And, Predictably, Another 2 Steps Back

| About: iShares China (FXI)

If you are not an economist bound by dogma, or a member of the media forbidden from using opinion of all but the finest (sounding) credentials, there is no mystery. I am as tired of writing about it as you are of reading it. The mainstream is by convention of the business cycle forced into linear extrapolations. Therefore, economic accounts are interpreted as nothing more than whether or not they add or subtract from the preponderance of growth vs. recession. And in the often case of acceleration, especially when negative numbers become less negative, the collective sigh of relief coupled with definitive proclamations of "it" being over passes beyond into tangible cheerleading quite apart from objective analysis.

Nowhere is this more evident than of China. For the past five years, it has gone precisely in this fashion: "unexpected" weakness arouses great concern, but only in the binary context of recession or not, to be replaced by a less negative number whose second derivative acceleration tickles every "it's over" fancy; only to be once again beset usually within a matter of a few months with "unexpected" weakness all over again. Such was the case with China's just released trade figures for September 2016, especially on the export side.

They were ugly again and seriously so. Exports overall in dollar terms fell sharply, down 10% year over year. It was the largest decline since February and the third worst since 2009. For the completed quarter, exports fell 6.2%, a greater contraction than the 4.2% in Q2 and the second worst quarter (Q1 2016) since 2009. What started predictably in spring as surely the end of "it" has clearly been revealed as instead just more of "it."

Leaving little doubt where weakness is being manifested, Chinese exports to Europe fell once again by almost 10%, while exports to the US "somehow," contrary to Yellen's color of the US, fell again by 8.1%. These estimates are confirmed by the complementary view from inside each of those economies, matching "demand" weakness from the import side.

It is the same as I wrote back in May, or even the prior May:

It seems clear now that that was the verdict of March and April. There is no doubt that economic data and markets were better than at the start of the year, but that is not at all the same as marking an inflection. By focusing on only the monthly variations, the mainstream has missed the trend - one step forward, always greeted with assured enthusiasm, followed quickly by two steps back described as "unexpected" and "transitory" weakness. Or, as at the start of this year, three (maybe four?) steps back.

Thus, the step forward over the past few months was given special deliberations it did not deserve. Especially in the past few weeks, those three (or four) steps back at the start of the year are again being asserted; it has started to dawn, in more data points, that not getting worse was, in fact, not at all the same as getting better.

If you were to listen to nothing but economists, you might be especially confused about the direction of the economy. With so much hype on each uptick versus so much downplaying of the down months, it might seem as if the economy were just sputtering, but still moving forward. Instead, as China's estimates show conclusively, it is the opposite that has occurred.

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Stepping outside the binary obsession over recession reveals the overall uninterrupted descent; the global economy continues to weaken everywhere, no matter what "stimulus" is applied anywhere or at whatever time.

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Again, however, the mainstream struggles with all this. Almost all of it still views CNY as some kind of export stimulus as if the Chinese economy were just the "right" policy away from takeoff.

A weaker renminbi failed to stop a sharp fall in China's exports in September, damping economists' hopes that demand would pick up in the fourth quarter and sending markets in the region lower…

The Chinese currency has already depreciated 3.6 percent against the dollar during the year to date to reach Rmb6.7291, the lowest since 2010, the same year the People's Bank of China abandoned its hard peg of about Rmb6.83 to the dollar.

To the economist, this represented hope; to the wholesale view of money, the same represented instead expectation for at least more of the same weakness if not still worse to come. If you don't understand money, it is entirely reasonable that you would be confused about economy. Falling RMB never suggested a possible rescue, it indicated(s) monetary suffocation continued(s).
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