“Maybe China is ALREADY recovering. It may be a structural depression - but only for the developed countries, particularly the United States. Maybe it's only a recession for China. And maybe it's over.”

“Developing economies are reporting increases in exports after a catastrophic collapse at the end of the last year. Again, you can measure the collapse easily just by looking at the Baltic Dry Index. It fell by more than 90% last year. From its low, it's doubled - up 100%. But that still leaves it down 80% from a year ago.”

“Brazil's stock market is up almost 90% from its low. South Korean stocks are up 71%. And Chinese stocks - those listed on the Shanghai exchange - have gained 50%. Apparently, someone thinks the worst is over.”

On America:

“We doubt that this rebound in many of America’s financial sector is the sign of a new, healthy boom. Credit expanded for half a century and the ultimate bubble has caused trillions of dollars worth of errors. Many of those errors have already been corrected, but the economy the bubble built remains unreconstructed. Same mismanaged companies, same mismanaged regulators, same mismanaged banks. Exporting nations had gotten very used to earning net sales from the U.S. of $2 billion per day. Those earnings provided much of the speculative capital that created misallocations. A lot of that money has all but disappeared. The process of deleveraging will take many years.”

On Energy:

“Within the energy group, refiners and oil sands are attractive. Most oil analysts despise refiners, and they have to continue to refit their aging refineries. But Americans are driving less, and so refiners should hold up better than other oil sectors if there’s one last oil shakeout coming. We also suspect that given their safe-haven location and long term life, we may never be able to buy oil for the future as cheaply as is possible today by buying the oilsands stocks. Peak oil is real, and it is here, now simply masked by the dislocation of massive deleveraging.”

On the U.S. dollar:

“Despite the already enormous depreciation in the US dollar’s value, the currency still has much farther to drop. Recently the U.S. dollar “enjoyed” a counter-rally of epic proportions. This is just de-leveraging, with gold going down for the same reason a lot of stocks were going down, a lot of commodities were going down. There’s a lot of leverage in this system, there’s a lot of margin calls, a lot of liquidation; a lot of people are having to sell whatever they own to pay off their debts … there was some perception of safety in the U.S. dollar, but it’s the opposite of the leveraging. If you’re selling your assets, you’re accumulating dollars. It’s like there’s been this gigantic nuclear explosion in the United States, and everybody is running toward the blast. Pretty soon they’re going to figure out they’re going in the wrong direction. The U.S. dollar will be the next bubble to burst.”

On the American Consumer:

“The American consumer is basically going to stop consuming and start rebuilding his savings, especially as his home equity, the American consumer’s largest source of “equity”, evaporates. When you have the economy 70 percent consumption, you can't address those imbalances without a severe recession, and so here we are. As government and the lenders re-impose lending standards and tightening up on credit, and the sky-high real estate prices come crashing back down to earth, baby boomers are facing some severe challenges.”

On U.S. Real Estate:

“Don't expect any major turnaround in prices soon. When the housing crisis began, we provided data that estimated that prices needed to come down about 40% in order to make the average house affordable by the average person. Of course that was before the average person's income came down. If the depression continues, house prices should come down a further 10% to 20%. And don't forget about the second wave of defaults … some unlucky homeowners could see their mortgage payments as much as double … and then there’s the serious state of the commercial real estate market – only now starting to become evident.”

On the Canadian Dollar:

“With the Canadian economy more stable than the American, savvy Americans a few years ago started putting their money into our resource sector. This had barely gotten going when the July 13, 2008 massacre was orchestrated by Bernanke and Paulson, killing the leveraged long commodities and short the dollar trade. Keep in mind that the Canadian dollar had gone from the low 60 cents to the Greenback to $1.09 in relatively short order. OK, so now we’ve had a counter rally. We suspect the resulting deleveraging and forced liquidation certainly took even its instigators by surprise. We are one of the few countries to have not inflated our monetary base by printing more dollars. Plus we have the soundest banking system in the world now. It is ironic that Canada is more fiscally conservative yet the Canadian dollar goes down against the U.S. dollar for most of the last year. The Canadian economy and value system is like the best of America, but avoids most of its pitfalls.”

On Timing:

“Our experience is that when everyone is bearish, it's invariably right to be buying. Being contrarian at the extreme works. The bottom of a stock-market cycle, by definition, has to be the point of maximum bearishness. The news doesn't have to be good for prices to rally; it just has to be less bad than what has already been factored into the market”

On the Depression Fear:

“A Depression in the old sense of the word is impossible. The world is a different place, and far wealthier than it was 80 years ago. If one describes a depression as the loss of purchasing power of the wage earner (a correct definition), then we have been in one for the past 50 years since wages have not kept up with the cost of living.

“‘We are heading into the Greatest Depression in history’. As long as this image gets into the press and the media and politicians buy into it, the government has a green light to create as much money as is needed, and they will do whatever it takes. Bernanke has been telling us that for years. Throwing money out of helicopters - believe him.”

Our April 2009 Conclusions:

“We believe that the stock market is giving the correct signals, that commodities and tech will lead the next recovery. Yes, China is coming back – they have high savings rates, no debt and are long term players, but the industrial world is still looking bleak… We continue to believe that small-caps are the place to be for 2009-10, as readers of my "Back up the Truck" commentary last year know all too well … history has shown that if you can weather the volatility (meaning stay out of margin, stay disciplined with mental stop-losses in place, and use money earmarked for aggressive growth, not retirement cash flow) you will out-perform the market. With some good timing thrown in, performance can be wildly profitable. Jumping into the deep-end and buying well considered, traditionally riskier small cap stocks continues to be the smartest bet right now … Gold stocks may well be superstars again once the dollar finally falls, and people begin to get genuinely worried about inflation’s return, and they should outperform bullion to the upside.”

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