I’m not paying attention to calls for The Great Depression II for two reasons. First, the strong emerging market economies such as China, India, Russia, Brazil and the Gulf Council countries are now positioned not only to lead economic growth but also support the financial system in times of distress. As I noted during the first KCI Communications, Inc wealth conference in Washington, DC, this past weekend, if it weren’t for these countries and their financial institutions, the US would be in a depression by now.

Second, the economic numbers don’t support such an outcome. US companies aren’t losing money right now; they’re making plenty. Sure, profitability is falling and will fall further both here and abroad, but this largely differs from losing.

The pessimists should remember that during the depression, GDP contracted by around 40 percent, much different than the less than 1 percent yearly GDP growth that even the most downbeat economists expect for this year. They also forecast GDP growth of about 1.5 percent for 2009.

Unemployment will also remain relatively manageable, compared to the Great Depression era, and I don’t expect the US to register a 25 percent unemployment rate any time soon.

Finally, after the Federal Reserve’s actions, it seems that banks will be given time to reassert themselves. Remember that during the savings and loan crisis almost 20 years ago, more than 500 banks failed; during the Great Depression, that number was closer to 11,000. Since 2007, the US has watched several banks go under.

The mild slowdown, mild recovery scenario that I expect to materialize is positive for the economies and markets Silk covers because they will be allowed to continue growing and developing with relatively minor interruption. This can’t happen with such ease if the world’s financial system and biggest economy simultaneously collapse. This is the main reason that these economies will continue to offer financial help as needed, political demagogy notwithstanding.

If my assessment is correct, then about six months ago was the time for super bears. The only reason that a long-term investor should completely get out of the game now is if he/she thinks that the whole system will collapse.

Continue to find ways to hedge your long exposure, but avoid liquidating your stocks in order to purchase some other paper assets. If you feel uncomfortable and uncertain in the current situation, then buy gold (some non-US dollar cash positions would also be prudent) and wait. The permanent hedges suggested in the portfolios are also a good place to start.

Owning foreign currencies is a more pressing need for a lot of US-based investors because the US dollar’s long-term potential continues to weaken. I still expect the US dollar to bounce at one point, especially against the euro, because nothing declines in a straight line.

Currencies I currently favor are the Singaporean dollar (SGD) and the Russian ruble (RUB). You should be able to access the former much easier.

Asian currencies have been relatively undervalued for some time. But strong economic growth is now allowing governments to move in a more linear fashion in terms of currency appreciation. Furthermore, stronger currencies are becoming a big part of Asia’s fight against high inflation levels.

Inflation in Asia is becoming the No. 1 economic issue, especially because food prices have spun out of control in many places. Recently, even rice prices–Asia’s main staple–have rocketed through the roof, prompting governments to curtail exports in order to secure domestic demand or to raise expert prices–as India did–as another way to reduce exports.

Although the situation is quite serious, I do think that Asian governments will be successful. And even though high food prices are here to stay, they will retreat from current high levels.

This week I recommend selling out of Ericsson (NSDQ: ERIC) and Mitsubishi Heavy (OTC: MHVYF). The former is being sold for a loss of around 40 percent since my original recommendation; we’ll pick up a small gain of around 3 percent for the latter. Sell Ericsson and Mitsubishi Heavy.

Preliminary numbers indicate that March was another great month for Macau. This is remarkable because recession is the talk of the town right now.

Nevertheless, the VIP business (73 percent of total turnover) continues to ramp up profits in Macau, where authorities expect at least USD1.2 billion in gaming revenue for the month.

Alternative Portfolio holding’s Melco PBL Entertainment (NSDQ: MPEL) Crown hotel, together with the Wynn are the two leaders in the VIP market with 35 percent of market share. I expect both of these operations to perform well in Macau (there are 28 casinos in Macau right now) as the top VIP destinations.

Melco was a disappointment when first recommended in early 2007.  Since I reiterated the buy a couple months ago, the stock has jumped around 30 percent. See Silk, 23 January 2008, The Fed is Your Friend. I still favor Melco as a pure exposure to the Macau investment story.

We were stopped out of both of our short trades. The short on China Life Insurance (NYSE: LFC) produced a 32 percent gain, and the short on HSBC (NYSE: HBC) gave us an 18 percent loss. Notice that the stops were placed loosely because the shorts were viewed as hedges on a long-only portfolio.

The investment process is constant. So if you’d like to add to your positions in portfolio recommendations or allocate new funds in a diversified way, focus on the following markets, in order (for both countries and sectors). Consult the portfolios on the left-hand side of your screen for details.

• Russia (energy, telecommunications)
• Hong Kong (banking, real estate, infrastructure)
• India (pharmaceuticals)
• Philippines (telecommunications, real estate)
• Singapore (banking, telecommunications, industrial)
• China (consumer, telecommunications, machinery, oil, e-commerce, coal)
• South Korea (banking)
• Taiwan (ETF)
• Japan (banking)
• Cambodia (casino/hotels)
• Macau (casino/hotels)