Ambrose Evans-Pritchard wrote:
> Judging by the latest Merrill Lynch survey of fund managers,
> investors have a touching faith that China is going to rescue us
> all and re-ignite the commodity boom. How can this be? Taiwan's
> exports to China fell 55pc in January, Japan's fell 45pc. These
> exports are links in the supply chain for China's industry.
> Manufacturing output in the Shanghai region fell 12pc in January.
> My favourite China guru, Michael Pettis from Beijing University,
> is in despair – as you can see on his blog (http://mpettis.com
> The property bubble is bursting. Developers have built more
> offices in Beijing since 2006 than the entire stock in Manhattan.
> There is a 14-year supply glut. We have seen this movie before.
> Factory output is collapsing at the fastest pace everywhere. The
> figures for the most recent month available are, year-on-year:
> Taiwan (-43pc), Ukraine (-34pc), Japan (-30pc), Singapore (-29pc),
> Hungary (-23pc), Sweden (-20pc), Korea (-19pc), Turkey (-18pc),
> Russia (-16pc), Spain (-15pc), Poland (-15pc), Brazil (-15pc),
> Italy (-14pc), Germany (-12pc), France (-11pc), US (-10pc) and
> Britain (-9pc). Norway sails blissfully on (+4pc). What do they
> drink up there?
> This terrifying fall has been concentrated in the last five
> months. The job slaughter has barely begun. Social mayhem comes
> with a 12-month lag. By comparison, industrial output in
> core-Europe fell 2.8pc in 1930, 5.1pc in 1931 and 3.9pc in 1932,
> according to RBS.
> Stephen Lewis, from Monument Securities, says we have been lulled
> into a false sense of security by the lack of "soup kitchens". The
> visual cues from Steinbeck's America are missing. "The temptation
> for investors is to see this as just another recession, over by
> the end of the year. But this is not a normal cycle. It is a
> cataclysmic structural breakdown," he said.
> Fiscal stimulus is reaching its global limits. The lowest
> interest rates in history are failing to gain traction. The Fed
> seems paralyzed. It first talked of buying US Treasuries three
> months ago, but cannot seem to bring itself to hit the nuclear
> As the Fed dithers, a flood of bond issues from the US Treasury
> is swamping the debt market. The yield on 10-year Treasuries has
> climbed from 2pc to 3.04pc in eight weeks. The real cost of money
> is rising as deflation gathers pace.
> US house prices have fallen 27pc (Case-Shiller index). The pace
> of descent is accelerating. The 2.2pc fall in December was the
> worst month ever. January looks just as bad. Delinquenc-ies on
> prime mortgages were 1.72pc in September, 1.89pc in October,
> 2.13pc on November and 2.42pc in December. This is the trajectory
> eating away at the banking system.
> Graham Turner, from GFC Economics, fears the Dow could crash to
> 4,000 by summer unless there is a "quantum reduction" in mortgage
> rates. The Fed should swoop in to the market – armed with Ben
> Bernanke's "printing press" – and mop up enough Treasuries to
> force 10-year yields down to 1pc and mortgage rates to 2.5pc.
> Monetary shock and awe.
> This remedy is fraught with risk, but all options are ghastly at
> this point. That is the legacy we have been left by the Greenspan
> doctrine. We are at the moment of extreme danger in Irving
> Fisher's "Debt Deflation Theory" (1933) where the ship fails to
> right itself by natural buoyancy, and capsizes instead.
> http://www.telegraph.co.uk/finance/comm ... ssion.html