultaneously "globalized" and "decoupled"?)

That said, Brazil's insular nature seems to have at least buffered Brazil from what is going on in the global markets. Credit within Brazil remains strong, although IPOs have dropped. The FT also notes that Brazil responded favorably to the Fed's drop in interest rates (how does that play into the decoupling theory?)

Brazil is doing uniquely well as a commodity exporter based of off the huge recent discoveries by Petrobras and the positive impact that news had on its stock price.

In praise of decoupling

A kindler, gentler look at decoupling but I remain unconvinced.

Basically there are two huge drivers to global growth right now, US and China, both are at the center of an ecosystem of other economies feeding into them.

And here's the kicker, China relies on the US.

Here's the money quote:

Diversification will only go so far, however, particularly if US consumption nosedives, says Mr Sheard. “Asia, centred on China, has become even more interlinked into the global economy, the driving impetus of which has been the US,” he said. It is hard to be global and decoupled at the same time.

Market’s Wild Ride Ends With Dow at 15-Month Low - New York Times

My new phrase of the day: "American contagion".

I think US/global decoupling was a nice theory, but clearly it doesn't hold. When you think about it, it is also counter-intuitive... in a globalized market all economies are being increasingly "coupled", right?

Market’s Wild Ride Ends With Dow at 15-Month Low - New York Times

So Much for the Decoupling . . . .

wait... that is what I just said.

The Big Picture | So Much for the Decoupling . . . .

The bears are having their day it seems, but I would be suspicious of too much kodiak chest-thumping. If you claim anything long enough (like the economy is about to tank) it is bound to come true sooner or later.

World stocks routed on fears for economy - Yahoo! News

"Risk aversion is widespread as the market thinks (the economic downturn) is not just a U.S. centric story," said Paul Robson, currency strategist at RBS Global Banking.


oh well... so much for the oft told theory of the "decoupling" of the world economy and the US economy.



World stocks routed on fears for economy - Yahoo! News