Have you focused on the effect a serious slowdown in U.S. Consumer Spending may have not only on the U.S. economy, but importantly on the economies of China and other developing countries – and the potential significance of this to your equity investments?

For many years The Peoples Republic of China (‘PRC’) has reported an annual GDP growth rate in the order of 8% – 10%, creating unprecedented demand and upward pressure on prices for basic commodities such as copper, nickel and crude oil. While there are many economic issues related to China that bear directly on the economic wellbeing of the U.S., we believe perhaps none is as important as how a serious slowdown in U.S. consumer spending would affect China’s GDP growth rate and behavior – in particular how the PRC would deal in such circumstances both with the large amounts of U.S. dollars it holds (arising in large part from China’s trade with the U.S.) and its continuing purchase of raw materials required to fuel its growth. Based on our reading we have come to believe U.S. consumer spending is significantly important to both U.S. and global economic growth, with the consequence that if U.S. consumers significantly reduce consumption the world (read China in particular) macro-economic engine may slow down materially.

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