13.9.14

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


China Industrial Growth Slows, Power Generation Negative 1st Time in 4 Years; Stimulate Now, Crash Later

Posted: 13 Sep 2014 10:46 AM PDT

Cries for more stimulus ring loudly in China because Chinese industrial output slowed to 6.9%. That is a number that any country in the world would be more than pleased with, but China's target is 7.5%.

Why 7.5%? In fact, why should there be any targets at all? The economy is not a car that can be steered by bureaucrats to perfection.

Nonetheless, Calls Grow for More Stimulus, as China August Factory Growth Slows to Near Six-Year Low.
China's factory output grew at the weakest pace in nearly six years in August while growth in other key sectors also cooled, raising fears the world's second-largest economy may be at risk of a sharp slowdown unless Beijing takes fresh stimulus measures.

Industrial output rose 6.9 percent in August from a year earlier - the lowest since 2008 when the economy was buffeted by the global financial crisis - compared with expectations for 8.8 percent and slowing sharply from 9.0 percent in July.

"The August data may point to a hard landing. The extent of the growth slowdown in the third quarter won't be small," said Xu Gao, chief economist at Everbright Securities in Beijing.

Some analysts believe annual economic growth may be sliding towards 7 percent in the third quarter, putting the government's full-year target of around 7.5 percent in jeopardy unless it takes more aggressive action. Experts reckon output growth of around 9 percent would be needed to attain such a goal.

Reinforcing the tepid economic activity, China's power generation declined for the first time in four years, falling 2.2 percent in August from a year earlier, and pointing to slackening demand from major industrial users.

Jiang Yuan, a senior statistician with the bureau, said the dip in August factory growth was due to weak global demand, especially from emerging markets, and the slowdown in the property sector that hit demand for steel, cement and vehicles.

The last time China suffered a "hard landing" was during the height of the global crisis, when economic growth tumbled to 6.6 percent in early 2009. That is far short of the near collapses which loomed over some developed economies, but still threw tens of millions of Chinese out of work, alarming the Communist Party's stability-obsessed leaders into action.
China's Economic Numbers

  • Industrial Output: +6.9%
  • Power Generation: -2.2%
  • Retail Sales: +11.9%
  • Fixed Asset Investment: +16.9%
  • Mortgages issuance: -4.5%

End of the Line for China's Growth

That set of numbers should raise concerns about overheating, not worries over economic slowdowns.

Yet, "The government must take forceful policy measures to stabilize growth," said Li Huiyong, an analyst at Shenyin & Wanguo Securities in Shanghai.

It's time to be realistic. China cannot and will not grow at 7% forever.

Stimulate Now, Crash Later

Calls for more stimulus with the above set of numbers is beyond ridiculous given China's vacant malls, massive pollution problems, unused rail lines, reckless investment in SOEs, and even entire vacant cities.

Malinvestment is already rampant. Additional stimulus now to meet arbitrary growth targets will cause a crash later. China will be lucky to average 2% growth for a decade. Outright contraction in some years is not out of the question.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

"Yes" Makes 100% Perfect Sense for Scotland; Too Close to Call; Strange Bedfellows

Posted: 13 Sep 2014 12:44 AM PDT

Scotland Vote Too Close to Call

Here's some good news for those rooting for Scottish independence:

In spite of a massive fearmongering campaign by both Labour and Tories in the UK, Scots Independence Race Tightens Six Days Before Ballot.
Scotland's nationalists drew closer to the Better Together campaign in the latest poll on independence before the referendum, making the run-in to the Sept. 18 vote too close to call.

The poll of 1,000 people for the Guardian newspaper yesterday put support for "yes" on 49 percent and "no" on 51 percent after excluding undecided voters. It is the fourth poll in a week to put the "yes" side within the 3 percent error margin of victory. Only one of those has had the pro-independence side ahead.

Women vs Men


Women backed staying in the U.K. by 55 percent to 45 percent, while men favored independence by 52 percent to 48 percent.

Royal Bank of Scotland Group Plc was among lenders to announce contingency plans this week to move some operations out of Scotland in the event of a "yes" vote. Salmond demanded a probe into the disclosure, first reported by the BBC citing a Treasury source, accusing the government of deliberate "scaremongering" by briefing sensitive information before the referendum.

Utter Nonsense

Business leader, Tim Martin, the chairman of pub chain JD Wetherspoon Plc (JDW), was dismissive of warnings from businesses about the costs of independence. "Most of what has been said has been utter nonsense," he told BBC Radio.

"New Zealand has got a similar population to Scotland, its own currency and it does tremendously well; Singapore -- fantastic economy, only 2 or 3 million people; Switzerland does very well," he said. "There's obviously no reason why Scotland can't have its own government if that's what the Scots want."
"Scotland Better Off On Its Own

In response to RBS, 4 Other Banks Warn of Relocation to England if Scots Vote Yes; Catalans Stage Mass Protest for Independence Pater Tenebrarum at the Acting Man blog pinged me with this pertinent comment:

"Scotland will be better off on its own. It matters not one whit where these companies are headquartered. In fact, an independent Scotland would be able to introduce a regulatory and tax regime that makes it irresistible to foreign companies."

Bingo!

    1. The EU is concerned that Scotland may lower corporate taxes and pull business from elsewhere.
    2. Labour is concerned about the loss of Labour votes in the UK parliament.
    3. Spain and the EU are concerned that a Scotland "yes" vote for independence will cause Catalans to do the same.
    4. Cameron is worried that he may actually have to put a British EU exit to vote if "Yes" passes.

      Strange Bedfellows

      Politics makes strange bedfellows and the above four points show why.

      "Yes" Makes 100% Perfect Sense for Scotland

      Scotland has far better opportunities on its own. Any loss in business of financial industries could easily be regained elsewhere.

      The only caveat is that Scotland would have to implement tax reforms to make that happen.

      Regardless, the success or failure of independence would be up to the Scots. Yet, compared to being slaves to Britain, that is the better choice by far.

      Mike "Mish" Shedlock
      http://globaleconomicanalysis.blogspot.com

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