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You're going to hear that more and more often.
The movie, the book, the meeting, the memo... few people will tell you that they ran short.
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Mish's Global Economic Trend Analysis |
The Dating Game: Michael Pettis Challenges The Economist to a Bet on China Posted: 29 Mar 2012 10:54 PM PDT The Economist says "China's GDP, measured in nominal dollars, will be the world's largest by 2018". Michael Pettis at China Financial Markets disagrees and says I would like to make a bet with The Economist. I recently read in The Guardian an article by enthusiastic orientalist Martin Jacques in which he says that The Economist has just predicted that China's GDP, measured in nominal dollars, will be the world's largest by 2018. Earlier estimates, he says had China becoming the largest economy in the world by 2027.The Dating Game Inquiring minds are looking at an interactive chart on The Economist in an article called The Dating Game. AMERICA'S GDP is still roughly twice as big as China's (using market exchange rates). To predict when the gap might be closed, The Economist has updated its interactive chart below with the latest GDP numbers. This allows you to plug in your own assumptions about real GDP growth in China and America, inflation rates and the yuan's exchange rate against the dollar. Over the past ten years, real GDP growth averaged 10.5% a year in China and 1.6% in America; inflation (as measured by the GDP deflator) averaged 4.3% and 2.2% respectively. Since Beijing scrapped its dollar peg in 2005, the yuan has risen by an annual average of just over 4%. Our best guess for the next decade is that annual GDP growth averages 7.75% in China and 2.5% in America, inflation rates average 4% and 1.5%, and the yuan appreciates by 3% a year. Plug in these numbers and China will overtake America in 2018. Alternatively, if China's real growth rate slows to an average of only 5%, then (leaving the other assumptions unchanged) it would not become number one until 2021. What do you think?Snapshot of The Economist Baseline Assumptions The interactive graph is too large for my blog, but the above screen snapshot shows The Economist baseline assumptions. To play around with the numbers, click on the above link. I share a viewpoint with Pettis that The Economist is way too generous in their estimate of real GDP growth for China. Pettis thinks China will average 3% growth and I already posted I found that number reasonable. As far as Yuan appreciation is concerned, I am not at all convinced the Yuan is undervalued at all, yet I plugged in a nominal 2% annual appreciation. Assuming a "Real GDP growth" of 3% and Inflation at 4% yields a chart that looks like this. Snapshot of Mish Baseline Assumptions Even still, I wonder if the year 2030 is still far too optimistic from the standpoint of China. I strongly believe peak oil and energy consumption is going to put a serious damper on Chinese growth, and that is on top a necessary and very painful shift away from an entirely unsustainable growth model based on exports, housing, and fixed investment. I share Pettis' view regarding "inflated GDP numbers, an over-investment boom, and the unstable range of political outcomes" adding my own energy concerns and yuan valuation concerns on top of it all. Thoughts on Chinese Growth
I find the arguments by Pettis, the ECRI, and Chanos compelling. Add to that the restraint of peak oil coupled with potential political instability and the proper conclusion is that long-term Chinese growth of 7.5% is Fantasyland material. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
Obama Budget Defeated 414-0; Obama vs. Ryan Budget Showdown Revisited Posted: 29 Mar 2012 01:01 PM PDT Not a single Democrat endorsed the budget proposed by president Obama. The scorecards reads as follows Obama budget defeated 414-0. President Obama's budget was defeated 414-0 in the House late Wednesday, in a vote Republicans arranged to try to embarrass him and shelve his plan for the rest of the year.National Debt vs. Public Debt In my post Obama vs. Ryan: Budget Showdown - Deficit and Total Debt Projections Through 2021 - Interactive map one reader caught a mislabeling of public debt as national debt. Mislabeling is corrected. Here is the Budget Showdown once again, this time with the corrected word change. Note: Tableau has a server issue right now and the interactive buttons may not be working properly. This should be corrected shortly. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
Geithner Wants to Throw Still More Taxpayer Dollars Down the Fannie & Freddie Toilet Posted: 29 Mar 2012 11:29 AM PDT Not satisfied with wasting close to $200 billion of taxpayer dollars bailing out holders of Fannie and Freddie Bonds (notably PIMCO and China), Geithner is back at it with another proposal sure to cost US taxpayers plenty if adopted. The proposal this time is for taxpayers to pick up 63% of the cost of mortgage principal reductions. Geithner made the offer to Edward J. DeMarco, Fannie Mae and Freddie Mac's overseer. Bloomberg reports Geithner's Math Puzzle Beyond Numbers for DeMarco Geithner, the U.S. Treasury secretary, is offering new incentive payments to the two government-supported mortgage financiers if DeMarco drops his opposition to principal reductions for homeowners whose loans are backed by the companies.Vote Buying This is not about doing what's right for taxpayers. It's about doing what's right to help Obama's reelection chances. Of course Hedge Funds and PIMCO like the buyback idea because it immediately puts a bid in for Fannie and Freddie bonds they hold. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
Eurozone Retail Sales Contract 5th Consecutive Month, Year-on-Year Sales Decline 10th Month Posted: 29 Mar 2012 09:28 AM PDT Eurozone retail sales fell only slightly this month, but it was the 5th consecutive month, and the worst quarter since the 1st quarter of 2010. Please consider Markit Eurozone Retail PMI® March 2012. Retail sales in the Eurozone fell only marginally at the end of the first quarter, according to Markit's latest PMI® surveys. The average rate of decline over the first quarter matched that seen over the final three months of 2011, which was the worst quarter since Q1 2010. The survey data again highlighted marked disparity between growth in Germany and falling sales at Italian retailers, while sales in France were again broadly flat.Markit Clings to Hope Once again Markit clings to every bit of hope that things are about to get better. Here is the key sentence: "The latest PMI figure suggested that the pace of decline in retail sales as measured by the EU's statistical office Eurostat (on a three-month-on-three-month basis) will ease in the coming months." Why? Why are sales in Europe going to get better? Once again I propose it is far more likely for German sales to slip as its vaunted export machine takes a hard tumble. I said the same thing two months ago regarding Manufacturing PMI when Markit was hoping Germany could keep Europe out of recession. The no-recession idea bit the dust on March 22 as noted in "Eurozone Slides Back Into Recession" Says Markit PMI News Release; Sharp Decline in German Export Business; Misguided Decoupling Theories. Markit then shifted its stance from hoping for no recession in the Eurozone, to hoping for no recession in Germany and I responded with: What's with the Markit "Pollyanna" Forecasts?That "risk of recession" became a sure thing as Markit threw in the towel on non-recession hopes as noted above. On February 22, in Eurozone PMI "Worse Than Expected" and Back in Contraction; Expect German-Periphery Divergence to Resolve to the Downside for Germany I stated: Expect German-Periphery Divergence to Resolve to the Downside for GermanySure enough, German exports took a dive in March, and it's reasonable to assume another dive in April. Conditions in Europe are deteriorating badly, and a general strike looms in Italy. Spain, Greece, and Portugal are basket cases. The odds that weakness does not spill over into Germany are near-zero. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
Posted: 29 Mar 2012 08:26 AM PDT A Gallup Poll in Egypt shows 82% of Egyptians Do Not Want US Aid. Egyptians' opposition to U.S. economic aid continued to climb in early 2012. More than eight in 10 Egyptians in February said they opposed U.S. economic aid, up 11 percentage points since December and up 30 points since April 2011 when Gallup first posed the question.Poll Question So Why Did Obama Restore Aid? The New York Times reports Once Imperiled, U.S. Aid to Egypt Is Restored. An intense debate within the Obama administration over resuming military assistance to Egypt, which in the end was approved Friday by Secretary of State Hillary Rodham Clinton, turned in part on a question that had nothing to do with democratic progress in Egypt but rather with American jobs at home.Let's piss away billions of dollars on aid to countries that don't even want it. Note that Mrs. Clinton waived a requirement that she certify Egypt's protection of human rights as a condition of aid. Yes indeed, this is "business as usual", so much so that even Democrat senators are complaining about it. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
Question of the Day: What is the Commodities Sector Seeing that the Stock Market Doesn't? Posted: 29 Mar 2012 12:26 AM PDT Please consider a series of chart my friend "BC" put together of various indices vs. the Morgan Stanley Commodity Related Equity Index ($CRX). $SPX vs. $CRX click on any chart for a sharper image $CYC vs. $CRX $TRAN vs. $CRX $DJUSRR vs. $CRX What is the Commodities Sector Seeing that the Stock Market Doesn't? The answer from my friend Pater Tenebrarum who also saw these charts is "the coming economic bust in China - which has likely already begun." That idea is in-line with several of my recent posts ...
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
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