Bob, thanks for posting that piece by Mauldin. The expectation of the Chinese economy experiencing DEFLATION is probably not the majority view at this point, although it certainly could happen. What does appear likely is the continuing competition from around the globe that will help out the US consumer in the form of lower prices on imported goods.
As an aside, when I asked the CEO of DAAT about currency changes affecting his costs, he said that his supplier would most likely be willing to eat the 2% increase, simply because they are scared that he would work with someone else.....
This seems to be one of the driving theories behind Mauldin's artice:
"In China today, one can reportedly find over 3,000 ball-bearing manufacturers (or over 300 car manufacturers, etc...). Unfortunately, the Chinese market is probably big enough for 10 ball-bearing manufacturers. This means that 3000 ballbearing CEOs wake up every morning and wonder: "how do I get to be one of the 10?". And the answer to that question is simple enough: one gets to survive not by being the most profitable, or the most advanced technologically, or not even by being the best politically connected (though that helps). One gets to survive by being the biggest; by employing so many people that, when the down phase of the cycle occurs, the government can not afford to fire hundreds of thousands of workers. One becomes "too big to fail".
This of course means that, when capital is offered up, all three thousand ball bearing manufacturers (following their "too big to fail" business models) will grab it and spend it with both hands. Competing with each other for a) raw materials, b) labor, c) allocations on the overstretched power and transportation grids.
Unfortunately, as labor, raw material and transport costs rise, margins start to come under pressure. Especially since, given the increase in capacity, producers are incapable of passing on price increases."
AI
