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  • Crude Oil: The Divergence Of Rig Count, Oil Price And Production Explained [View article]
    Outstanding article. I'm in UPL for a long term rebound in natural gas but was interested in this article to get a sense of when rig counts and production of natural gas byproduct would kick in. I know you have written about nat gas in the past and would love to see you analyze these same trends from the natural gas perspective. I'm not a trader but it would seem to me that trading the rig count-production trends from the natural gas side would eliminate having to worry about the rest of the world spoiling your domestic thesis.
    Aug 18, 2015. 09:55 AM | 1 Like Like |Link to Comment
  • Chinese Growth: Watch PM Li, Not PMI [View article]

    At this point, Wall Street is just playing along with China.

    "You can't trust the numbers," Bill Miller, CEO of LMM Investments, told a room full of investors at CNBC's Delivering Alpha Conference this week.

    Miller spoke on Wednesday, just hours after China announced that it once again hit its gross-domestic-product growth target of 7%.

    This despite the fact that its economy seems to be experiencing a major slowdown.

    But after 25 years of watching China hit the mythical 7% mark without fail, analysts understand the charade.

    There are dead giveaways everywhere. The most obvious way to tell that China's books are cooked, though, is by looking at how its neighbors are faring.

    "Singapore's GDP declined 4.6% last quarter," Miller said. "Singapore's numbers you can trust. That's a good sense of how much the Chinese economy has slowed down."

    Singapore's GDP was dragged down by a huge slowdown in manufacturing — down 14% in the second quarter of this year. And this swoon was caused mostly by a lack of demand from its neighbor, China.

    "Growth in financial-sector value added came in at 17.4% year-on-year in the first half, up from 15.9% in the first quarter," he wrote in a recent note. "That is more than double the growth rate of the economy as a whole."

    That offset a slowdown in other key sectors for the Chinese economy, such as real estate.Plus, if the financial sector hadn't grown so fast — instead of staying stable at the 10.2% growth rate it had before the government told everyone to get into the stock market — China's GDP would have been down 0.5%, according to Bloomberg's calculations.
    Aug 11, 2015. 03:54 PM | Likes Like |Link to Comment
  • Chinese Growth: Watch PM Li, Not PMI [View article]

    To shore up growth, China has cut interest rates four times and taken other measures to beef up bank lending since November. Beijing has also freed up local government to issue bonds and the central bank provided financing to commercial banks to purchase those bonds. Since early July, the PBOC has been offering credit to a government agency tasked with propping up falling Chinese shares.

    Increasingly they are also turning to their old playbook of ramping up fiscal spending on infrastructure and other government-backed projects—an approach that spurred growth after the 2008 global financial crisis but larded the world's No. 2 economy with massive debt. The central bank also is pumping billions of dollars of funds into China's policy banks to finance shanty-town renovations and other big-ticket projects.

    At home, China moved to make sure the devaluation wasn't perceived as a desperate by the government. Ma Jun, chief economist at the central bank, said the devaluation was a "one-off adjustment" and it shouldn't be seen as the beginning of a weaker currency. Also on Tuesday, the State Internet Information Office issued a directive to state media telling them not to play it up, according to people who received the notice.

    Does this sound like moves meant to maintain 7% growth?
    Aug 11, 2015. 03:01 PM | Likes Like |Link to Comment
  • Chinese Growth: Watch PM Li, Not PMI [View article]
    If China really has successfully made the transition to a consumer led economy why would they devalue their currency hurting their internal consumption? Yet another China head scratcher. I'm starting to see articles calling b.s. on the official reported growth rates and seeing moves like this don't hurt that argument.
    Aug 11, 2015. 09:33 AM | Likes Like |Link to Comment
  • China's Ghost Cities Will Haunt The World [View article]
    The U.S. sells next to nothing to China and the popping of the commodity bubble blown up by China's building bubble is a boon to us and much of the rest of the world. China and countries that supplied commodities to them skirted the great recession while the rest of the world took it's lumps. Nose bleed commodity prices surely didn't help the non commodity exporting countries. I see a reversal of this at least buffering the impact of China's implosion on most of the rest of the world. It will probably be a net positive for the U.S. as even exports to the rest of the world not including China are a tiny part of our economy.
    Aug 7, 2015. 02:44 PM | Likes Like |Link to Comment
  • Buy On Euphoria, Sell On Panic - A Contrarian Strategy That Works For China [View article]
    Picking up nickels in front of a steam roller is probably not an exact analogy for trying to game the herd but as the recent sell offs have shown, stocks priced on nothing but the greater fool theory can and do go backwards in a hurry. I'm not a fan of technical analysis however there is one technical analysis mantra I firmly believe in "A trend is a trend until it isn't".
    Aug 7, 2015. 09:51 AM | 2 Likes Like |Link to Comment
  • Chinese Growth: Watch PM Li, Not PMI [View article]
    Thanks Pauline. Up to the great recession everyone seemed to agree manufacturing and exports were fueling China's growth and the constant reports of companies moving operations to China as well as the shift from "made in Japan" to "made in China" over this period corroborated this. The driver came to an abrupt end with the great recession and all of China's customers in deep financial trouble. It made no sense that China was skirting this chaos with just a few months of modestly slowing growth until people like Jim Chanos began reporting on the unprecedented scale of the building program the government engineered to replace the loss of the manufacturing-export growth driver. Not sustainable but explains how they were able to keep growth going (for a while).

    I don't remember the exact numbers but construction in general in the U.S. is a relatively small part of the over all economy and I believe residential construction is less than commercial construction. I'm going by memory but I believe in total construction only represents 12% of GDP? With the residential portion at less than half. I come from the construction industry and follow it fairly closely. Even though a "housing" bubble was the primary cause of the great recession and there was over supply of new homes it was primarily a pricing problem not an over supply problem that lead to the recession. New homes only account for ~15% of total home sales in a year (existing homes account for ~85%) and at the high point of the bubble years new home starts only came in about 33% above their long term average. Yet 25% of jobs lost in the great recession were construction related.

    The above point being how could an economy where half of GDP was (is) construction related not suffer at least a recession when construction finally goes backwards. Per the M* article I linked in another one of your articles; four years ago China had already built out their infrastructure on par with U.S. infrastructure while their economy is still a fraction of ours. How much did China rob from the future to prop up GDP in the recent past? If construction were to revert to it's natural level how many people would lose their jobs and what would this do to China's economy? The consumer is ~75% of our economy and construction very small but construction job losses took the consumer down with them. How does this not happen in China as well?

    I'm a huge fan of Morningstar's chief economist Robert Johnson who writes articles on the economy weekly (they come out on the M* site Saturday mornings "Reading Indicators"). He is as neutral an arbiter as there is with both perma bears and perma bulls attacking him. He has the same view of China as you do Pauline, projecting growth slows to 3%-4% over the next few years. You are in good company. That said, I don't get how their economy doesn't go into recession at some point. However I also don't get how they're achieving 7% growth right now when no one can seem to explain what's driving this growth at the same time we know of several substantial drivers that aren't contributing to it.
    Aug 7, 2015. 09:20 AM | 1 Like Like |Link to Comment
  • Chinese Growth: Watch PM Li, Not PMI [View article]
    The government admitting to a lack of growth drivers is my point, what is actually responsible for 7% growth right now? I'm having trouble putting my finger on what it is or what the government wants people to believe it is.

    In regard to your response to my post on a previous article about "Lies, damned lies and statistics", I take this to mean discrepancies I see in reported statistics is due to how you define different measures.

    Manufacturing indexes have been down for a while and the last time I read about the factors contributing to this domestic demand was cited as contributing more to the downturn than exports. It was suggested that domestic demand for goods consumption is down. I've seen a number of China bulls discussing the services sector as driving consumption which seems to validate the suggestion that the goods side of consumption isn't growing.

    The 2012 M* article that I linked in one of your previous articles suggested the consumer only accounted for 34% of GDP at that time. I had been reading bullish articles on China over the last year or so suggesting the consumers now accounts for over half of China's GDP. I rarely watch CNBC however I like the pre-market program and tuned in the other day and saw Stephen Roach (perma bull) discussing China, suggesting the consumer only accounted for 36% of GDP.

    The perma bulls have been suggesting China has successfully transitioned to a consumer lead economy and away from an investment lead economy. Maybe I'm misreading the recent reports of fixed asset investment however they seem to be saying only the rate of growth has slowed it isn't going backward. The beating commodities have been taking seems to suggest otherwise. Is fixed asset investment going backwards or just the rate of growth slowing?

    I don't think anyone argues exports are contributing to China's 7% GDP growth. The China bulls seem to be arguing the services side of domestic consumption is driving GDP growth in China. All the construction workers from a few years ago are now Doctors, Lawyers and Engineers? Hair stylist, masseuses and sanitation workers? 50% of GDP or 36%? Did fixed asset investment actually go backward to propel the services sector into the lead or did the services sector grow so astoundingly it managed to over take a still growing fixed asset investment?

    I come from an industry where you have pay close attention to how terms are defined to truly understand what they actually mean. I understand that some or most of my confusion could be coming down to a misunderstanding of terms or overlapping definitions. It would help to have someone who understands what's actually going on in the Chinese economy right now explain in layman's terms where the reported 7% GDP growth is coming from. Or if that number is actually accurate. How sustainable is it if it's for real (where it's coming from should help answer this one)?
    Aug 5, 2015. 03:09 PM | Likes Like |Link to Comment
  • Chinese Growth: Watch PM Li, Not PMI [View article]
    <On Monday, Prime Minister Li Keqiang told hundreds of top scientists at a forum in Beijing that 7% growth is already "a miracle" given the size of the Chinese economy. In the speech, which was widely reported by the state media but mostly ignored by the western press, the premier observed that even growing at 3-4% annually would be a "great job" for an economy of several trillion dollars.>

    I'm still interested in what's actually driving China's economy but how should I read this? Is he admitting 7% GDP growth is a lie or warning people to expect 3%-4% soon?
    Aug 4, 2015. 04:07 PM | 1 Like Like |Link to Comment
  • Chinese Growth: Watch PM Li, Not PMI [View article]
    <Yet profits of major Chinese industrial firms remain lackluster. The sector's overall profits fell 0.7% yoy in the first half of the year while profits at major state-owned industrial enterprises plummeted 21.2% yoy.

    A report by MacQuarie's show that railway freight growth has been in negative territory for more than a year, container throughput is barely positive, and the sales of cars and construction equipment have been slowing.

    A private-sector survey showed China's factory activity in July contracting by the most in two years as new orders fell while a government survey also showed growth stalling at major manufacturing firms.

    It certainly is not good news that the Caixin-Markit's PMI fell to 47.8 last month compared with 49.4 in June or that the official PMI showed no growth, retreating to 50.0 from June's already tepid growth reading of 50.2.>

    Fantastic as usual Pauline. I'm just trying to figure out how growth is even positive though? Is 7% GDP growth real and if so what is driving it? What am I missing?
    Aug 4, 2015. 04:00 PM | Likes Like |Link to Comment
  • A Contrarian View On Chinese Growth [View article]
    The difference between the U.S. and China besides China's massive, building, debt and stock bubbles is about 10X income for U.S. workers and the most significant health concern for our poor is obesity. Other than scale due enormous population size, China isn't in the same ball park in terms of economic achievements as the U.S. Get back to me when the income disparity between a Chinese worker and a U.S. worker can't be describe in terms of orders of magnitude.
    Jul 28, 2015. 08:48 PM | 1 Like Like |Link to Comment
  • A Contrarian View On Chinese Growth [View article]
    Ben Gee,

    Nobody said China can't eventually surpass the U.S. in production, the argument is about whether they do it in a straight line. I don't see the dialog here as about the Chinese people vs. Americans, I see it as a debate about whether a handful of really smart guys in China have figured out how to beat the business cycle when the developed world has been trying for a whole lot longer and has never succeeded. The U.S. navigated enormous transitions over the last century from horse and buggy to the internet and space travel and became the economic power that it is. Along the way the economy experienced a great depression a great recession and periodic normal recessions. China's critics are just pointing out that China hasn't figured out how to avoid economic downturns, only post pone them which is going to make them worse when the do finally hit. Recall the U.S. had a drive by recession before they had the great recession.
    Jul 28, 2015. 09:04 AM | 2 Likes Like |Link to Comment
  • A Contrarian View On Chinese Growth [View article]

    The builders' industry trade group calls the incidence of labor shortages nationwide "surprisingly high," given the fact that homebuilding has barely recovered from its 2008 crash.

    "In fact, the 9-trade shortage is now substantially higher than it was at the peak of the 2004-2005 boom, when annual starts were averaging around 2 million, compared to current rates of about one million," economist Paul Emrath of the National Association of Home Builders wrote in a recent report. Nine-trade refers to the various skills required for homebuilding, such as concrete pouring and carpentry.

    Apparently while European workers were busy holding their employers hostage and vandalizing McDonalds restaurants American workers were busy retraining themselves. While I'm being slightly facetious here, this is a good example of why "cowboy capitalism" has seen the U.S. adapt exceedingly well to the massive changes over the last century and IMO why our economy has recovered much more robustly than Europe has from the Great Recession. Our work force adapts to change, Europe's resists it.
    Jul 27, 2015. 09:52 PM | Likes Like |Link to Comment
  • A Contrarian View On Chinese Growth [View article]

    "State companies were directed to buy shares in their own stock, major shareholders were banned from selling, while short-selling (which is legal in China) came under investigation for illegal market manipulation. The regulator also suspended initial public offerings and the central bank provided liquidity to help a government agency to finance stock purchases"

    This is just China's stock market however how many state owned companies does Germany have? Propping up the stock market isn't the only area of cooperation between the banks and the government they are tools of the government. Sure the government tolerates private enterprise when it suits their purpose however the "corruption" purges going on inside China should serve notice that nobody is beyond the central governments control. China is a whole lot closer to the old Soviet model than they are to the German model.

    I'm not an expert on Germany but from what I understand exports represent a sizable portion of their economy and China/Asia are particularly important markets for their exports. If your implication is Germany's socialized market economy is superior to the U.S. cowboy capitalism, my response is we'll see. Maybe I am remembering incorrectly but I believe the last report on German GDP was close to no growth? I guess in terms of the rest of the European socialized market economies that's pretty good though.
    Jul 27, 2015. 09:36 PM | 1 Like Like |Link to Comment
  • A Contrarian View On Chinese Growth [View article]
    As I recall the old Soviet Union had a large population and a planned economy as well.
    Jul 27, 2015. 03:45 PM | 1 Like Like |Link to Comment