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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: KyrosL who wrote (53958)	2/15/2006 9:25:42 PM
From: arun gera	Read Replies (1) \| Respond to of 110194

I recently saw an article that a clothing sold in a store in US for $23 costs $0.5 to produce in China. Rest goes in shipping, marketing, sales, branding, etc. So about $22 is spent on the US side of the shipment. Bulk shipping from China to US probably costs as little as a few cents per clothing. So if the US consumer fails, she stops buying as many clothes and buys cheaper brands. Chinese companies with lower capacity utilization are hurt and consolidation happens. However, the chinese industry is probably already very competitive, so they are probably not going to lower the price much from $0.5 in chinese currency that they are charging. Say the unit price goes down in price to $0.40 in chinese currency. Let us say the dollar falls 25 percent compared to Chinese currency. The clothing now costs 100/75*0.40= $0.52 to the US importer. The importer is not facing much pressure from chinese prices on the buy side. All small chinese companies start failing as their costs in chinese currency have risen by 25 percent and the pricing has not changed much from before. Huge consolidation into the most financially viable companies. Small mom and pop entrepreneurs work for the efficient bigger ones. If the US consumer is now only willing to pay $17 unit price from the previous price of $23, someone in the US supply side of the chain is going to lose 30 percent of their pricing power. The prices will keep dropping until only the most efficient companies remain in each portion of the supply chain. As the supply chain is already very competitive, the $6 loss will be felt by the branded companies that are extracting the maximum profits out of the consumer. Also total revenue loss will be felt by all companies. As China bases its business on exports, its less efficient companies fail causing pain to lost of small business. More chinese are affected as a greater portion of their economy is export oriented. -Arun >Converting the high savings export and investment oriented Chinese society to a consumer society will take decades. A collapse in demand in the US due to a collapsing dollar will result in a collapse in China along with a collapse in commodity demand.>

To: KyrosL who wrote (53958)	2/16/2006 12:47:01 AM
From: John Vosilla	Respond to of 110194

"A collapse in demand in the US due to a collapsing dollar will result in a collapse in China along with a collapse in commodity demand." I agree. Also expect a rise in the rates of long term US treasuries even in the slowdown as China and others dump to fix financial problems at home.

To: KyrosL who wrote (53958)	2/16/2006 9:33:26 AM
From: GST	Read Replies (1) \| Respond to of 110194

<Converting the high savings export and investment oriented Chinese society to a consumer society will take decades.> More correctly, the conversion of China from a high savings export investment economy to a consumer economy will continue for decades. It is happening now -- all you need to do to know this is spend a day shopping in any of the hundreds of cities in China where hundreds of millions of Chinese go shopping, or visit people in their new homes. The Chinese save. They have strong balance sheets and low incomes. Their incomes are rising and so is their spending. As for investment, much of it is to build the infrastructure of modern consumerism -- thousands of miles of interstate highway, entire cities built from scratch, power generation, pipelines -- all the infrastructure needed for a seriously consumer oriented economy.