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Why China's Leading Indicators Are A Big Flashing Warning Light To Albert Edwards; A Triple Dip Headfake In The US?

Tyler Durden's picture




 

As usual, Soc Gen's  Albert Edwards does not pull any punches: "Once again, investors see China plays as the only investment game in town. Dylan and I remain convinced we are witnessing a bubble of epic proportions which will burst – catching investors as unawares as the bursting of the Asian bubbles of the mid-1990s." Already we have seen traces of Edwards proving correct after the Chinese market has swooned dangerously in the past week. Should the world realize that, as Edwards claims, even near-unlimited liquidity is insufficient to keep the system going, then the China-initiated avalanche will be severe. Not only that, but in the recent fake economic renaissance (sorry, unwind QE1, QE Lite and QE2 and then we'll talk how real this recovery is) Edwards sees nothing less than the shades of the dreaded 1990s economic Triple Dip...

Here is conventional wisdowm, as transcribed by Edwards:

The investment case for emerging markets (EM) and commodities is appealing: weak growth in the West and in Japan, burdened under the weight of excess private sector and now public sector debt. Most now accept that easy monetary stances in the West are being transmitted almost 1-1 to the EM economies ? indeed the IMF has conclusively shown this to be the case, link. Loose money and strong EM growth with its high commodity intensity is the underpinning for the bull market in commodities, mining stocks and the like.

And here is the canary in the coalmine:

Once again, China?'s leading indicator is pointing towards a very significant slowdown in economic growth ahead. The last time the Chinese OECD leading indicator was this weak, commodity prices had just reached their euphoric mid-2008 peak, having spent the first half of the year resolutely ignoring the clear signals that the economy was about to slow sharply. Commodity and EM bulls ignore the weak Chinese leading indicator at their peril.

And another version of the China leading indicator:

It?s not just the OECD leading indicator that is very weak. The Chinese National Bureau of Statistics publishes its own leading indicator. And it absolutely confirms the OECD?s version of the future (see chart below and link).

And here is why we would love to get a suddenly irrationaly optimistic (but always agenda-toting) Jan Hatzius and Albert Edwards in the Octagon - the 1990's Triple Dip, which the Dutchman apparently was too young to remember.

Indeed it is not just EM/commodities that are running on fumes. The rally in the US equity market seems to be underpinned by some stronger than expected economic data. Yet we once again urge caution and remind our readers of the early 1990s experience. Then we went through a few years of private sector de-leveraging in the wake of the Savings and Loans crisis (see chart below). It wasn?t until the second half of 1993, well after the recession finished, that the private sector?s appetite for debt recovered and ?normal service? was resumed.

During the early 1990s deleveraging process, the economy remained extremely fragile. There was not just one slump in the economic data in the aftermath of the initial recovery out of recession, but three relapses, as the economic data went on a rollercoaster ride (see chart: we use consumer confidence to show the volatility in growth, but the ISM is just as good). During that period each growth scare drove bond yields to lower lows.

Similarly this year after its initial recovery, investors were caught out by the slide in the economic data. This now seems to be perking up. If the early 1990s deleveraging experience is anything to go by, investors should expect more relapses ahead and the markets to respond accordingly as we grind ever closer to outright deflation.

 

 

 

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Wed, 12/01/2010 - 22:34 | 770546 Spitzer
Spitzer's picture

If the US treasury bubble can last this long then China has a long way to go. Maybe 10 years.

Wed, 12/01/2010 - 22:39 | 770551 Spalding_Smailes
Spalding_Smailes's picture

http://www.youtube.com/watch?v=yeE3xe3thPc

http://www.youtube.com/watch?v=H-it4HRwvRo

 

Inflation = Unrest.

They have an asset bubble that will make an arthur anderson accountant blush ...

Wed, 12/01/2010 - 22:42 | 770568 Spitzer
Spitzer's picture

And all that China has to do is depeg and buy less dollars to solve their inflation problem. That will instantly re-export that inflation back to the US.

Considering the debt levels is the US, when China does that, the dollar will do the same thing the Thai Baht did in 1997.

Thats what happens when creditors run.

 

Wed, 12/01/2010 - 22:54 | 770608 Spalding_Smailes
Spalding_Smailes's picture

They cant de peg the banks would get crushed. 

This is how they keep the advantage in trade. The manufacturing complex would get monkeyhammered.

The jobs lost/social unrest would be unwelcome.

They are walking on a tightrope.

Wed, 12/01/2010 - 23:04 | 770645 Spitzer
Spitzer's picture

No, its quite simple actually.

As the RMB appreciates, the cost of food and oil goes down for  the Chines . Since China is the creditor with the peg, the rise in the RMB is an incremental fall of the dollar.

If a Chinese family pays less for food and gas, they have more discretinary income leftover to buy their own production.

Wed, 12/01/2010 - 23:19 | 770682 ThreeTrees
ThreeTrees's picture

I hope you're right.  My economy of residence is one of the resource extracting China derivatives.

One question of your thesis:  How much slack will a Chinese person be able to pick up with their newly deflated RMB?  Demand for Chinese goods is going to implode if they depeg and I've yet to see anything to convince me that the Chinese consumer can make up a significant portion of that loss.

Wed, 12/01/2010 - 23:24 | 770699 Spalding_Smailes
Spalding_Smailes's picture

 

China ~ 700 million farmers.

GDP - per capita (PPP): $6,600 (2009 est.)
$6,100 (2008 est.)
$5,600 (2007 est.)
note: data are in 2009 US dollars

Wed, 12/01/2010 - 23:28 | 770716 ThreeTrees
ThreeTrees's picture

China ~ 700 million farmers.

That's exactly what I'm talking about.  Vast majority of them are subsistence farmers at that.  They've almost been totally left out of the massive globalist expansion of the past couple decades.

Wed, 12/01/2010 - 23:39 | 770741 Spalding_Smailes
Spalding_Smailes's picture

The people will gain wealth as the RMB goes up but are the farmers ready to spend this cash on cars or coach bags. And when the RMB goes up 20% the unemployment from the lost jobs at the factories would wipe out any gain in RMB wealth created. And the exports would get monkeyhammered.

Wed, 12/01/2010 - 23:48 | 770758 ZackLo
ZackLo's picture

who said american corporations were going to run those factories after they get their purchasing power back...

this could be interesting too

 

http://www.zerohedge.com/article/china-approves-fund-will-invest-foreign...

Wed, 12/01/2010 - 23:51 | 770770 Spalding_Smailes
Spalding_Smailes's picture

China will be strong in the future. But first we will have an asset bubble explode.

How that plays out for the ruling class is the real big question.

Fri, 12/03/2010 - 19:13 | 777037 RoloTomassi
RoloTomassi's picture

honestly the smartest post i've read on ZH in two years..

Thu, 12/02/2010 - 00:10 | 770817 Spitzer
Spitzer's picture

And when the RMB goes up 20% the unemployment from the lost jobs at the factorie. And the exports would get monkeyhammered.

They will have an ability to consume more of their own production. Hint...hint.. They can already afford to consume some of it.

Thu, 12/02/2010 - 02:55 | 771133 Fred G Sanford
Fred G Sanford's picture

I think you nailed it.  Chinese unemployment should be expected to rise significantly if the RMB were to appreciate significantly.  That would lead to an increase in social unrest in a place that already has a lot of unrest.

Thu, 12/02/2010 - 00:07 | 770803 Spitzer
Spitzer's picture

That is a dumb american myth.

Go there and see for yourself.

Thu, 12/02/2010 - 00:22 | 770843 Spalding_Smailes
Spalding_Smailes's picture

That is a dumb american myth.

 


But its in the news spitzer.... (33 seconds in) 700 million poor farmers . From 2008

 

Now spitzer that looks like a hoe in that farmers hand not an iphone. He has a donkey and a mud hut/straw and hes going to .... "pick up the slack".....

 

http://www.youtube.com/watch?v=u1SQeRBs7SY

Thu, 12/02/2010 - 01:50 | 771029 trav7777
trav7777's picture

see what?  the vast polluted rivers and lakes?  Or did you mean down the street through the smog?

When you go there, you see the potemkin villages of Shanghai and Beijing.  Good luck getting to see reality behind the facade.

Wed, 12/01/2010 - 23:48 | 770759 Spitzer
Spitzer's picture

I hope you're right.

This is not a matter of right and wrong, this is how economics works.

One question of your thesis:  How much slack will a Chinese person be able to pick up with their newly deflated RMB?

 

I can tell you first hand from traveling to China and Thailand. It costs fuck all nothing to live in these countries now, just imagine a 25% maybe 50% rise in the purchasing power of their currency !

I would say 95% of these people already have cell phones. I have travelled around the small towns and villages, you even see some iPhones kicking around. There is already laptops around too.

There is huge potencial to pick up slack.

 

 

 

Wed, 12/01/2010 - 23:57 | 770785 Spalding_Smailes
Spalding_Smailes's picture

The job loss from the 50% rise would make tiananmen square look like a food fight. The export oligarchy would never allow it, game over for exports/jobs/communist party, party.

Thu, 12/02/2010 - 00:42 | 770915 Oh regional Indian
Oh regional Indian's picture

Maybe the point being missed in this whole discussion is that we are looking at the death of Supply side economics in the "want" sector and a calamitous situation in multiple sectors on the "need" side of the equation.

phones and laptops mean jack-shit when you cannot keep a roof over your head or eat.

I am speaking from daily observations of the Indian Dysfunction which closely mirrors the Chinese dysfunction.

ORI

http://aadivaahan.wordpress.com 

Thu, 12/02/2010 - 00:59 | 770930 Spalding_Smailes
Spalding_Smailes's picture

Great point as always.

The inflation is no joke if 40-50% of your income goes toward your food .

Thu, 12/02/2010 - 01:34 | 771002 Oh regional Indian
Oh regional Indian's picture

Thanks Spalding and Exactly!

ORI

Thu, 12/02/2010 - 02:45 | 771114 Spitzer
Spitzer's picture

Simple solution, export it back.

Thu, 12/02/2010 - 02:44 | 771109 Spitzer
Spitzer's picture

It costs NOTHING to live in these countries. An apartment with a bathroom in the middle of Bangkok, $80 a month.

Its the Americans that will be looking for a roof over their heads.

Thu, 12/02/2010 - 03:12 | 771156 XPolemic
XPolemic's picture

WRONG!

It costs you nothing to live in these countries, it costs the local population the same as everywhere else on the planet: 100% of their income.

If their income remains unaffected, then the value of the currency has little effect, but if they lose their income, life is expensive (no matter how cheap you percieve it to be.)

In the short term Asians would be worse off, but in the long term, they would be much better off. But how do you convince people to go through short term pain for long term gain? Western people refuse to accept that proposition, but in Asia you just start shooting people and they eventually go along.

Thu, 12/02/2010 - 03:21 | 771164 eatandtravel
eatandtravel's picture

Spitzer my man.  Don't be so sure of yourself.  China  is growing but it's not a wealthy country by any stretch.  In can't feed its population without America.  It has 25% of the world's population but has access to 6% of world's drinkable water. 

How will China grow with the lack of commodities?  Who has coal, natural gas and huge oil reserves?  America.

China's economy is geared for a highly levered global economy.  They have excess capacity.  Domestic demand isn't going to pick up the slack.

China is in trouble...

 

 

Thu, 12/02/2010 - 05:37 | 771228 revenue_anticip...
revenue_anticipation_believer's picture

The New China is a Govt/business partnership (fascist socialism) that works, and brute force has/will be used in Tibet, and outlying provinces...and in the center, more gently but with assured confidence...

THIS China, is, after all, a PLANNED Economy...there are aspects of "Free-Market-like/Capitalistic resource/manpower/money allocation...BUT don't compare what happens, don't assume ANYTHING regards their 'bubbles too high' and 'sure to burst'

If needed, the 'empty cities WILL REMAIN empty, like money in the bank..they will eventually be used, allocated..and yet 'privately owned'

The drops in the Chinese stock market are induced by the Bank of China, planned that way...just simply because of an excess of economic optimism, 'animal spirits'...

stop using the Western Business-Model paradigm/attitude..oversight and remember that Chinese work-ethic/culture means working 14hours/day everyday, the whole family,  if needed... Millennia of high population density, of living at the economic margin - nearly no excess production..

Just a reminder, WHO built the Western Railroad from San Francisco to the half-way point...WHO...not the Irish, but imported 'little people' who produced like no other ethnic groupAsking about 'slack', living under deprivation/hardship and suceeding not matter how much work/time it takes to survive... 

is it that some economic/stock market writers  actually INTEND to mislead, to benefit their own book??

 

Thu, 12/02/2010 - 10:14 | 771448 Kayman
Kayman's picture

The Chinese worked on many railroads because there was no paying work at home. And despite the dangerous conditions, working and living at home in China was no better.

Now China exports worthless junk that most economies could live without. 

Either way, exporting goods or exporting people is China's only short/medium term option.

China is in a frenzy akin to a gold rush. The transition ought to be interesting to see.

May the Chicoms live in interesting times.

Thu, 12/02/2010 - 01:44 | 771016 Double down
Double down's picture

Which they will not do because discretionary income in Asia = savings = PM or real estate.

No safety net, no discretionary spending.

Thu, 12/02/2010 - 02:52 | 771128 Spitzer
Spitzer's picture

No safety net

Which results is efficient free market solutions rather then massive unaffordable bureaucracies that usurp money out of people's paychecks every day.

 

Thu, 12/02/2010 - 10:17 | 771466 Kayman
Kayman's picture

Spits

I had to read that twice:

Implication (China) does NOT have a "massive unaffordable bureaucracy".

Read your history; China invented useless bureaucracy.

Thu, 12/02/2010 - 01:49 | 771023 trav7777
trav7777's picture

and the fact that much of the national GDP is operating on negative or marginal profitability is of no matter when the RMB appreciates?

their margins cannot be compressed any further; they have entire cities that are empty, factories that are idle.  They are a mercantilist ponzi.

There isn't the demand domestically absent a massive *increase* in debt in the nation.  There's already a massive overhang of that for capacity.

Thu, 12/02/2010 - 09:50 | 771410 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Debt, yes! Enter Bill Gross and PIMPCO. Create a massive, deep and liquid government RMB debt market. Sure, we'd be happy to help you out. Become a new reserve currency. Borrow like nobody's business ... become the world's biggest consumer .... wait, where did I see that before?

Wed, 12/01/2010 - 23:54 | 770778 Rogerwilco
Rogerwilco's picture

Tightrope indeed. They have to maintain over 7% growth just to employ the kids coming out of the countryside, 7% just to stand still. Their version of TARP in '08 was almost three times the size of ours as a percentage of GDP, and now PBoC has to find an exit strategy that keeps growth above 7% without causing inflation -- and you thought Bernanke had troubles! What they're trying to do is the economic equivalent of walking a tightrope in a hurricane while juggling three running chainsaws.

Thu, 12/02/2010 - 00:43 | 770912 JLee2027
JLee2027's picture

So much for the China myth about taking over the planet. How can they ever become the #1 economy when they still import food and depend on stealing then copying others inventions for their exports? Answer, they can't.

Thu, 12/02/2010 - 03:13 | 771157 XPolemic
XPolemic's picture

That's how the United States became a super power, why wouldn't it work for China?

Thu, 12/02/2010 - 09:50 | 771409 snowball777
snowball777's picture

Take advantage of...

...their cartel tactics in commodity production and mining.

...their lead on green power production (dependent on said commodities).

...the fact that the US no longer has production capacity.

...their treasuries by selling into the Fed's "monetization ATM" (note: not an automated teller) until Ben has ~30% more than they do, then punking him, and spiking yields.

Wed, 12/01/2010 - 23:50 | 770767 eatthebanksters
eatthebanksters's picture

You're a smart one Spitzter.  If China depegs they kill their export based economy and their GDP goes in the tank over night.  The bubble goes nuclear when it explodes.  Think about what you say before you say it.

Thu, 12/02/2010 - 00:44 | 770920 JLee2027
JLee2027's picture

China is headed for a crash...this isn't news to those following them.

Thu, 12/02/2010 - 02:55 | 771135 Spitzer
Spitzer's picture

Is that you Paul Krugman ?

What would you do if your currency bounced up 50% ?

Thu, 12/02/2010 - 10:03 | 771431 snowball777
snowball777's picture

Highly dependent on whether one actually has currency, Spitski.

There is a culture of mass consumption in the US that made Chi-Merica work and those ironic commies can't duplicate it!

60% of the melamine-laced crap moving through Fontana, CA warehouses isn't marketable in China. All that capacity isn't for shit without exports because ChiCom domestic demand doesn't include fucking Bratz dolls, m'kay? 

 

Thu, 12/02/2010 - 03:10 | 771147 eatandtravel
eatandtravel's picture

Why would inflation appear in the United States if the Chinese depeg their currency?  No velocity means no inflation.

Thu, 12/02/2010 - 03:17 | 771158 XPolemic
XPolemic's picture

Two reasons:

1. Chinese stuff would become more expensive and

2. The US dollar would drop like a money packet from a helicopter if China (and Japan, and Saudi Arabia and ....) stopped buying US Treasuries, because the Benanke would pick up the slack, inflating the money supply to the moon and monetizing the debt, which would result in commodity prices going parabolic, and commodities are like your breakfast and stuff.

Thu, 12/02/2010 - 04:57 | 771218 eatandtravel
eatandtravel's picture

I agree the prices at Wal Mart will increase temporary.  If prices continue to incresse, production will move to Mexico.

Regarding the world dumping the dollar, hell no.  You can't replace something with nothing.  China will experience a hard fall.  Japan is in trouble.  We know about Europe.

Commodity prices are going higher thanks to the Chinese and hot money.  What happens when the Chinese stop buying?  All that hot money will run for the door and soft and hard commodity prices will drop very fast.

If you are smart, buy American...

 

 

 

 

Thu, 12/02/2010 - 05:32 | 771233 XPolemic
XPolemic's picture

I sense that you may be an idiot, but am ready to change my mind.

Regarding the world dumping the dollar, hell no.  You can't replace something with nothing.  China will experience a hard fall.  Japan is in trouble.  We know about Europe.

I am not sure if you are just babbling, or trying to condense your thoughts to save you typing. The world was ready to dump the dollar long ago. If it wasn't for military intervention, it would have already been dumped. Are you implying that the US will continue to invade countries at an ever increasing rate to protect the dollar? How will it pay for it? Will the Chinese lend a hand?

Commodity prices are going higher thanks to the Chinese and hot money.  What happens when the Chinese stop buying?  All that hot money will run for the door and soft and hard commodity prices will drop very fast.

Ummm .... huh? Do you even know how markets work? You know that oil is a commodity, yes? You know that commodities are priced in USD, yes? Are you saying that the world is about to stop buying oil, corn, wheat, steel and cotton? I find your ideas intriguing and would like to subscribe to your newsletter.

If you are smart, buy American...

As the USD drops I increasingly do, but I am not sure what point you are trying to make. Maybe you work for the Fox news channel and are unable to string together a coherent idea.


Thu, 12/02/2010 - 10:32 | 771499 Kayman
Kayman's picture

XP

If China depegs, the direction of the RMB is a toss up. It could just as easily fall over the medium term, since Corporate America (the partners of Chinese Fascism) would need to find alternative slave factories.

And of all the debt-laden, deficit growing, blind countries in the world, the U.S. continues to be the least ugly sister at this economic dance.

To paraphrase Churchill, the U.S. dollar is the worst currency in the world; except for all the others.

Saudi Arabia is not going to price oil in RMB.

Fri, 12/03/2010 - 19:28 | 777076 RoloTomassi
RoloTomassi's picture

the dollar is not just the reserve currency, its the reserve language...as much as we all appreciate the dilution and all that crap, remember without a seismic and fundamental shift in the wealth transmission mechanism that is the british/american empire mercantilism/globalisation model we are still prone/destined to witness an abject deflationary impulse..china in its current state is not capable of leading the reform..in any ways..buying the dollar is the only trade because we are not ready to build a system outsid of this "free-market"/globalistion framework we live in

Thu, 12/02/2010 - 04:10 | 771193 strannick
strannick's picture

 

 

If they depeg and let their currency appreciate, yeah, they'll export inflation to the US, and thats all they will export. Their crappy little trinket-stand economy will go tits up faster than you can say 'ancient Chinese secret, huh?'

Thu, 12/02/2010 - 06:26 | 771254 Non Passaran
Non Passaran's picture

What do you mean by "buy less dollars"? Their exports are paid for in dollars (which then get exchanged in return for T bills), so I wouldn't say they buy dollars, but if they did they couldn't buy less dollars without lowering their exports or making their currency even cheaper. As for exporting inflation, I doubt that demand for products made in China (no food or other essentials) is inelastic - Chinese exports would drop.

Wed, 12/01/2010 - 23:59 | 770790 malek
malek's picture

@Spitzer:
Not so sure about 10 years, but generally yes, it has a way to go.

Also from an american point of view:
I can invest quite some part of my money in China, because
-if China flourishes but US slumps, I can live off my investments
-if China busts then US should benefit, and I will have an income from a paid job.

Looks like a well spread risk to me.

Wed, 12/01/2010 - 22:37 | 770555 cosmictrainwreck
cosmictrainwreck's picture

geeeezz, Tyler, don't you ever sleep? Yeah, I remember the 90's (ahhhh-the good ol' days). Let's see.....the 80's was when we shut down all the steel mills, right? Then the 90's....hmmm.... got rid of the shipyards & etc. Sez to myself: WTF? What's left? Well, as usual, I underestimated the cleverness & craftiness of da boyz... early stages of financial engineering and the this-will-save-the-day tech "revolution"...ending how? 1999-2000

Thu, 12/02/2010 - 05:05 | 771221 eatandtravel
eatandtravel's picture

China is expanding its military.  As a result, America will sell military goods to South Korea, Australia, New Zealand, Thailand, India, and Vietnam.  The US military complex will be booming for the next twenty years thanks to China.

We also like having Iran as a bad guy too.  We get to sell more rockets, planes and bombs to our Suni friends in the Persian Gulf.

Don't worry about America...

 

 

Thu, 12/02/2010 - 10:09 | 771441 snowball777
snowball777's picture

Some of us would rather work in the jobs created by the "this-will-save-the-day" tech revolution (sorry about your stocks) than in a steel mill or shipyard. Just sayin'...

Wake me up when we get back to the 60s.

Wed, 12/01/2010 - 22:38 | 770557 chinaguy
chinaguy's picture

"catching investors as unawares as the bursting of the Asian bubbles of the mid-1990s"

Tru dat.

Wed, 12/01/2010 - 22:44 | 770584 Spitzer
Spitzer's picture

Yeah and the rolls are reversed now. Asia is the creditor, the west is the debtor.

Thu, 12/02/2010 - 00:51 | 770937 JLee2027
JLee2027's picture

Only of funny money, not real money.

Thu, 12/02/2010 - 01:16 | 770970 jdrose1985
jdrose1985's picture

But you never stopped to think who was exporting the funds which were to be reinvested, didja? The proceeds which are reinvested in US bonds which drive rates lower to facilitate more favorable access to credit for consumers. Problem is you run out of basis points eventually. Now would you rather be long the creditor or the debtor?

Asia (ex-Japan) sends us cheap trinkets, we send them polarity differentials on a hard drive behind multiple layers of encription.

 

 

Wed, 12/01/2010 - 22:40 | 770559 Cursive
Cursive's picture

News in my locale:

 - local contract call center announced layoff of 330 people, effective January 29th

 - second local restaurant, employing 83 people, closed Sunday (other one closed in July).  The owner blamed the economy.

 - November car sales were anemic

Wed, 12/01/2010 - 23:54 | 770774 False_Profit
False_Profit's picture

...i had to check to see if you were a neighbor, because we have just had a local call center for a national bank announce it is closing, as well as the second restaurant in as many months in my locale...

 

oh, and for the good news: commercial building permits down 50% ytd...

Thu, 12/02/2010 - 01:47 | 771019 Double down
Double down's picture

Who is going to by Harry's shit now?

Wed, 12/01/2010 - 22:42 | 770567 Capsaicin
Capsaicin's picture

So if we sell commodities and sit on dollars we will be in good shape...right?

Wed, 12/01/2010 - 22:56 | 770620 Cistercian
Cistercian's picture

 I am biased, but I am still amazed at the stories which scream buy gold and silver by the more and more obvious revelation that the entire monetary construct is a stinking fiasco.

  Forget huge returns....if you are lucky, you can preserve some of your wealth.

 Maybe.

Wed, 12/01/2010 - 23:07 | 770656 jm
jm's picture

I'm not sure that anyone can really figure out the China story. 

I hear conflicted anecdotes about Chinese real estate.  Some say RE loans are at least 20% down and others say triple mortgages are common over there.

China remains a thoroughly centrally planned economy, and every statistic is fudged by political dictates.  There isn't a liquid secondary market for Chinese government bonds, so there's no yield curve. SHIBOR is the locally risk-free rate with limited information content.  

On the other hand, Chinese stocks trade at high multiples, but this due (in some cases) to minimal debt/high quick ratios, and high cash (yuan) reserves.  The multiple makes sense in these cases.

Wed, 12/01/2010 - 23:38 | 770739 New Revolution
New Revolution's picture

That's the conundrum my friend.    Deflation is inevitable.    But Baranke is trying to print his way out of it just like Hoover did but on a full-tilt turbo, downhill boogie driven scale that would have blown Hoover to the curb.   To Helicopter Ben it's a steroid gamble on a failed policy, but that's the tune his shareholders have set him for him to dance; its called 'Save Our 2B2Fail Banks'.    Or have you forgotten who he works for?

Sure it has to end, and end ugly at that.   The question is when, what's the trigger, what's the timing?  

All you can do is just play it close and not fall in love with one position or another, to not only be willing to change quickly when the trend does, but to also anticipate the change.   That is hard, because it runs counter to the herd with the added stipulation that you have to be right in a world of not only deceptive technical feints, but also by (less) virtue of the Bureau of Labor (Lying) Statistics.

So you need to run stops but that is dangerous too in this world of HFT.   Don't you just love this game?

Thu, 12/02/2010 - 00:11 | 770829 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

The trigger will come when investors stop believing in a major bailout. Whether that is a bank or a sovereign. Investors will punish those who they have no faith in. Ireland may just well be that trigger on December 7.

Thu, 12/02/2010 - 10:22 | 771480 snowball777
snowball777's picture

Friedman and Schwartz write: "From the cyclical peak in August 1929 to a cyclical trough in March 1933, the stock of money fell by over a third."

Must have been very fine print; you could say that raising taxes in a recession was unwise of Hoover, and also that forming a Buzzard's Club called the NCC to accelerate the delever of smaller banks wasn't smart, but loose monetary policy was not one of the man's problems.

This has been a teachable moment in revisionist history, 2D2Learn.

Thu, 12/02/2010 - 02:11 | 771066 arkady
arkady's picture

Another smart deflationist, hmm, our numbers grow.  Can anyone explain how many people post under Tyler Durden - since it can't be one person advocating both deflation and hyperinflation and by advocating I mean pushing perspectives of analysts with a certain agenda.

Thu, 12/02/2010 - 10:24 | 771487 snowball777
snowball777's picture

You wake up at Seatac, SFO, LAX. You wake up at O'Hare, Dallas-Fort Worth, BWI. Pacific, mountain, central. Lose an hour, gain an hour. This is your life, and it's ending one minute at a time. You wake up at Air Harbor International. If you wake up at a different time, in a different place, could you wake up as a different person

Thu, 12/02/2010 - 10:44 | 771523 Kayman
Kayman's picture

Tyler Durden is one person, in a padded room, with one 40 watt light bulb in the ceiling.  His missives are smuggled out by his pet rat, Kafka.

Tyler does not/cannot sleep.  Yin/Yan morph into one for Tyler.

Fear not. Tyler is watching 24/7.

Fri, 12/03/2010 - 12:26 | 775611 FreeMartinArmstrong
FreeMartinArmstrong's picture

the Chinese will buy gold in New York ...

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