Tuesday, November 17, 2015

A Generation of Terrorism

French President Francois Hollande called the recent terroist attacks in Paris an "act of war."  And so they are, provoking French aerial assaults on ISIS's facilities in Syria.  The United States and other Western nations will be ramping their mliitary efforts in Syria and Iraq against ISIS.

The young adults the military will seek to recruit for this new round of fighting were toddlers and kindergartners at the time of the 9/11/01 attacks.  An entire generation has grown up in the era of terrorism, with no end in sight to the violence. 

ISIS, and in particular its leadership, have taken a pummeling from Western air power in recent months, and suffered setbacks in the battlefields.  Most likely, the self-proclaimed caliphate in ISIS-controlled territory will eventually buckle under the assault of the multi-national force that has assembled against it, although this process will need time.

But we know from our years-long struggle with al-Qaeda that terrorist organizations have a hydra-like ability to metastasize.  Indeed, ISIS is an offshoot of al-Qaeda.  If the ISIS caliphate is destroyed, little ISIS cells sprinkled around the world will likely continue the insanity.  Western air power can't drop smart bombs on every disgruntled, radicalizing teenager.

After a generation of struggle with terrorism in Afghanistan, Iraq and elsewhere, it's clear that military measures aren't alone enough to suppress organizations like ISIS or al-Qaeda.  Even though al-Qaeda has lost its hideouts in Aghanistan, it has resurfaced in a number of other places.  Killing and capturing terrorists, and seizing their territory and assets, hasn't stopped them.

The key to destroying ISIS, al-Qaeda, and others of this ilk is to destroy their ability to recruit new members.  More than money, territory, weapons or other resources, terrorists need new recruits.  As long as they can recruit, their wars, suicide attacks and other outrages can continue indefinitely.  Cut off their recruits, and they're finished.

The coalition of nations aligned against terrorism needs to focus more, and probably much more, attention on undermining the terrorists' recruiting process.  This includes aggressive measures, such as arresting and imprisoning the preachers of violence, prosecution of those that engaged in or aiding terrorist activities, shutting down terrorist websites and social media accounts, and hacking into and destroying terrorist databases and computer systems.  Knock the bad guys off the Internet, and in today's online-dependent world, they're probably done for.

Also necessary are kinder and gentler measures that address the reasons why disaffected young people answer the call of the terrorists.  Tolerance and acceptance for immigrants and those of differing religions may be diminishing.  But more is needed, not less.  Young people who might recruited by the killers need to be brought into the mainstream of society, not marginalized or rejected.  Offer them respect and dignity, with a fair chance in the work place, and the purveyors of hate will be left behind in the dust.

Look at today's toddlers.  Look at how cute and lovable they are.  Think about what it would be like to see them, fifteen years from now, climbing in the future equivalent of a Humvee, hoping that there's no IED or ambush waiting for them down the road.  Think of them coming home with blown off limbs or PTSD.  Think of them being buried at Arlington National Cemetery.  Three volleys and Taps aren't much of a substitute for a vibrant, live young person.  If we can deprive ISIS and other terrorists of recruits, we win the war.

Saturday, October 24, 2015

Ask Not What Your Country Can Spend For You

Ask what you can spend for your country.  At least, some folks might like it if you did.  The Federal Reserve is in trouble.  The economy is meandering.  Unemployment levels have reached full employment, but labor force participation levels are low.  The Fed accentuates the negative and projects gloom about employment.  Wages stagnate, and, net of inflation, are lower than a generation ago.  The dollar is strong, which encourages imports while discouraging inflation. The Consumer Price Index is dropping, leading some to conclude that we have deflation.  This conclusion is a classic example of how statistics mislead.  Prices are higher if you take out energy costs.  If the price of everything except energy is going up, and energy is dropping a lot, do we really have deflation?  Or a misleading statistic?

But we digress. The Fed has greatly reduced its quantitative easing measures, since they didn't seem to be doing much good any more.  It's holding short term interest rates lower than a snake's belly.  But it can't do more.  The Fed is now low on ammo and can't expend what it has left; it has to hold something in reserve in case the economy belly flops.

There's no possibility of fiscal stimulus.  The federal government tied its budget into knots with the sequestration law, which requires automatic spending cuts each year through 2021.  Congress and the White House can get around the cuts by passing specific legislation providing for something other than sequestration.  But, given how the daily love fest between Congress and the White House consists of brickbats, but not bouquets, the chance for fiscal stimulus is lower than short term interest rates.

That leaves you, dear consumer.  The U.S. economy is about 70% consumption, and if consumers don't consume, the economy reaches for one of those little airline bags.  So spend, spend, spend.

Right?  Come on, right?

Or maybe not.  Consumers learned the hard way after the 2008 financial crisis that lavish spending and debt accumulation are shortcuts to financial ruin, and that saving improves the quality of your sleep.  Just because the Fed made it cheap to borrow doesn't mean borrowing is a good idea--soda is inexpensive but drinking a lot of it is a very bad idea.  If the Fed can't move short term interest rates above a complete goose egg, you have to suspect that maybe the Fed knows that the economy is a complete goose egg.  In which case, the last thing you want to do is spend freely.

We live with a contradiction:  our individual financial health requires acting in a way that is unhelpful to near term economic growth.  But those who are prudent can get through hard economic times, and it makes sense to put self and family first.  This leaves policy makers with controversial choices--negative interest rates, easing immigration restrictions to bring in educated, ambitious foreigners, and even more hotly debated measures (can you say Ex-Im Bank?).  How likely are these?

The truth is government policy is largely played out.  The economy will have to rise or fall based mostly on its own.  The next surge of growth, whenever that is, will probably come in a rush of technological innovation that may be hard to foresee.  Until then, the economy will likely meander.  If you're building up your savings and preparing for a tough slog, you'll probably be okay.  Ask not what you can spend for your country.  Ask what you can save for yourself and your family.

Monday, October 5, 2015

Everyone's a Loser in Syria

With Russia's entry into the bag of dog doo that is Syria, the chattering classes are all astir over who's up, who's down, who's winning and who's losing.  Russia is the usual nominee for winner.  But what exactly has Russia won?  It can't win the war.  Between ISIS, the Kurds and various other rebel groups, most of Syria is no longer in the hands of the Assad regime.  Russia can't afford to commit the tens of thousands of ground troops, equipment and air power that would be needed to retake and hold all this ground, and the Assad regime's army appears too depleted to mount the major offensives that would be needed.  All Russia can do is prop up an Assad rump regime in western Syria that would be under constant attack.  That would mean an indefinite commitment to a war with no end in sight and no possibility of a Russian victory.  

Russia's puppet in Syria, Bashar al-Assad, isn't a winner; he has only avoided becoming a big loser.  His diminished army can't reconquer what he's lost in Syria.  Russian air strikes will allow him to bolster his lines and tighten up his defenses.  But a few dozen Russian air craft don't begin to provide enough air power to support an offensive that could retake all of Syria.  At the same time, Assad's authority is diminished.  Now, he will have to do whatever Putin tells him to do, and like it, as well.

The Iranians, who apparently negotiated an alliance of sorts with Russia, have had their weakness revealed.  For all their bluster and unacknowledged efforts to build nuclear weapons, they don't have the strength to prop up a two-bit dictator in a small nation.  They had to call in first, their Hezbollah allies, and then Russia.  Maybe the Iranians are claiming a propaganda victory.  But they just ceded power to Vlad the Invader, and it's generally a bad idea to give power to an aggressive despot.  Has the Islamic Iranian government forgotten that one reason Shah Mohammed Reza Pahlavi allied himself so closely with the United States was because the Russians wanted to take over Iran after World War II?

The Shiite dominated government of Iraq has cozied up to Russia and allowed Russian military planes to fly over Iraqi air space in order to reach Syria. Maybe it had no choice; its Iranian handlers could have told it to cuddle up to Putin.  But, reality is you can't be an ally of America and an ally of Russia.  If the Iraqis snuggle up to Putin too much, America may not provide as much military equipment or intelligence to Iraq as it once did.  It may see less value in supporting a Shiite government in Baghdad and perhaps more value in supporting the Kurds.

The Sunni rebel groups--ranging from ISIS to the various metastasizes of al Qaeda to the tiny and shrinking handful of moderate rebels supported by the United States--are ships out of luck.  They can't win, not with Russian military assets located in and protecting western Syria.  They will be battered by Russian air power, and will have to hunker down.

Saudi Arabia and its Sunni allies have quietly been supporting various of Assad's opponents, hoping to unseat him and install a Sunni-friendly government.  That ain't happening now, not with Russian soldiers in Latakia.

The Kurds have enjoyed notable success in Syria, carving out safe havens for themselves and others who aren't Sunni or Shiite crazies.  But Russian air power will likely preclude further Kurdish gains.  The Kurds will have to concentrate on holding what they have.

Turkey has been fighting Russia for centuries.  Now, with Russian military aircraft in Syria, the Russians just flanked Turkey and can hit it from two sides.  Not that Putin has expressed any unfriendly intentions toward Turkey, but given the centuries of war between these two nations, nothing needs to be said.

Israel has been fighting various Russian allies almost since its inception.  Never, however, have Russian military assets been so closely positioned to Israel.  Had Iran been so brazen as to station military aircraft in Latakia, Israel's more advanced air force would have swarmed in the next morning before dawn and walloped the warm living yogurt out of the Iranians.  But Israel cannot attack Russian forces.  It can only watch, and hope that Syria proves to be a hopeless morass for Russia.

And last, but not least, the United States has seen its modest influence in Syria diminish even more.  By propping up Assad, Putin precludes any possibility of an American victory.  Not that it matters since, at this point, America isn't even really engaged in Syria.  The Obama administration issues a steady stream of press releases about Syria, but it's doing little more than talking. Since it's not engaged in Syria, it doesn't have the leverage to get the Russians out.  Hopes that Russia will join hands with the U.S. in attacking ISIS are delusional.  ISIS has weakened America's position in the Middle East.  Why would Putin want to weaken ISIS, which is doing the dirty work for him?  All he needs to do is prop up Assad, his puppet in Syria, while ISIS and America batter away at each other, neither able to conclusively defeat the other.

In the end, the absence of anyone strong enough to impose peace and order in Syria means that the country will be de facto partitioned.  That's what happened to Yugoslavia.  It's what's happening now in Iraq.  The flood of refugees into Europe will continue.  The truth is everyone is a loser in Syria.

Friday, September 25, 2015

Do the Financial Markets Regulate the Fed?

When the Federal Reserve decided last week to hold short term interest rates at zero, the stock market's reaction was to drop.  Even though easy money has been a shot of glucose for stocks since the 2007-08 financial crisis, the market seemed to be saying that there can be too much of a good thing.

Yesterday, Fed Chair Janet Yellen stated her view that rates should rise sometime this year.  The market reacted positively, even though rising interest rates logically should push stock prices down (since fixed rate investments that compete with stocks would offer higher yields than before).

The implication is that the market is leading the Fed.  The market wanted rates to rise, and when they didn't, the market pouted.  That may have prompted Chair Yellen to make more noise about rates rising, and then the market cooed with approval.

Why would the market want rates to rise when conventional wisdom holds that stocks should love easy money?  Maybe it's because the stock market absorbs information from a variety of inputs, both short and long term.  Easy money is positive in the short run, but can be corrosive in the long run.  Accommodative policy by the Fed and other central banks has continued for almost 8 years now, and is distorting asset values and relationships to the point where the social contract may be changing.  With interest rates so low, the ability of pension funds, insurance companies and other asset managers to provide pension and annuity income is becoming impaired.  (For more, see http://blogger.uncleleosden.com/2015/04/is-federal-reserve-wrecking-retirement.html.)  When private parties can no longer provide retirement income, greater responsibility falls on the government.  Social Security and similar programs become more essential.  If these programs suffer from fiscal imbalance, taxpayers become more burdened.  We can't toss retired and disabled people into the gutter, but who besides taxpayers can cover their needs?

Another change in the social contract is that easy money favors the wealthy.  Low interest rates have pushed up the value of risk assets--stocks, real estate, commodities and so on.  The distribution of income and wealth have become more skewed in favor of those who need the money the least.  Such growing inequality makes it more difficult to attain social and political compromises and consensus.  A resentful and angry society may lack the optimism and initiative for investment and risk-taking that would foster strong economic growth.  (Note that jaded, cynical Europe is hardly a hotbed of innovation.)

The voices that are heard at the Fed tend to be those of elites--Wall Street executives, influential academics, power players like IMF Managing Director Christine Lagarde.  A lot of these voices have advocated keeping interest rates at zero.  But the accumulated knowledge of many thousands of participants in the real financial world seems to signal that continued distortion of asset values is doing more harm than good.  Maybe the market is regulating the Fed.  And maybe, at least this time, that's a good thing.

Tuesday, September 15, 2015

The Fed's International Data Dichotomy

The Federal Reserve Board is meeting to decide whether or not to raise interest rates.  The costs and benefits of its decision, whichever way it goes, will fall to a large degree along international borders.

Most of the data favoring a rate hike are domestic.  The U.S. economy is growing, moderately but steadily (especially after data revisions).  Unemployment has fallen to the level generally regarded as full employment.  Jobs growth continues, not at a blistering pace but indicative of continued expansion.  Inflation is very low, but if you strip out energy and food prices (which are volatile), the rest of the price structure is pretty close to the Fed's 2% target.

Most of the data arguing against a rate hike is from overseas.  Chinese stocks have been volatile and China's growth is slowing.  Europe's and Japan's economies are  barely growing.  Emerging nations and commodities producing nations are on the ropes, with many facing shrinking economies.  The Greek debt crisis has temporarily simmered down, but the most recent "resolution" was just another kick of the can down the road.  So we can be confident that a Greek default will loom anon, and we'll have to revisit familiar angst.  A rate increase will strengthen the dollar, which will possibly exacerbate these international problems.

Much of foreign anxiety stems from the fact that the dollar is the international medium of exchange.  The entire world uses the dollar in numerous trade and cross-border transactions.  The Fed's monetary policy unavoidably affects people in distant lands.  A rate hike may help the domestic economy by easing asset distortions and increasing certainty (and desperately desired income for savers).  It is likely to have a negative impact overseas.  No wonder the IMF and other voices reflecting foreign perspectives argue against a rate hike.

What will the Fed do?  Most likely, not even the Fed knows before its meeting.  We've been told that its decision is data dependent.  What we don't know is how it weighs and balances the data.  What data receive greater consideration?  What data are downplayed?  What thought is given to the effect of the Fed's decision on foreign relations? Central banking is distinct from diplomacy, but the Fed can't ignore foreign concerns.  A rate hike will produce smiles and frowns, mostly on different sides of the border.  After World War II, America became the pre-eminent economic power in the world, and it cannot now avoid the consequences of its dominance.

Friday, September 4, 2015

Deflategate and the Growing Legend of Tom Brady

Some people believe that, on the field, Tom Brady is the best quarterback in the NFL.  There are those who would even contend that he's the best NFL quarterback ever.  He's destined for the Pro Football Hall of Fame--that's for sure.

But now, Brady has prevailed over the NFL Commissioner in federal court.  Federal judge Richard Berman took a highly skeptical view of Commissioner Roger Goodell's four-game suspension of Brady for Deflategate, finding the Commissioner more or less handled disciplinary matters by the seat of his pants.  Concerned about deficits of fairness and due process in the Commissioner's decision, the court tossed Brady's four-game suspension.  Even though the NFL appealed the court's ruling almost immediately, its chances of prevailing on appeal aren't pretty.  Most of the time, appealing parties lose and Judge Berman doesn't appear to have given the Court of Appeals much room to find problems with his decision, assuming it's even inclined to try.  And if the NFL loses at the Court of Appeals and petitions the U.S. Supreme Court to take the case, it will likely be grasping at straws.  The Supremes have much more important stuff to deal with than football inflation levels.

Tom Brady was drafted in the next-to-last round of the 2000 draft, and barely played during his rookie year.  The next year, when starting quarterback Drew Bledsoe was sidelined due to injury, Brady stepped in and took the Patriots to the Super Bowl, where he led them to their first Super Bowl victory.  Since then, Brady has led the Patriots to five more Super Bowls, with three more victories.  All the while, he built a record of on-the-field performance and awards that's too long to reproduce here.  He married a Brazilian super model and lives a glamorous life supported by multi-million dollar wealth.  The man has become an NFL legend. 

His courtroom victory over Roger Goodell will only fuel that legend.  Twenty-five or thirty years from now, only football aficionados will remember most of today's star quarterbacks.  But Tom Brady will likely be remembered as the guy who whupped the Commissioner's arse in court.  When you consider Goodell's decision, you have to wonder what on Earth was he thinking?  What was the point of coming down so hard on Tom Brady for being "generally aware" of underinflated footballs?  Why did the NFL make such a big deal over this case?  Has anything constructive come out of the Commissioner trying to administer such a high-profile walloping?  Whatever Goodell was trying to accomplish, he's managed to do just the opposite and make the legend of Tom Brady greater than ever before.

Why The Donald Would Sign the No Third Party Pledge

Just a short while ago, Donald Trump was keeping his options open for a third party candidacy for President.  Yet, he just signed a pledge not to run as a third party candidate.  Republican establishment types seem to be patting themselves on the back for securing Trump's pledge.  But perhaps they're celebrating too soon. Let us consider why Trump would make such an abrupt turnaround.

The Donald is an experienced businessman who thinks things through.  He wouldn't tie his own hands.  That would mean he probably doesn't think the pledge actually ties his hands.  He very likely has concluded that he can get the Republican nomination, using his aggressive brand of political campaigning 2.0.  The fact that just about no Republican insiders think Trump can secure the nomination makes them vulnerable to the insurgency tactics he's been using.  The Republican establishment may now think it has Trump under control.  But the reality may be that he has figured out how to checkmate them.

Wednesday, August 26, 2015

The Market Dropped 3%, So What's For Dinner?

On Monday, Oct. 19, 1987, the U.S. stock market nose-dived, with the Dow Jones Industrial Average falling 22.61% in a single day.  That was volatility.

Recently, the market has been bouncing around, losing as much as a few percent a day, and edging into correction territory (a loss of over 10% from the latest high).  This turbulence isn't surprising, given the six year age of the longstanding bull market.  Indeed, in the summer of 2011, the market dropped around 17% on account of various investor jitters.  Then, it recovered.  Markets regularly have downturns, even bull markets.

So what does the future hold?  Nothing that anyone can reliably foretell.  The direction of the financial markets today is determined first and foremost by central bank policies.  The key players are the U.S. Federal Reserve, the European Central Bank and the Bank of China.  Predicting central bank policies is difficult in the best of times.  These days, with the data unusually uncertain, central bank policy is harder to predict than one's luck at the  roulette wheel.  This is especially so since politics appears to infiltrate central bank policy, making prediction even harder.  But one thing you can expect is they'll be cautious about doing anything that isn't accommodative.  If the Fed raises rates in 2015, it will probably do so once, and be done with rate raising for quite a long while.

The Chinese stock markets have a bubbly aura, making further volatility in Shanghai and Shenzen likely.  But China's economy is not heavily dependent on rising Chinese stock prices--and neither are Europe's economy or North America's.  Many individual savers in China are getting hosed, but the Chinese economy doesn't rely on domestic consumption. If Chinese investors lose their savings, Chinese manufacturers will still keep exporting to the rest of the world.  So the acid reflux in the Chinese stock markets may, ultimately, have only so much impact and not more.

Keep an eye on the market, but don't miss any meals over it.  If you're nervous, stay the course and don't invest more right now.  On the other hand, if you're feeling lucky, think about adding a bit to your stock holdings as the averages move down.  You know what they say about not letting a good crisis go to waste.

Is there a black swan lurking?  Maybe.  Since China has been the major source of world economic growth in recent years, any major upheaval in China could be the black swan.  What could happen there?  Well, President Xi Jinping has been aggressively consolidating power.  He may be the most powerful leader China has had since Mao Zedong.  But the market turmoil in China, and the recent slowdown in its economic growth, may be causing some to question his leadership.  The secretive nature of China's Communist Party makes it impossible to know for sure how strong Xi's grip on power may be.  While there are no overt signs of change, if Xi is forced out of power and there is a struggle for control in China, then all bets are off and you might want to do some hard thinking about how much risk you care to hold in your portfolio.

Tuesday, August 11, 2015

How The Donald Could Beat Hillary

The stolid burgermeisters who run the Republican Party shrink with horror at the thought of nominating Donald Trump as their presidential candidate.  His verbal atrocities are reaching the level where they might offend Attila the Hun, and the conventional Republican wisdom is that there is no way Trump could beat Hillary Clinton, the likely Democratic nominee.

However, the latest polls that follow Trump's bloody comments directed at Fox News moderator Megyn Kelly show that Trump's support among the electorate remains essentially unchanged.  If this persists, The Donald will be a force to be reckoned with in the Republican primaries.  Democratic strategists are probably delighted, because they, too, are likely to believe that Clinton can easily beat Trump.

However, Clinton's 2008 campaign also thought she could beat Obama, and there was a problem with that line of thinking.  How could Trump beat Clinton in 2016?  By doing pretty much what he is doing now.

Within living memory, Trump has been a political centrist, and has even expressed support for liberal positions on some issues.  He's made donations to Democratic candidates.  He even made donations to the Clinton Foundation and invited the Clintons to his 2005 wedding.  As a candidate for the Republican nomination, Trump has slid dramatically to the right, proposing a wall at the U.S.-Mexico border that Mexico would have to pay for and the defunding Planned Parenthood, and generally foaming out of the right side of his mouth.  Plain talk pays off in this election cycle (see http://blogger.uncleleosden.com/2015/05/a-winning-strategy-for-2016.html) and Trump is presumably saying what he thinks will help him win the primaries.  Plain talk is certainly paying off for Bernie Sanders.

In the general election, however, if Trump is the Republican nominee, he could easily slide leftward, shifting his views to draw enough support from the political middle to win.  It wouldn't be hard for him to adopt centrist positions, since he's been a centrist for much of his life.  There is plenty of precedent for candidates from both parties to shift toward the middle in the general election.  The advantage that Trump has over Clinton is that he appears sincere, unscripted and bold.  Clinton seems unable to emerge from her cautious, calculated, too well-burnished image.  We can't see the real Hillary; and her destruction of e-mails only compounds the sense that we'll never get to truly know her. 

Both Trump and Clinton have tarnished images.  But Trump appears to have a way to overcome the tarnishes in his image.  Clinton seems bedeviled by the tarnishes in her image, and apparently can't prevent them from dominating the news coverage of her candidacy.  If this state of play continues, The Donald just might beat Hillary if they were to meet in the general election.

Tuesday, July 28, 2015

China's Financial Isolation

China's manufacturing sector is deeply embedded in the world economy, and has made China an economic superpower.  But China's government has isolated the Chinese financial system, and that turns out to be a good thing for the rest of the world.

China's stock market has fallen about 30% from its recent high in June 2015.  The impact on investors of this dizzying drop has been acutely painful, especially for recent entrants.  Many of those purchased on margin, and have taken crushing losses.  The Chinese government has announced various measures to pump more money into the stock market and stabilize prices.  The verdict on this blatant governmental effort to manipulate prices has yet to come in. 

However, the rest of the world hasn't felt much impact from the gyration's of China's stock market.  While foreign investors in Chinese stocks have taken losses, it's not that easy for foreigners to invest in Chinese securities.  Similarly, it's difficult for foreign banks to do business in China.  They wouldn't have that much at stake, since the Chinese government limits the scope of their activities.  Although foreign losses in China aren't trivial, they also aren't enough to destabilize the international financial system.

The Chinese government deliberately limited foreign access to the Chinese financial system, fearing the volatility seen in the 1997 Asian financial crisis, when Western capital exited, stage right, as things got stinky.  This rapid outflow of capital only made things worse for the developing Asian nations.  The last thing the Chinese government wanted to do was indenture itself to Western capital.

Of course, what the Chinese government did on its own was pretty silly.  It tried to use monetary and regulatory policy to stimulate the economy by pumping up stock prices.  This is unpleasantly reminiscent of U.S. government policy in the early 2000's to stimulate the economy by pumping up real estate prices.  The Chinese have greatly modernized their nation in the last 40 years by adopting ideas from the West, but imitation can be taken too far. 

Financial websites are filled with speculation about the supposedly dire consequences to everything in the entire world from the drop in Chinese stocks.  Not to be a cynic, but bad news is news and good news is trash left at the copy desk.  The most likely impact from the turbulence in the Chinese financial markets is an economic slowdown within China, and a possible economic slowdown in the rest of the world.  But the Chinese financial system won't collapse.  That's because the Chinese government, which owns and/or controls China's banks, can simply print money to recapitalize them.  Since the Chinese government controls trillions of dollars of foreign exchange, it can make sure that foreign banks having exposure to Chinese financial institutions aren't left in the lurch.  The Chinese can't let their stock market gyrations take down the rest of the world's financial system, or they won't have any export markets.  And if the Chinese economy slows, they'll seek to export their way back to prosperity.

Of course, stay vigilant.  The economic slowdown in China is one of the major factors pushing down commodities prices.  It's possible that secondary and tertiary effects of the drop in commodities (and the currencies of commodities producing nations) could have unanticipated impact on Western financial institutions.  (Don't underestimate the potential for major banks to have unexpected exposures from derivatives positions and overly optimistic lending policies.)  But, thus far, China's financial isolation has largely protected the rest of the world from China's financial mistakes.