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00:00SEEING IT YET? >> IT'S A PROBLEM, AND IT'S A BIG GROWTH PROBLEM. AMONG ALL OUR ASIAN ECONOMIES, ON OUR ANALYSIS, CHINA IS LOOKING THE MOST STRESSED. EVERY INDICATOR IS SHOWING THAT CHINA HAS ENTERED THE PHASE OF THE BUSINESS CYCLE. IF YOU LOOK AT THE INVESTMENT CYCLE, IT'S IN DOWN TURN. IN THE COMING YEARS, WE EXPECT THE INVESTMENT OF G.D.P. RATIO TO FALL. AND ON THE BACK OF THAT, WE'RE LOOKING AT 3% TO 5% GROWTH THE NEXT FEW YEARS. THE ONLY REASON WE'RE NOT LOOKING AT AN OUTRIGHT CONTRACTION IS THERE'S GROWTH IN THE SERVICES SECTOR. THERE'S NO DOUBT THAT THIS ECONOMY, LED BY THE PRODUCTIVE SECTORS, IS IN DOWN TURN, AND THIS IS ALSO CONFIRMED BY THE PROFIT DATA. MANUS: YOU'RE USING THE WORD BUST. WE'RE ENTERING A BUST PHASE IN CHINA. YOU'RE TALKING 3% TO 4% GROWTH. THAT'S A NUMBER OF RATE CUTS. WHAT DO THEY NEED? THAT'S NOT GOING SAVE THE BUST PHASE, IS IT? WE'RE EXPECTING INTEREST RATES TO COME DOWN FURTHER, BUT I WOULD SUGGEST THAT THE MARKET -- EVERY TIME THEY CUT RATES, WOW, YOU KNOW, THIS IS GREAT NEWS, I'M WORRIED SEEING A RATE CUT, BECAUSE TO ME IT'S LIKE, WOW, THINGS MUST BE REALLY BAD THAT THEY CUT RATES. THEY'RE CUTTING RATES NOT TO REIGNITE THE CREDIT CYCLE, THEY ARE TRYING TO CUT RATES TO TAKE SOME OF THE -- ALLEVIATE SOME OF THE PRESSURE OFF THE SECTORS OF THE ECONOMY. IF YOU AT THE LATEST JULY TOTALS, FUNDING MEASURES, WHICH IS A MEASURE OF NEW CREDIT, IT'S DOWN 27% YEAR ON YEAR. THEY'RE CUTTING POLICY RATES, BUT THE COMMERCIAL BANKS ARE NOT PASSING ON THOSE RATE CUTS TO BORROWERS. FRANCINE: YOU'RE ACTUALLY RIGHT. WE SAW THEM THE LAST COUPLE OF WEEKS, A LITTLE BIT OF DESPERATION. DOES IT MEAN THAT THE GROWTH INVITE 3%? WHEN YOU TALK ABOUT BUST, HOW MUCH IS THERE A DIFFERENCE BETWEEN WHAT WE THINK OR THE NUMBERS WE'VE BEEN TOLD AND WHAT IS ACTUALLY GOING ON IN THE REAL CHINESE ECONOMY? >> YOU'RE GOING GET 7% GROWTH EITHER WHICH WAY. FRANCINE: SO THAT'S NOT BAD. >> BUT AS AN INVESTOR, ARE YOU GOING TO INVEST ON 7% OR WHAT'S GOING ON WITH THE REAL ECONOMY AND ON THE BACK OF IT ON REAL CORPORATE EARNINGS GROWTH? THAT'S WHAT DRIVES EVALUATION. IF YOU LOOK AT EVERY INDICATOR OF THE REAL ECONOMY, AND YOU CAN LOOK AT A LARGE PROXY OF THEM, INCLUDING THINGS AS FAR ASTRAY AS KOREAN AND TAIWANESE EXPORTS, EVERY DOMESTIC INDICATOR IS SHOWING THAT THAT ECONOMY IS SLOWING VERY QUICKLY. FRANCINE: FROM 7% NOW TO 5%? WHAT ARE WE ACTUALLY LOOKING AT? >> WE RECKON THE ECONOMY IS ALREADY GROWING AT 5%. FRANCINE: 5%? >> YEAH, AND IT'S JUST AT THE EARLY STAGES OF THE DELEVERAGING CYCLE, AND, YOU KNOW, THE NEXT TWO, THREE YEARS, IF THEY GROW BY 3% TO 5%, THAT'S RATHER GOOD. MANUS: WE ARE WHERE IN THE COMMODITY STORY? ARE COMMODITY INDEXES GOING TO BE AVERAGING SINCE 200 , THE GLOBAL IMPLICATIONS FOR COMMODITIES AND ECONOMIES, WHAT DO YOU THINK? >> WE'RE SHORT COMMODITIES, AND WE ARE SHORT ON COUNTRIES THAT HAVE -- WHICH ARE COMMODITIES, EXPORT-DRIVEN, AND THAT HAVE BEEN MASSIVE BENEFICIARIES OF THE CHINA INVESTMENT BUBBLE. AND, YOU KNOW, LOOKING AT ASIA, WE'RE SHORT AUSTRALIA, AND IT'S EXACTLY FOR THE REASON YOU MENTIONED, THE COMMODITY STORY IS JUST NOT LOOKING GOOD. FRANCINE: HOW MUCH MORE OF A COMMODITY ROUT? I MEAN, YOU'RE SAYING THAT % GROWTH TARGETED IS ACTUALLY SMOKE AND MIRRORS, IF THEY'RE NOW GROWING AT 5% AND ARE GOING TO GROW THE NEXT COMING YEARS, IT MEANS WHAT WE'RE GOING TO SEE IN THE COMMODITIES IS GOING TO GET A WHOLE LOT WORSE. >> I'M NOT A COMMODITIES EXPERT, BUT I AGREE WITH WHAT YOU SAY. YOU KNOW, IF WE ARE RIGHT IN WHAT WE'RE SAYING, THE CHINA DEMAND IS NOT GOING TO COME BACK, IF ANYTHING, IT'S GOING TO WORSEN, PLUS THE CHINESE ARE GOING TO DUMP ON THE MARKET, IT STANDS TO REASON THE COMMODITY STORY IS GOING TO GET WORSE BEFORE IT GETS BETTER, ESPECIALLY IF Q.E. HAS ENDED. THERE'S LESS LICK I HAD TO SUPPORT MARKET. MANUS: WE'VE GOT BRENT OIL FALLING TO $55 FOR THE FIRST TIME SINCE APRIL, WHICH, AGAIN, SORT OF TIES IN THE OVERALL CONCERN, BUT THAT'S A SUPPLY STORY. ONE ARTICLE THAT WAS MENTIONED THIS MORNING IS THE ABILITY OF THE CHINESE TO LOOK AT THE CURRENCY. THERE'S A COUPLE OF NOTES THAT THEY MAY WIDEN THE BAND WIDTH, YOU WANT TO TRADE FROM 2% TO 3%. IS THE CURRENCY PART OF TRYING TO STABILIZE THIS GROWTH STORY? BECAUSE MY UNDERSTANDING WAS THAT THEY PROTECTED THE CURRENCY QUITE A LOT IN THE FIRST SIX MONTHS. >> THAT'S A REALLY GOOD QUESTION, MANUS, BECAUSE THE RELATED QUESTIONS IS OPTIONS RIGHT NOW. INTEREST RATES, THEY DON'T WANT TO REALLY REIGNITE THE CREDIT CYCLE, AND THEY'RE NOT DOING THAT. FISCAL, THEY GOT AWAY WITH IT, BUT DO THEY REALLY WANT TO DO THAT? THAT LEAVES THE CURRENCY. I WOULD SUGGEST THAT WHAT IS WARRANTED IS A LARGE ONE OF DEVALUATION TO RESET THE CURRENCY. BECAUSE IF YOU LOOK AT THE YUAN EFFECTIVE EXCHANGE RATE, IT'S BEEN SHOOTING UP. TO RESET IT AGAINST THE DOLLAR, THE YEN AND EURO, AND ALSO DO A ONE-OFF DEEVALUATION, BECAUSE THAT ALSO LOCKS IN THE RETAIL INVESTORS, WOULD THEY REALLY CONSIDER THAT? THAT'S THE MILLION DOLLAR QUESTION, BECAUSE WITH IT COMING UP IN OCTOBER, I THINK THIS IS WHAT THEY SHOULD DO. I THINK ONE HAS TO KEEP AN EYE ON WHAT HAPPENS IN OCTOBER. DO THEY HAVE TO PUSH FOR IT? WITH THAT, MORE CAPITAL ACCOUNT OPENING, WHICH IS THE LAST THING THEY NEED RIGHT NOW. FRAPE THANK YOU SO MUCH FOR ALL OF THAT. MANUS: HERE'S A LOOK AT WHAT ELSE IS ON OUR RADAR THIS FRIDAY MORNING. AMAZON.COM HAS OVERTAKEN WAL-MART AS THE WORLD'S BIGGEST RETAILER BY MARKET VALUE. THAT'S AFTER THE E-COMMERCE GIANT JUMPED AS MUCH AS 19% IN

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China Has Entered the Bust Phase: Whelan

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