Yesterday I found an interview titled 'Game Over: U.S. Wins, Says Mark Lapolla, But Future To See Very Little Growth'. It took me about 45 minutes to read it carefully. To download this (PDF) article directly, click here.

Normally I only suggest articles in these commentaries that take a maximum of 10 minutes to read. In this case, I am making an exception. Assuming you are reading this commentary because you participate in the equity markets, I strongly recommend you read what I think is a highly thought provoking article. Mark Lapolla is an American who is seen by many, including himself as I read this interview, as a contrarian who thinks unlike most about the macro-economy and the American economy. He currently is a managing director and strategic research chief of Knight Capital Americas. In the foreword to this interview his writing (and I presume his interview content) is described as 'pugnacious and non-consensus'. Here, in broad-brush terms, is what I took from this lengthy interview of Lapolla by Kathryn M. Welling of welling@weeden.

• First, I concluded that Lapolla is not a believer that the 21st century will belong to China and China alone. Rather, his thesis is that for the reasons he spells out in this interview in the end the 'U.S. wins', but there will be little growth for the foreseeable future;

• Second, he believes that we are seeing the end of the consumer credit cycle that has been the American experience since the early 1930's. In large part, I think he sees that because he thinks the post-2007 drop (now continuing) in U.S. residential real estate prices 'once and for all' ought to dispel the notion that U.S. residential real estate will always go up in price. This in circumstances where in America continuous borrowing against one's house to support one's lifestyle has been a 'way of life' for some long time;

• Third, he believes that while the current financial markets are driven in large part by portfolio managers and traders with very short timeframes, in due course there will be a reversion to long-term investment;

• Fourth, he says that the current U.S. modus operandi is to exchange intellectual property for cheap labor in circumstances where intellectual property requires less and less input as technology advances - and importantly, requires a very small amount of labor relative to the economic value of the end products that result from that intellectual property. He doesn't say specifically that this contributes to an ongoing increase in Structural Unemployment in America, but that is how I interpret his remarks. If you have been reading these e-mails you know that U.S. Structural Unemployment is something I am concerned about, and have commented on with some frequency;

• Fifth, he agrees with my recent e-mail comments with respect to the improbability of the Euro countries reaching consensus without a unified fiscal or monetary authority. His explanation of this is more succinct than mine, and I recommend you read and reflect on his views in this regard. This is because I think, like many as best I know, that Eurozone Sovereign Debt issues may prove to be the spark that ignites the next financial crisis;

• Sixth, and I think of particular importance, he believes the current economic malaise in the developed countries will lead to deflation, not inflation;

• Seventh, and again I think of particular importance, is Lapolla's view that for the developed countries to bank on China to save the world economically is in his words "absolutely astounding, amazing". He spells out eight things ongoing in China that he thinks makes China analogous to the U.S. in 1929, and to Japan in the 1980's. He thinks China's story is one of credit and uncontrolled debt expansion that points to deflation - and that this is likely in the "not to distant future". If things unfold as he thinks they will, he believes deflationary adjustments will start in the U.S., move through Europe, and then into the emerging markets in ways that will have profound implications on both currencies and commodities. I think that if his thesis proves correct he has to be right with respect to commodities, and readers of these e-mails know I have cautioned on several occasions that if China's growth is curtailed base metals (copper, iron, nickel, zinc, etc.) all will be negatively impacted as will the companies that explore for, and produce, those base metals;

• Eighth, he believes rising commodity prices are inherently deflationary, and cites Walmart executives recently "stating quite clearly that rising commodity prices cannibalize demand". Lapolla believes this is particularly the case where "the labor market is fractured". I interpret 'fractured' to mean 'has Structural Unemployment problems'. I see his comments here to be somewhat 'U.S. centric', although I may be misinterpreting what he said;

• Ninth, Lapolla discusses the role of the U.S. Congress in the context of U.S. default on its debt, and discusses the U.S.$ as "not a store of value" but a "unit of credit". He says that the U.S.$ is currently used in 85% of all world transactions, and he doesn't buy into the possibility that the U.S.$ will cease to be the World Reserve Currency. I think what he advances here is particularly thought-provoking; and,

• Tenth, he expects low nominal (inflation included) GDP growth and "benign inflation rates" going forward. I don't find it clear that he is speaking about the U.S. alone when he says this, but I think that is the case.

The foregoing really doesn't do justice to the content of the Lapolla interview. Some of it is pretty tough going - but again I strongly recommend you take the time to read this interview and work your way through the difficult parts. I think it is a highly useful 'food for thought' article. For sure it doesn't simply mimic other articles in the repetitive way much of what I have been reading lately does. While I don't agree with everything Lapolla says (and suspect many of you likewise will question a number of his views) I learned a lot from this interview, continue to think about what he said, and suggest you do the same.