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More About Less New Orders

Jeffrey Snider profile picture
Jeffrey Snider


  • China’s official manufacturing PMI dropped under 50 for the first time since February 2020.
  • The official PMI for services rebounded from that awful low of 47.5 last month to a still-low 53.2 this month.
  • The global economy gets globally synchronized more often than not, just never in legit, inflationary growth.

Business financial concept with double exposure stock market up trading line

Jira Pliankharom/iStock via Getty Images

The inventory saga, planetary in its reach. As you've heard, American demand for goods supercharged by the federal government's helicopter combined with a much more limited capacity to rebound in the logistics of the goods economy left a

This article was written by

Jeffrey Snider profile picture
As Head of Global Investment Research for Alhambra Investment Partners, Jeff spearheads the investment research efforts while providing close contact to Alhambra’s client base. Jeff joined Atlantic Capital Management, Inc., in Buffalo, NY, as an intern while completing studies at Canisius College. After graduating in 1996 with a Bachelor’s degree in Finance, Jeff took over the operations of that firm while adding to the portfolio management and stock research process. In 2000, Jeff moved to West Palm Beach to join Tom Nolan with Atlantic Capital Management of Florida, Inc. During the early part of the 2000′s he began to develop the research capability that ACM is known for. As part of the portfolio management team, Jeff was an integral part in growing ACM and building the comprehensive research/management services, and then turning that investment research into outstanding investment performance. As part of that research effort, Jeff authored and published numerous in-depth investment reports that ran contrary to established opinion. In the nearly year and a half run-up to the panic in 2008, Jeff analyzed and reported on the deteriorating state of the economy and markets. In early 2009, while conventional wisdom focused on near-perpetual gloom, his next series of reports provided insight into the formative ending process of the economic contraction and a comprehensive review of factors that were leading to the market’s resurrection. In 2012, after the merger between ACM and Alhambra Investment Partners, Jeff came on board Alhambra as Head of Global Investment Research. Currently, Jeff is published nationally at RealClearMarkets, ZeroHedge, Minyanville and Yahoo!Finance. Jeff holds a FINRA Series 65 Investment Advisor License.

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Comments (8)

Aricool profile picture
In macro terms, there is no net GDP growth. the only thing growing is the exponential global debt. China is bankrupt. EU is near broke. UK is spiraling around the drain. US is trying to head to a cliff, real fast. I expect a China financial crisis as a fat tail possibility here, which will at minimum slash oil demand/price in the near term, and possible handicap/cripple global economy for a while. $300B Evergrande is just the very tip of an $8 T bad debts iceberg in China.

That is, China cannot push off the day of reckoning much longer Seems to me near impossible for China to avoid a financial crisis, at least 5 times greater than Japan's, sooner than later, I've been watching this China saga closely for years not, and seems to be coming to a head. I usually ignore whatever GS says, but the below article sums it up nicely for me wrt China/Evergrand and tracks with what I know from before. I'm very surprised you are not making any reallocation/rebalance recommendations. To stay neutral seems unreasonable at this point... Risk off trends seem to be rising, leaning towards stagflation. I've started rotating (and taking huge profits) out of oil/gas E&P and vastly boosting my allocations to semiconductors and clean energy, which are in a major correction. Also, boosting allocation to high safe dividends, and hi-tech sector covered call strategies ETFs like QYLD, in case of a flatish market as all the conflicting forces battle it out.

also, note how China HY (and sovereign) CDS spreads are widening. This is very deflationary... sovereign Debt ratings are almost certainly going to get downgrades. China only has ~$2T of free/liquid FX so it cannot afford to recapitalize its banks or local gov debts, and QE to do so would crash its currency. China is trapped into a corner now, it painted itself into.

This article is good on showing how Evergrand is affecting CDS spreads (just ignore the self-serving bitcoin as the solution part):
There was also a noticeable widening of default insurance on five-year China CDS. In the eyes of the default insurance markets, China default risk is now more reflective of a BBB-rated credit rather than the single-A S&P rating. This is important, since the world’s second-largest economy is trending toward a junk-rated credit. One more rating downgrade (in the eyes of the market, to BB) and it is now a HY borrower. Wow!


The default troubles at the globe’s most indebted property development seem like small embers compared to the $8.2 trillion worth of local government financing vehicles outstanding. And that’s just the LGFVs we know of. The data that Goldman’s Maggie Wei highlights is as of the end of 2020. Clearly, the tally is higher now—perhaps markedly. Ten months ago, these shadowy investment schemes had reached 53 trillion yuan, up from 16 trillion yuan, or $2.47 trillion, in 2013. They now amount to roughly 52% of China’s gross domestic product, topping the official amount of outstanding government debt.
thumbsoup profile picture
@Aricool Thanks that Forbes article was fun.
thumbsoup profile picture
Corporate overreaction in canceling Chemical orders in early 2020, and then struggles to catch up since, seems to mirror this story.

AP News, "From paints to plastics, a chemical shortage ignites prices"

thumbsoup profile picture
This journey left me a little confused. How exactly does inventory explain the decline in China's manufacturing?
ransim7222 profile picture
Check out this article. It helped me understand the same question.
"The Effects of Inventories on GDP"

thumbsoup profile picture
@ransim7222 Thanks that helped.

If the over-ordering scenario in this article (and his prior one) did happen, and that plus the shipping entanglement caused a build up in Chinese inventories, that is past tense, with the drop in new orders showing the over-ordering stopped. Does that make sense?
ransim7222 profile picture
@thumbsoup That is one of the interpretations, as I read their articles. Obviously, the Chinese government has another one.
ransim7222 profile picture
It appears that China's chickens are coming home to roost, big time!
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