Sober Realist

Asian Growth Can't Keep Reflation Trade Going

It's always good to have a check on reality when the equities market has become sooo far detached from it. Thanks for the reality check. Now maybe the markets will continue the correction to reflect reality.

Time to Buy China, Copper, the Canadian Dollar and Oil

Here are five reasons a Chinese rebound in 2009 may not pan out:

1. World growth is collapsing. This isn't hyperbole, but a sobering fact. The International Monetary Fund can't downgrade its global growth estimates fast enough as the credit crisis overwhelms economies as diverse as Ireland, Japan, the United Arab Emirates and the US.

Asian governments are increasing spending to soften the blow from falling asset prices, consumer spending and manufacturing. The European Central Bank is struggling to keep up with the region's plunging economy.

The trillions of dollars of wealth being lost as markets plummet are depleting public coffers and damaging consumer psychology. It's not a good environment for any government hoping for a revival in global demand.

2. China's key customer is in hiding, indefinitely. Just when you thought conditions in the $US14 trillion ($22 billion) US economy couldn't get any worse, they ''deteriorated further'' in almost all corners of the country over the last two months, the Federal Reserve said in its regional business survey.

Wang Hanmin, a sales manager at Yixing Bochangyuan Garments Co. in Jiangsu province, spoke for many this week when he said exporters are facing a ''life and death'' crisis. Exporters are so worried that they are calling on the government to weaken the yuan after the biggest slump in overseas sales in more than a decade.

One thing is for sure: The US consumer isn't about to help China out of this dilemma.

3. A lack of tools. It's important to remember that the 4 trillion yuan ($910 billion) spending plan unveiled in November was more spin than reality. Much of it wasn't new, but a tally of existing spending efforts. They were never going to boost a $US3.3 trillion economy anyway.

China's almost $US2 trillion of currency reserves would seem to give the nation considerable policy latitude. Yet China's vast economy lacks the financial infrastructure to get the bang it needs from its stimulus in yuan. Would building more roads, bridges and dams do the trick?

''8% GDP doesn't really tell you anything about job creation,'' says Stephen Green, Shanghai-based head of research for China at Standard Chartered Plc. ''Many of these projects are not particularly job-intensive.''

The spending will help, but such projects didn't propel growth as hoped over the last 30 years. Exports did.

4. All those US Treasuries. Financing loads of new projects could prove dicey, even for cash-rich China. Any move to draw down $US696 billion of US government debt could leave China with major losses and prolong the US recession.

That leaves domestic lending institutions. If China wants to avoid a Japan-like bad-loan crisis, or something far worse, it has to be careful about massive public-works projects with questionable economic benefits.

Of course, there's the ''official'' gross-domestic-product figure, and then there's the real situation in the most populous nation. The double-digit drops in exports among China's biggest trading partners in Asia show how bad things are getting. Offsetting those trends won't be easy and it won't be cheap.

5. Rebalancing takes time. Just as the US needs to become a nation of savers, China needs more consumers. That's a destabilizing, decade-long process that requires the creation of national safety nets and more education and health-care spending.

Reverse migration

Making that transition would be a big enough challenge with a healthy world economy. Doing it while Group of Seven members are in recession and developing Asia is slowing rapidly will prove extraordinarily difficult.

Wen wasn't exaggerating yesterday when he said China faces its ''most difficult'' year of the past 30. How much China's export collapse is hurting can been seen in the 20 million migrant workers who are suddenly unemployed. The risk of social unrest is higher than at any time since 1989, the year of the Tiananmen Square protests.

China's top-down system has worked extraordinarily well in recent years. It's still a stretch to think the country can turn its economy upside down in this ever-worsening environment.

Wen says China needs to ''reverse the economic slide as soon as possible.'' Too bad officials in Beijing think their work is largely done. It's not, no matter what the official spin is.

business.smh.com.au/bu...

Time to Buy China, Copper, the Canadian Dollar and Oil

A Global Retreat As Economies Dry Up
Mar 5 by Anthony Faiola

WaPo - As World Trade Plummets, Bustling Ports Stand Idle And Foreign Workers Track Back Home

Singapore

This shimmering city-state was the house globalization built. When world trade boomed, Singapore's seaport at the crossroads of East and West became the Chicago O'Hare of freighters and supertankers. Singapore Airlines took off despite serving a country with no domestic air routes. Nearly everything manufactured here is made for export. One out of every three workers is a foreigner.

But as the world enters a period of deglobalization, Singapore is a window into the reversal of the forces that brought unprecedented global mobility to goods, services, investment and labor. With world trade plummeting for the first time since 1982, the long-bustling port has become a maritime parking lot in recent weeks, with rows of idled freighters from Asia, Europe, the United States, South America, Africa and the Middle East stretching for miles along the coast. "We're running out of space to park them," said Ron Widdows, chief executive of Singapore-based NOL, one of the world's largest container lines.

Thousands of foreign workers, including London School of Economics graduates with six-digit salaries and desperately poor Bangladeshi factory workers, are streaming home as the economy here suffers the worst of the recessions in Southeast Asia. Singapore is an epicenter of what analysts call a new flow of reverse migration away from hard-hit, globalized economies, including Dubai and Britain, that were once beacons for foreign labor. Economists from Credit Suisse predict an exodus of 200,000 foreigners -- or one in every 15 workers here -- by the end of 2010.

Singapore's exports collapsed by a stunning 35 percent in January, mirroring much of the rest of Asia. The export boom here was tied to credit-fueled buying sprees in the United States that stopped abruptly and may take years to return, if ever. Manufacturers are grasping for a Plan B. But none of the options -- mining domestic markets, or trying to tap consumers in still-growing China and India -- offers a truly viable solution. Adding to fears of a years-long depression for exports is a rising tide of trade protectionism in countries including neighboring Indonesia.

The scene in this port city -- along with a glimpse inside two of its reeling neighbors in export-dependent Southeast Asia -- illustrates the ebbing of a golden age of trade, innovation, wealth accumulation and poverty reduction through globalization.

"The collapse of globalization . . . is absolutely possible," said Jeffrey Sachs, a noted American economist. "It happened in the 20th century in the wake of World War I and the Great Depression, and could happen again. Nationalism is rising and our political systems are inward looking, the more so in times of crisis."

Time to Buy China, Copper, the Canadian Dollar and Oil

Taleb is in 100% cash right now, so he says. He says we have much further to fall, and only then will he come in to pick up the pieces. Your best bet is to play the sucker rallies that will occur betwwen now and then. Read the Nouriel Roubini article whose link was just posted.


On Mar 07 11:36 AM comox wrote:

> Jay- thanks for taking the time to reply. I'm invested in Canadian
> resources now, impatiently waiting for the coming commodity resurgence,
> and still taking some downward hammering. Of course that all hinges
> on this China/US recovery discussion.
> Conventional investment advice did nothing for us leading up to this
> meltdown, and in general the commentators and advisors missed this
> completely (including some very smart people: Eric Sprott of Sprott
> Funds, Tom Stanley of Resolute Performance Fund, etc.). I'm feeling
> completely let down and skeptical of the investment community. I
> do like to follow Peter Schiff, Jim Rogers as their ideas make sense
> to me.
>
> Someone made money: shorting oil and commodities, long on US dollar,
> shorting DJIA and TSX, etc. in last 6 months. I'd like to get some
> professional advice that makes me one of those making that money
> by making smart aggressive bets (not for the major part of portfolio
> of course)!
> PS- read Nicholas Taleb's "Black Swan" and found it very heavy going.
> I was hoping for some specifics of how he exposes himself to the
> huge winning opportunities (and the majority of his portfolio is
> very safe he says)- the book never contained any specifics. Does
> anyone know what he invests in?

Time to Buy China, Copper, the Canadian Dollar and Oil

SB-Tiger:

Chinese stats: Like all Govt. stats there is skepticism. In US here, we have some ability to get to the source of data and cross check and draw our conclusions. We do not have that ability with Chinese numbers (at least me, sitting here). So we have to take Chinese stas with a pinch of salt (not MSG).

Chinese data looks good and the author has presented everything in a cogent convincing manner. But the logic does not sit well with me – China is an export economy, domestic consumption is small – it simply cannot grow when its exports are falling off the cliff (and imports too). All regional (and world) trade data export & import – is showing steep declines. So Chinese simply cannot grow at the pace they used to, even the 8% growth they are championing likely is a political slogan – unlikely achievable. The recent 2nd stimulus fiasco was cruel joke.

Read Nouriel Roubini’s article on Forbes a couple of days ago – he talks about China:
www.forbes.com/2009/03...

Baltic Dry and metal prices have recently rebounded based on Chinese demand. But the fact is all these indexes had an extreme and steep fall – fell 75 – 90% in a few months. So the rebound is very understandable – pendulum swung on the other side too quickly. However as producers have cut back there is steep fall in supply of all commodities- oil, copper, and shipping– so the prices are reacting to that too. Also lot of Chinese purchases are simply building inventory, bottom fishing in the market, not actual consumption. This buildup will quickly end.

Overall I am bearish on the market’s overall, including China. The world is in deep recession unlikely to end any time soon.

Suggest sellout of FXI, definitely S&P.


Thank You SB-Tiger,
You nailed it. There will be no decoupling of China or any other country from America. China knows it is in their best interest and their survival to see America solve its problems. There can be no global recovery without an American recovery. We will have an extended soggy bottom, a long "u" shaped recession.
I thought it was interesting to note that the head of the IEA was touting the low oil prices as good and necessary for the recovery of the global economy:

"The fall in the oil price is set to give a $1,000bn stimulus to oil-
importing countries this year, the head of the International Energy
Agency has said, as he urged oil producers to think about their
"mutual interest" with consumers.
He urged oil-producing countries to recognise that "to stimulate the
importing countries' economies is very important for their future,
too". The IEA has calculated that if oil stays at about $40 a barrel
this year, down from an average of about $100 a barrel last year, it
will be worth $1,000bn to oil-importing countries in increased
spending power. That compares with the US administration's plans for a
$787bn fiscal stimulus."

Time to Buy China, Copper, the Canadian Dollar and Oil

As long as the world economy is in the dumps, the dollar will stay strong. Despite all the problem we currently have, I don't understand all the American bashing. The dollar is strong for a reason right now. I wouldn't want to live anywhere else in the world. China...no thanks, it's a toxic waste dump run by totalitarian regime that will make you disappear if you speak your mind. The same goes for Russia. Of any of the BRIC countries, Brazil is the only one I invest in.