Terrible Trade Data Overlooked

Buried in a corner of the back page of my Gulf News Saturday morning was a news item about the latest Organization for Economic Cooperation and Development comments on global trade figures showing ‘a remarkably similar… synchronized trade collapse… across countries’.

Indeed G7 exports were down 22.8 per cent in the first quarter of 2009 against the same months in 2008, while imports fell by 16.8 per cent. The only good news was that the speed of contraction since July 2008 appeared to be slowing down.

No green shoots here

It is astonishing how little attention this data has received from economic commentators and politicians. Perhaps that is because it just does not fit in with the fashionable green shoots of recovery theory, or the notion that the worst of the recession is past.

Let us be under no illusions. This is a faster and deeper contraction of global trade than anything seen in the 1930s. It is far more universal than in the Great Depression. And there seems absolutely no reason to think an immediate bounce is in prospect.

What the bank bailouts and stimulus packages have done – aside from the important business of keeping the banks afloat – is to offset the very worse of the impact of falling trade. They have not, and logically can not, entirely offset such a huge contraction in global business.

In China – the world’s largest exporter – this is seem at its most dramatic. A potentially crippling loss of one quarter of exports has been offset by an explosion of lending in the domestic market to rapidly produce new demand for cars and fridges.

So far this Chinese gamble is working, although only at the price of piling up bad debts and setting up its own carbon copy of the US subprime lending crisis.

Recovery-free recovery?

But what comes next? Everybody seems to concentrate on the stock market rally rather than the terrible fundamentals of trade. For the stock market, then, the potential for disappointment from ridiculously high expectations is obvious.

However, if the stimulus and bank bailouts have been all that has sustained us, what happens as they run out? There will have to be more of them, but only at the cost of printing money with the risk that means for inflation and devaluation.

But in the meantime the stage is surely being set for a further deflation in asset values with commodities high on the list of overbought assets. Only when a true bottom is in can come a meaningful recovery, although without some new driving force it is hard to see more than a very flat period of lower economic activity.

Comments

[Miletius:]

You are talking about the 1q 09 numbers, nobody was talking about greenshoots then. I agree with you that the economy will take time to recovery, but you need to wait for the 2q to see some move to stabilization, and 3q or 4q to see some signal of improvement. Tomorrow we will see the leading indicator from the Conference Board, the positive signals for now are in this kind of indicators that "anticipate" the economic activities. We will see if this one keep improving.

Jul 19 09:30 AM

[Prudent Man...:]

You need to get the backlog of home and business foreclosures, including those that have been not filed as the lender doesn't want to impair its balance sheet and pay carrying costs, cleared from the books and that is far away. Then we can try to determine what the carrying cost of the National Debt will be during Free Market Interest Rates. On top of that what is the net present value of an earnings flow when increased taxes are factored in as well as mandated health costs and increased regulatory expenses?

Of course, what are we going to produce that the world needs? Will the people looking for jobs want to work? Remember that excuse for illegal immigration "they do work Americans refuse to do"? Time for people to wake up to the fact that you go to work to produce and no production no pay?

Are businesses, employees, government and the unions ready to compete and if so doing what? Will academics and our educational system start teaching instead of manufacturing degrees? Will Americans return to the time when they accepted Personal Responsibility and not look, foolishly, to politicians for Big Brother?

Until we learn to work, and work is not play ask those young people serving us in Iraq and Afghanistan, we will continue to lose our economic status in the World.

There were years where I would have been happy to take those jobs where there is "work Americans won't do". With that mentality is there any question why are economy has been deteriorating for decades?

What will that do for our stock markets? Technicals, like statistics, are only as good as the validity of the underlying data. As unaudited earnings statements, in the immoral culture of today, are virtually meaningless.

When the foregoing is sufficiently addressed is when market technicals will be meaningful to anyone but the sixty second trader, few of whom last more than a year.

Is there any doubt from the foregoing as to why no one is building a nova manufacturing plant in the U.S.?

Jul 19 11:29 AM

[conceptwizard:]

This is a good artilcle, a shot from 30,000 ft looking down at the whole world. It is difficult to argue at this point that the world is not dependant on each other for sustaining our GDP levels.

Therefore is it safe to assume that the countries with the biggest GDP's will have the most impact on recovery in comparision to the whole pie.

When we look at GDP

US 18%
EU 24%
Gernany& France 10%

These countries represent 50% of World GDP.

You then take the consumer out of these numbers for the US, which is dependant on them spending to accumulate 70% of our GDP. The decline is already about 6% of that number and growing. This is similar with the EU if not worse.

This makes it hard to imagine where our growth out of this recession will come from. It has been documented that with every 1% drop in US GDP, China has to add 6% to theirs. This is not happening.

I have been saying all along that without the US consumer and manufacturing there will be no recovery.

Jul 19 01:21 PM

[Moon Kil Woong:]

Paul Krugman recently said that the stimulus is just making us "fall less fast." Although you may feel like that's a good thing getting your tooth pulled less fast is all together more painful. Bu delaying a collapse we are only setting a stage for a multi-year fall and a multi-year recovery much like Japan experienced. That is not a good thing, it is a terrible thing.

In the process, we are destroying our currency, giving out American assets to undeserving corporations, and endebting ourselves and our children. Peter Cooper is right, the market must hit a bottom and supply and demand must come into balance before a free market can recover.

Of course you can argue that we aren't in a free market anymore. That prices don't have to fall to raise demand. That supply can just go on chugging along as long as it is a commodity and goes to China. That GDP is grown on higher gas prices. That real estate prices cease to matter if homeowners just become renters and pay the bank the same amount every month. That banks don't have to ever sell because they can now either hide their losses or make up how much they are worth on the balance sheet. And that government deficit growth is no big deal because it's only temporary (they have been saying that for over half a century now). And that expanding base money supply has no deleterious effects on money supply whatsoever. However, such arguments only highlight just how much trouble we really are in (as in we are insane so it's useless to even talk rationally anymore).

Jul 19 07:38 PM

[Trend Surfer:]

At the end of the day, if earnings release show a significant majority beats earnings, then ... away to the races we go!

After all, a new trend upwards is a new trend upwards should the signal says so!

Jul 19 11:10 PM

[Ben Gee:]

The Chinese economy grew 7.9% in Qll inspite of over 20% drop in export. Does this mean finally, China will grow with or without export? Is China decoupling? If the West stop buying from China, what will they replace Chinese goods with? If the West is in a diet on Chinese products, will it go on a feast like a yoyo dieter?

Jul 20 09:38 AM