The global equity sell-off resumed with great force this week all around the world. As we survey the carnage, I am wondering how the "decoupling" pundits are faring now.

A recent interview (worth reading) called "Inflation not the problem" with global asset strategists Albert Edwards and James Montier summed up something I was writing about on this blog last year. Now we are seeing the impact of the Western slow down on emerging market economies:

"Emerging markets earnings optimism is crumbling just as quickly as the developed markets. There is no decoupling at all, so if you've got a sharp slowdown in growth in China and in emerging markets generally, I think perceptions will be totally transformed in six month's time. But all you can do is sort of warn of these things."

This is a problem for commodity perma-bulls that look to continued Asian demand to offset a prolonged decline in western demand. Their hope ignores how reliant Asia is on China continuing a 10% + growth rate. And how dependent China is on America and other western economies. Slowing demand will chip away at Asia's export driven expansion exponentially.

Westerners are spending less on cars, flat-screened televisions, cellular phones, name-brand clothing and other goods manufactured in Asia. The US consumer alone accounts for 19% of the world GDP demand. Housing and its leverage was the key to world consumption over the past few years, and its pull-back now is having an enormous drag on world economies.

In light of the worldwide de-levering and global earnings contraction now underway, asset prices even after recent declines, are still horribly expensive.