The writing is on the wall for the slowdown in Chinese economic growth. Unsustainable hard asset construction has been crucial for the cyclical buoyancy to many commodities such as iron, copper, crude oil, etc. This Asian growth has been vital as the traditional economic heavyweights have been hindered through a severe recession, and several different financial panics. Now it appears that it is time for the United States economy to shoulder a larger share of the global economic burden, to take some of the sting off the reduction in Chinese growth prospects. To accomplish this the U.S. government must really keep the pedal on growth and the improvement in the housing market must accelerate. We’d suggest ensuring a large margin of safety on many of the mining companies that are tied to cyclical expansion and construction. I’d also be extremely wary of Australia which has been a leveraged play on this growth and is just starting to see weakness in housing and the financial system. The bigger concern is that weakness in areas such as housing for China, could expose other structural problems such as municipal debt that could turn things into a hard landing.
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