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Friday, August 10, 2012

Right On Schedule

Chinese exports for July were released, and this has led to a tad of oily skepticism. China was targeting a 10% gain for exports this year. In July, all outbound shipments were just 1% above last year, which of course was completely unexpected and all that. Everyone was completely amazed.

Shipments to Europe fell 16%, and shipments to the US were just above flat on a YoY basis. 

Of course, following the same logic, we read that this just makes stimulus more certain. However, no one can adequately explain how Chinese stimulus would fix buying power in the US and in Europe, so let's just say that the Chinese are going to have to focus on internal demand for the nonce.

Speaking of demand, the Chinese government announced that it would raise gas and oil prices internally as a result of the recent increase in costs for oil. This should prove very stimulative, I'm sure.

India has gotten itself into a terrible situation, because it is forcing sales of fuel below cost, but it has forgotten to pay the compensation to the companies handed this bowl of rice. The banking focus begins to shift to bad loans, etc. A poorish monsoon isn't helping at all. The latest estimate is close to 20% down, which will have a major impact.

One of the problems with Indian infrastructure is that when you control the final price of commodities like fuel, people don't want to build power plants and such like infrastructure, and banks don't want to lend on them, because they are not sure the payments will roll through.

The likely explanation for the big negative Chinese figure on exports is that work was slack, so orders were filled and shipped more quickly. Therefore averaging June/July would give you a more representative number on exports. However that number is low enough to cause deep concern. 

US 30 year auction was crappy. The rubber bands are all pulled tight, and now the snap-backs begin, and each time one of them breaks or snaps back, the pressure on all the rest of them increases.

Note that you can see the impact of lower shipments in rail container figures, which are beginning to come off their annual pace. 

China’s economy was a powerhouse. It has slowed down a lot but is still a powerhouse compared to the U.S.
It still has a lot of room for expansion, but not at anywhere near the pace of the last decades.

The global economic environment is decaying at a relatively rapid pace.

To really boost internal demand, China needs better social infrastructure. It is coming to the end of random building and borrowing.
The 30-year auction was crappy? That sounds like the beginning of the end.

Have you changed your recession call, especially in light of the recent steep run-up in gas and food prices?
I think we are in a recession now, Anon. There's no "skip" left in this.

The last few posts have explained why I think we are in a recession. Earlier sensitive indicators showed a worsening of circumstances, but now we are in the rapid diffusion stage. The whole world is whacking around the weakness ball, and every time it gets returned the weakness gets deeper.
Neil - there are usually two phases. Longer term Treasuries will unlock somewhat as things get deeper and other prices come down, and then after that in a few years we enter the realm of sorrow. Provided we don't try to do something about our fiscal problems, that is.

Right now money is going to where the profits are, and the hope of widespread helicopter money drops globally is sustaining a rally in stocks (often thinly traded) and commodities. When that breaks down on fundamentals, bonds will resurge.
An export economy is wholly entangled with the economies of its customers. When the customers get a cold the exporter gets pneumonia.

This, in large part, explains Germany's downturn.
Roy - Germany's and China's. To keep up expansion China has to expand consumption.

Germany can't.

It will be very interesting to see the port traffic numbers coming out of Los Angeles and Long Beach this month.

And by very interesting, I actually mean potentially terrifying. Sigh.
Mark, it is easier if you consider it a horror movie, and pretend you can leave the theater later.
I for one welcome a new recession and the money printing that will follow. I work in the energy industry. QE leads to an immediate ramp in commodities, which goes directly into my company's bottom line. Screw the common folk; this is what they asked for. What was it Mencken said about democracy? Something about the common people getting what they want, good and hard.

Unfortunately, Alien is my favorite horror movie.

The movie has nest eggs; it has parasites; and just like our economy, they thought Kane (John Hurt) was recovering too.

You might find this interesting: article on china

Looks like the big problem is finding a safe place to put money and property rights.
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