The Asian Age of Transformation

The Casey Research Summit finished recently. Here’s some further opinions from speakers at the summit on Japan and China in particular…

The Asian Age of Transformation

By Casey Research

Financial pundits are divided on Asia. Some believe China and Japan are going to have their day in the sun, while others fear that economic mismanagement will lead to a similar collapse as we’ve seen in the US in 2008. Here are some opinions of prominent investment experts from the just-concluded Casey Research Fall Summit.

John Mauldin, chairman of Mauldin Economics and bestselling author of Endgame and Code Red, thinks we’re in an age of transformation. “Keynesians rule the world, whether we like or not, so we should invest with that reality in mind.”

He believes that of the major developed economies, Japan is furthest down the road to ruin. It’s literally a dying country, growing older more quickly than any country in recorded history.

Mauldin predicts that the yen will decline to at least 200; he hedged his own mortgage by shorting the yen with 10-year options at a 130 strike.

China, on the other hand, is trying to proactively and slowly pop its debt bubble, Mauldin says, something no other country has ever attempted.

Michael “Mish” Shedlock, investment advisor with SitkaPacific Capital Management, is also seeing storm clouds on the horizon, but he’s bullish on Japanese equities right now—with the caveat that investors should make sure to hedge exposure to the yen.

Mark Yusko, founder and CEO of Morgan Creek Capital Management, is even more optimistic. While he says US stocks are “second most overvalued they’ve ever been,” he recommends Japanese equities as a good bet. Japan, he believes, will beat the US over the next 10 years by a huge margin.

China, Yusko says, is on the verge of a massive bull market and will have the greatest consumption boom in history.

Leland Miller, president of China Beige Book International, couldn’t disagree more. Inaugurated in 2012, the China Beige Book is the most comprehensive survey ever conducted on national, regional, and sectoral economic conditions in China, and the only real-time, independent window into China’s opaque credit and shadow credit environments.

Current data show, according to Miller, that the Chinese economy is broadly decelerating. Inflation is declining, and borrowing continues to dwindle despite lower-interest credit, while the labor market is still stable. Bottom line: the Chinese economy is on the way to slowing substantially.

There are two ways, says Miller, how that could occur:

1. The best-case scenario: The Chinese government institutes policies to encourage slower, healthier growth, cuts down the massive credit expansion, and lets bad firms go out of business. That way, the formerly rapid growth of the economy would slow, but grow more sustainably in the long run.

2. The worst-case scenario: The Chinese government resists to implement much-needed reforms and instead caters to vested interests. As a result, the economy will see a hard landing.

Miller suggests investors should be careful investing in emerging markets right now, as “the reverberations from China will be considerable.”

He recommends one Chinese company traded on the New York Stock Exchange as a good short-term investment, but warns to “be very careful long term.” This company, he says, is irritating entrenched interests by fundamentally altering the way business is done in China.

To get Leland Miller’s timely stock pick (and those of the other speakers), as well as every single presentation of the Summit, order your 26+-hour Summit Audio Collection now. It’s available in CD and/or MP3 format. Learn more here.