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The Downturn In China Is 'Our' Downturn

Tyler Durden's picture




 

Submitted by Jeffrey Snider via Alhambra Investment Partners,

In another of the innumerable cosmic coincidences that so abound these days, producer prices in China have been in “deflation” since March 2012. Not only is that 41 consecutive months of falling prices (insofar as this index captures that effect), that month is ubiquitous as a trend demarcation in so many other places. It’s as if the Chinese economy and its production, particularly the marginal orientation for external production, were directly linked with the US economy’s very real shirking demand. China’s producer prices have had the good effort of displaying quite consistently US recession.

ABOOK Aug 2015 China PPI Recession

The fact that China’s PPI times to March 2012 would seem to offer the same interpretation with only semantics and numerical definitions to offer a counterargument. Maybe what we have seen since early 2012 does not meet the dominant recession definition, but does that really matter? By all these accounts, something unsavory has occurred during this time and by all these measures is unsurprisingly getting worse with the “dollar.”

ABOOK Aug 2015 China PPIABOOK Aug 2015 GDP TrendCycle Cap GoodsABOOK Aug 2015 GDP Retail SalesABOOK Aug 2015 GDP TrendCycle Factory OrdersABOOK Aug 2015 GDP TrendCycle ExIm

The causative agent is clearly the continual eurodollar decay which spread out in renewed deficiency with the mid-2011 euro/”dollar” crisis. Given that backdrop, the persistent calls for more “stimulus” on the part of the PBOC to combat this structural decay is just plain wrong, if understandable from the continued standpoint of orthodoxy’s unwillingness to move beyond the 1950’s. In other words, as the PBOC itself has realized, what good can internal monetary “stimulus” program foster under these governing dynamics?

The only “benefit” is more of the same asset bubbles, which the PBOC in its reform agenda has recognized for what they are – wasteful, harmful, and a disaster waiting to happen. Economists make no distinction in either terms of asset bubbles or actual finance which is wholly apart from their generic, stylized models that take none of this into account.

China is under growing pressure to further stimulate its economy after disappointing data over the weekend showed another heavy fall in factory-gate prices and a surprise slump in exports.

 

Producer prices in July hit their lowest point since late 2009, during the aftermath of the global financial crisis, and have been sliding continuously for more than three years.

The mainstream press, like economists’ flirtations, is arguing that the yuan is the answer when it is in fact a full part of the problem. I mean by that the conventional “solution” is that China should go for devaluation in order to jumpstart their exports when they really can’t because the yuan, by design, is tied into the “dollar” and thus further entangled in those internal bubble dynamics. The PBOC has its hands obviously tied by its currency even though we don’t yet know how or through which conduit that is taking place (we just reasonably surmise that they are at work here because the yuan’s behavior has been, in a word, unnatural).

ABOOK August 2015 Dollar CNYABOOK Aug 2015 China ExABOOK Aug 2015 China Im

Even if the PBOC could radically devalue, that isn’t truly an answer, either. One need only look at Japan’s growing QQE “hole” in order to see how such naked and aggressive currency bypasses aren’t “stimulus.”

The PBOC started “cutting rates” three quarters of a year ago and they have had practically no effect – which was precisely the point under the reform umbrella. China’s authorities are trying to actively manage, as best they can, this decline so that it at least does not take on a crash trajectory (so unhelpful are equities recently in that related regard). The Chinese have picked their poison, and since they can’t really do much to create a global recovery they have to labor instead against the downside of having followed the mainstream, orthodox prescriptions going back to 2009 (when the PBOC did what the monetary textbook said; receiving only alarming bubbles rather than temporary imbalances to bridge until full and expected recovery).

The mainline agenda has taken on such backwards proportions that it is no longer, as it once used to be convention, grounded much in consistent reality or fundamental philosophy. Up is now always down:

Wall Street surged Monday following a multi-billion-dollar deal by Warren Buffett’s Berkshire Hathaway that raised optimism over mergers and acquisitions, and weak Chinese data that boosted hopes for fresh stimulus in the world’s No. 2 economy…

 

Global stock markets also got a lift from hopes that Beijing might take new measures to stimulate the Chinese economy after a report that producer prices in July hit their lowest point since late 2009 and exports tumbled 8.3 percent in the same month.

Stock prices apparently rise on nothing but continued failure (on both counts in that first paragraph – more harmful financial engineering in M&A plus more “stimulus” that clearly doesn’t stimulate). Central banks have been “stimulating” regularly all over the world for years now, to no positive effect, and now the global economy is synchronized in contraction (emphasized by the “dollar” and its effects through commodities) so they should do more? There seems to be an intuitive leap that just doesn’t belong, as if efficacy and expectation are divorced wholly from results.

The downturn in China is “our” downturn. All the recent happy talk, due to unsuitable extrapolation and nothing more, has melted away yet again. In short, the same trend dating back almost four years now is quite expectedly unaltered by whatever any central bank does or does not do. That dynamic was exploded into place by the events of August 2007, which clearly remain the overarching economic guideline. A global economy built upon eurodollar saturation cannot, marginally, continue to expand without it. There is a great difference between that artificial, financial economy and a real one, and the growing absence of eurodollar banks is proving that point to greater and global emphasis this year. “Stimulus” is just noise against all that, at best; at worst it actively contributes to the instability of the decline.

 

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Mon, 08/17/2015 - 13:56 | 6436167 Eireann go Brach
Eireann go Brach's picture

Who Flung Dung?

Mon, 08/17/2015 - 14:06 | 6436214 El Oregonian
El Oregonian's picture

Blame it on the incoming energy waves.

Mon, 08/17/2015 - 14:15 | 6436248 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

NO it's NOT our downturn...liars - I refuse to belive it

Mon, 08/17/2015 - 13:58 | 6436174 goldhedge
goldhedge's picture

So who is lying now?

 

Mon, 08/17/2015 - 14:01 | 6436186 Make_Mine_A_Double
Make_Mine_A_Double's picture

This will give Yeast Cake Yellin and the Fed Clown Posse unlimited bullshit to hold FF rates to 0% forever.

They can ditch with weather meme and WC port strike, AGW, etc. and blame the whole shit song on China devaluation.

Although the true state of economy can no longer be hidden from any amount of their spin.

Mon, 08/17/2015 - 14:40 | 6436365 Consuelo
Consuelo's picture

The 'timing' for desperately needed cover, is indeed impeccable.

 

 

Mon, 08/17/2015 - 14:01 | 6436188 I Write Code
I Write Code's picture

What you mean "we", white man? 

If a chopstick drops in China, does it make a noise?

Mon, 08/17/2015 - 16:17 | 6436733 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

No, because all Asians are expert ninja-kung-fu assassins with the reflexes of a coiled viper, hence being able to pick up, in mid air drop, the fallen chop stick never allowing it to be disgraced by touching the floor.

 

 

Mon, 08/17/2015 - 14:06 | 6436217 KnuckleDragger-X
KnuckleDragger-X's picture

America has been working to bend the world to their will for a long time, but with China they going up against a system that doesn't give a shit what we think. The EM's are starting to slide downhill and they're also starting to give America the finger. I expect that we'll lose our reserve status very quickly when the world economy hits the wall. The only question is how bloody it will be.....

Mon, 08/17/2015 - 14:06 | 6436219 PlayMoney
PlayMoney's picture

Our blowup should indeed be Chinas blowup too. Mom always taught me to share.

Mon, 08/17/2015 - 14:15 | 6436252 Mewa
Mewa's picture

You can certainly tell this article was written by some American...When the BOJ and the Fed print trillions its called economic stimulus QE...when the chinese hold their currency to the US dollar everything is fine as long as they are buying treasuries...but the moment the depeg and start selling the treasuries its currency manipulation and financial warfare....how about the fact that the US is broke and will never pay back their debts in purchasing power parity? What about that wankers from the US? Worried about your abused fiat currency status...Too little, too late.....welcome to the world of illiquid bonds while you line up for 3rd world status...bye bye empire...nobody in the rest of the world gives a damn....move along nothing to see here.....

 

 

Mon, 08/17/2015 - 14:44 | 6436382 PlayMoney
PlayMoney's picture

I've always found that funny too. "good for the economy" when we do it. China does it....... whaaaaaa whaaaaaaa booooo booooo

Mon, 08/17/2015 - 14:15 | 6436253 Mewa
Mewa's picture

You can certainly tell this article was written by some American...When the BOJ and the Fed print trillions its called economic stimulus QE...when the chinese hold their currency to the US dollar everything is fine as long as they are buying treasuries...but the moment the depeg and start selling the treasuries its currency manipulation and financial warfare....how about the fact that the US is broke and will never pay back their debts in purchasing power parity? What about that wankers from the US? Worried about your abused fiat currency status...Too little, too late.....welcome to the world of illiquid bonds while you line up for 3rd world status...bye bye empire...nobody in the rest of the world gives a damn....move along nothing to see here.....

 

 

Mon, 08/17/2015 - 14:16 | 6436262 Chuck Knoblauch
Chuck Knoblauch's picture

Goldman doesn't control China.

Mon, 08/17/2015 - 14:44 | 6436381 Consuelo
Consuelo's picture

Wish I could say I agree with 100% certainty Chuck, but those are some sneaky bastards (GS).    One should never underestimate the ability they have to worm their way in... 

Mon, 08/17/2015 - 15:01 | 6436457 Chuck Knoblauch
Chuck Knoblauch's picture

I wouldn't underestimate the Chinese.

They wrote the book on strategy.

A book that Goldman employees are required to read.

The Art of War and the 36 Strategies.

So, does Goldman know its enemy is itself?

The only thing Goldman cares about are Shekels.

The Chinese are different.

Mon, 08/17/2015 - 17:38 | 6437012 tarabel
tarabel's picture

 

 

Goldman and the government of China both do the bidding of Satan, so they can be considered co-workers.

Mon, 08/17/2015 - 15:06 | 6436482 Heyoka
Heyoka's picture

What is Zero Hedge's accuracy rate? Seems you guys get it wrong way more than you get it right? Hey, we all like good doom porn but at least your cum shots should be real and not watered down mayonase shot from a squirt gun.

Mon, 08/17/2015 - 15:10 | 6436497 madcows
madcows's picture

I'm looking at your avatar and wondering if you were the long lost gay duke cousin, no?

Mon, 08/17/2015 - 15:20 | 6436542 yrad
yrad's picture

haha

Mon, 08/17/2015 - 17:36 | 6437004 tarabel
tarabel's picture

 

 

Buford T Justice had two brothers, Reggie and Gaylord.

We've known for a long time where Reggie went. Now we know about what happened to the other bro as well.

Mon, 08/17/2015 - 15:07 | 6436489 madcows
madcows's picture

No green bamboo shoots?

Mon, 08/17/2015 - 15:55 | 6436662 TheAntiProgressive
TheAntiProgressive's picture

Fortune 500 CEOs have a new excuse to flog when earnings "miss", it was China.

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