Roach: "Keep watching the pithy commentators…for clarity, truth and justice."

Economist Stephen Roach appeared on CNBC Asia yesterday reminding us that the 9.7% official US unemployment stat dramatically under-states reality. The US Jobless rate today is actually 11.5% when we add back in the 3m disgruntled workers who have been unemployed so long that they have stopped looking for work: “For some bizarre reason, the U.S. statisticians do not count these poor souls as unemployed”. (The under-employed statistic is more like 20% when we count in the millions who are working less than they wish due to lack of employment opportunity).

“The demand side is going to be very impaired by the U.S. consumer and there's no other consumer that is going to fill the void,” Roach continued.
While China and India make up nearly 40 percent of the world's population, Roach noted that the two countries will not be able to pick-up the slack in U.S. demand collectively, as their consumption adds up to $2.5 trillion, which is equivalent to 25 percent of total demand in the United States. That's a key reason to look for a double dip,” he said, reiterating his view of a 40 percent chance of a double-dip in the next couple of years.

I wish I could disagree with him. It feels like October 2007 deja vu all over again.

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8 Responses to Roach: "Keep watching the pithy commentators…for clarity, truth and justice."

  1. Anonymous says:

    Hi Danielle,
    I hope you are doing well. I have heard you say a few times over the last several months that you are now as bearish as you were in the summer of 2007 (your posts seem to say that clearly). With that in mind, do you have a recommendation of where and what to invest an RESP in. I have 2 kids, ages 2 and 4, and find that I have been very conservative (perhaps too much). I have approximately 20k in this account and am not sure where to invest it right now. Thanks to you I took it out of equities (through XIU) in the summer of 2008, caught a bit of the recent rally but am now all in cash. What do you think of XSB as a place to park the cash for now? or is something like a high interest savings account just as good or even better? Thanks for any insight you might share. Take care and enjoy the rest of your weekend.

  2. Anonymous says:

    Thank you Moses for releasing Gordon Gekko from jail after he spent 23 years there for insider trading.
    He is getting back in the game, titled: “Money never sleeps”.
    Looking forward to see the sequel.
    Re: Daryl
    I can highly recommend parking cash in NBC100.
    Works like a charm.
    Better idea? Please, let me know!

  3. Anonymous says:

    At this point short term cash-equivalents are my “park” of preference. The XSB is not a bad place for Cdn fixed income exposure given that it is 1-3 year bonds. I think a year from now rates will be moving somewhat higher, so shorter is better than long. The XSB is yielding over 3%. Not sure what you can get in a high interest savings at your bank, but it is also a decent “park”. The way I look at RESPs is that the government gives you 20% free money a year, so there is no reason to take “high risk” plays to make this account grow. If you can get in the deposits and keep it safe from big market declines, the funds are destined to grow very well for your kids. Parents are the trustee fidciaries of the money in these accounts, we have a duty to keep it safe and grow it carefully. Good luck, D

  4. Anonymous says:

    Thanks for the suggestions Danielle and Attila. I want to be conservative in the resp and only take on added risk when the 'risk/reward' ratio is good, which is not now obviously. By the way, I read an article recently that said the cash levels in mutual funds are at the lowest levels since the summer of '07. Food for thought.
    Thanks again,

  5. Anonymous says:

    It is not absolutely clear to me why several billion plus people in Asia growing at 8-10% year after year cannot more than make up for several million North Americans out of work… even if all of these families (many now on single incomes) stopped buying food, fuel and clothes tomorrow.
    Many parts of Asia make North America look backwards and even in Nepal, still one of the poorest countries in the world, I was shocked recently by the number of kids, cars and motorcycles now clogging the streets of Kathmandu. The number of teenagers with cell phones way up in the mountains (often out of signal range) is surprising. Everybody has “The North Face” brand jackets which cost 10% of what similar top end feature jackets cost in a fancy shop in the Canadian Rockies. My point is that people in Asia are producing goods and consuming resources like never before – so perhaps our current measurement of GDP demand is suspect. I have to believe that in real terms 10 jackets of consumer demand in Asia is worth is worth more than 1 jacket of GDP bought here (even if the dollar value of the transaction is supposed to be the same). I have to wonder if our ongoing obsession with everything US is clouding the reality of what is going on in Asia?

  6. Anonymous says:

    He may be right:
    • bank credit contracted at an annualized rate of 6.1% (in real terms) during the 12 months to Jan. 31 (sharpest decline since President Carter imposed credit controls in 1980)
    • growth in M2 money supply over the same period registered a “paltry” 1.9% annualized rate.
    • Economic Cycle Research Institute (ECRI): annualized growth rate in its Leading Weekly Indicator (WLI) has fallen for 12 consecutive weeks and now stands at 13.1%. “The continued easing in the WLI,” said managing director Lakshman Achuthan, “points to a slower expansion, beginning during the summer months.”
    • “While coincident indicators like retail sales growth have been rising … they are likely to start easing back by mid-year,” said Achuthan

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