On China's Overhyped Export Boom And The Upcoming Deflation

Today's early market exuberance (which did nothing but provide various FX arb opportunities during the day), was largely attributed to the news that China's export economy is surging. Alas, even a brief read between the lines indicates that this should have been fully priced in. The reason is very simple, as our friend Thermidor explains:

There's no surprise that Chinese exports are reported to be up 50% as they just follow US imports (see attached)....


But unfortunately US import data lags the ISM import question and that's rolling (attached). Therefore, these are almost certainly the highs for Chinese export growth and its worth noting that's even before we see the true effect of the Eurozone crisis.

The headline experts (as in people who know how to read headlines and nothing else good), starting with CNBC, willing to spin any data point that comes "better than the Apocalypse case scenario" managed to sucker the few last remaining idiot money holders. Unfortunately for them, the markets' close at the day's lows confirmed that saying about what happens to a fool and their money.

Yet another more relevant observation from our friend, is that the macro environment is about to turn a whole lot nastier, courtesy of an imminent full blown deflationary episode.

I'm definitely in a charting mood today. So I thought I'd send you this, it's the pricing question from the National Federation of Independent Business (NFIB) survey, which was out a couple of days ago vs. US YoY CPI.

Unfortunately, it suggests that we are clearly heading for full blown deflation with CPI likely to fall to -0.75% YoY. Now it's possible that the NFIB number bounces but they'd have to go a hell of a long way and over the last 25 years of data CPI appears to follow the survey. I think its worth pointing out that in the recession of 89-91 CPI initially diverged from the NFIB only to collapse.

As readers know well, Zero Hedge is always amused by various dataset divergences: these tend to eventually collapse (although, unlike LTCM we are unwilling to bet $10 billion levered ten times, in other people's money, on this happening). Of course, if deflation is unavoidable, there are two outcomes: a market collapse, or the Bob Janjuah proposed Ben-Bernanke-German-built-nuclear-armed-submarine (bazooka is so 2008) scenario of printing up another $5 trillion. Since Bernanke will never let the former happen as long as he is in charge (thank you Senators), the second is merely a question of time. Also, should this be announced tomorrow, we expect the 96 thousand speculative net EUR short contracts currently outstanding to line up in orderly fashion as they proceed to calmly cover their long USD exposure. Or not.