Perma-bear Ambrose Evans-Pritchard seems to have stuck his nose out of his cave after a brief hibernation and determined that the world has gone mad with some “green shoots” fever. He works overtime this week trying to cure us of this malady.
The first thing he does in his Telegraph article is throw cold water at us in the form of statistics:
The elastic was bound to snap back, just as it did in the bear rally of early 1931. Whether the underlying economy has begun to heal is another matter. World Bank chief economist Justin Yifu Lin said capacity utilization is running at an historic low of 50pc-60pc. Companies will have to fire a lot of workers. This is where the danger lies, and why he fears that deflation is creeping up on us.
Trade data from Asia are flashing warning signals again. Korea’s exports were down 28.3pc in May, reversing the April rebound. Malaysia has slipped to -26pc, and India has touched a new low of -33pc.
US freight data is getting worse, not better. The Association of American Railroads said traffic was down 22pc in the third week of May from a year earlier. Canadian freight was down 34pc.
The American Trucking Association (ATA) said it saw fresh drops of 4.5pc in March and a further 2.2pc in April. Tonnage is down 13pc over 12 months. Bob Costello, the ATA’s chief economist, said companies have not cut inventories fast enough to keep pace with declining sales. The contraction in truck volume has “accelerated”.
Yes, the Baltic Dry Index for bulk shipping of resources has quadrupled since January, but this reflects China’s bid to stockpile metals while prices are low.
OK so there are a few worrisome signs out there. But anyone can cherry pick numbers in order to prove a point. What’s wrong with this guy? Hasn’t he ever heard of second derivatives. We all know that the turn is coming just because things aren’t getting as bad as fast as they were getting bad before — you know what I mean.
As if that weren’t enough, Evans-Pritchard then proceeds to write-off the Asians and at the same time throw Angela Merkel and the Germans under the bus:
Stephen Roach, Morgan Stanley’s Far East chief, fears an “Asian Relapse”, saying the region is prisoner to its fatal dependency on exports to the West. The export share of GDP has risen from 36pc to 47pc across developing Asia over the last decade.
“China’s incipient rebound relies on a time-worn stimulus formula: upping the ante on infrastructure spending in anticipation of an eventual rebound of global demand,” he said. The strategy cannot work this time because Americans have exhausted their credit, and their desire to borrow. Consumption will fall from its peak of 72pc of GDP to the “pre-bubble norm” of 67pc, if not more.
David Rosenberg from Gluskins Sheff expects Americans to retrench ferociously as 78m baby boomers face the looming threat of penury in old age. “The big story is that the personal savings rate hit a 15-year high of 5.7pc in April. I believe it could test the post-War peak of 15pc. Too many pundits are still living in the old paradigm of Americans shopping till they drop,” he said.
If he is right, this will shatter the surplus economies of China, Japan, and Germany, unless they adjust fast to the new world order. Germany does not even seem to understand the problem it faces. Chancellor Angela Merkel lashed out last week at quantitative easing by the Fed, the Bank of England, and the European Central Bank, repeating the silly mantra that this will set off an inflationary storm.
The guy just doesn’t understand Americans. Of course they will start buying again and the old order will be reestablished. Just as soon as the fifteen or twenty percent that are unemployed or under-employed start making a hundred large again and the rest aren’t scared to death the axe over their heads is moving downwards flat screens will start flying off the shelves. Americans just aren’t going to sock their money away when they know that China needs them. We’ll come through but it might take a decade or so, just bear with us.
Evans-Pritchard’s problem is one of a lack of good data. Living as he does in England he isn’t receiving the proper amount of access to really important data sources. He needs a lot more face time with CNBC, Kramer and Kudlow in order to get a more thorough grounding in “green shoots” economic theory. He’s being far too reasonable.