Gross Domestic Product
The economic slowdown in China was set in motion a long time ago when the yearly rate of growth of the money supply fell from 39.3 percent in January 2010 to 1.8 percent by April 2012. The effect of this massive decline in the growth momentum of money puts severe pressure on bubble activities and in turn on various key economic activity data. Any tampering with the currency rate of exchange can only make things much worse as far as the allocation of scarce resources is concerned.
For the moment, to paraphrase Alexander Solzhenitsyn, the “permanent lie [has become] the only safe form of existence”.
But the world cannot postpone, indefinitely, dealing decisively with the economic, resource management, social and political challenges we face.
Simply put, a perfect storm of failing trends...
From both and fundamental and technical viewpoint, there is mounting evidence that the current decline might just be sending a signal that there is more going on here than just an "overdue correction in a bull market." While it is too soon to know for sure, there seems to be little risk in being more conservative within portfolio allocations currently until the market environment clears. However, the proverbial "elephant" is margin debt.
For Saudi Arabia, The Music Just Stopped: Scramble To Slash Spending Begins As Oil Math Reveals Dire PictureSubmitted by Tyler Durden on 08/25/2015 17:20 -0400
With declining crude revenues clashing head on with the cost of simultaneously financing the state while intervening militarily in Yemen, the Saudis are looking to tap the bond market (a move which could increase debt-to-GDP by a factor of 10 by the end of next year) and some are speculating that the riyal’s dollar peg could ultimately prove unsustainable. Now, as Bloomberg reports, "Saudi Arabia is seeking to cut billions of dollars from next year’s budget because of the slump in crude prices."
Are there any conditions now that are actually better than those of 2008? Or are conditions now less resilient, more fragile and more dependent on unprecedented central bank interventions?
Following the end of a horrible week for petroleum importers (not to mention shale producers) despite WTI briefly dipping under $40 (wasn't this supposed to be great news for the US economy?) we have the start of a just as ugly week for the Persian Gulf oil exporters, whose Sunday market open can be described as a continuation of last week's broad risk carnage, and where Saudi Arabia, until recently the region's best performing market, is now down 10% for the year and down 30% compared to 12 months ago.
Over the weeks, months, and years ahead we’ll begin to understand more about the fallout from the death of the petrodollar and nowhere is it likely to be more apparent than in Saudi Arabia where widening fiscal and current account deficits have forced the Saudis to tap the bond market to mitigate the FX drawdown that's fueling speculation about the viability of the dollar peg. As Bloomberg reports, the current situation mirrors a "very scary moment" in Saudi Arabia’s history.
When paying a premium for equities, or any asset for that matter, one runs the serious risk of capital impairment. Worse, most professional investment managers falling prey to the bullish sentiment currently surrounding this period of extreme valuations will likely not live up to their overriding fiduciary duty – the preservation of wealth. Following the herd may have its benefits at times, but following the herd over a cliff never ends well. As Seth Klarman warned. “Risk is not inherent in an investment; it is always relative to the price paid”
Currency wars triggered a collapse in the Tenge overnight and sinking oil prices are putting the brakes on Kazakhstan’s once-soaring economy, forcing layoffs in the all-important energy sector. With memories of the months-long strike in the western town of Zhanaozen that culminated in a bloody crackdown in 2011 still fresh in the memory, the government has put measures in place to prevent the seeds of industrial unrest.
- Oil moves nearer six-year low on Japan data, oversupply (Reuters)
- Commodity Slide Spurs Treasuries as Emerging Markets Extend Drop (BBG)
- Because 7 years is "just right" - BOE Official Says Don’t Wait Too Long on Rates (WSJ)
- How Medicare Rewards Copious Nursing-Home Therapy (WSJ)
- Millennials Are Developing Parents’ Taste for Jaguars, Cadillacs (BBG) ... and even more debt
- Mexican Billionaire’s Firms Swept Up in U.S. Probe of Citigroup (BBG)
On Saturday, we got what we called a stark "reminder of just who is lying hunched over, comatose in the driver's seat of global commerce" when China reported that exports fell 8.3% in July, far more than consensus and the most in four months. On Sunday, we got still more evidence of China’s economic malaise as producer prices plunged 5.4%, the largest Y/Y decline since 2009.
In simple terms, Greece from 2003-2010 was an economic boom driven by incomes, which were in turn driven by cheap debt NOT real organic growth. Thus, the collapse in GDP was yet another case of “price discovery” in which asset prices fall to economic realities…
"Any rally that occurs over the next few days from the current oversold condition should be used as a "sellable rally" to rebalance portfolios and related risk."
The veracity of China's economic data has long been the subject of debate and when FT called out the country’s National Bureau of Statistics for employing what we called "deficient deflator math" the NBS responded, saying the data reflected the "real situation." Now, virtually no one believes Beijing, with some analysts simply dismissing the "official" figures out of hand.