Running out of less awful bad news, worse coming
Posted on 09 June 2009 with no comments from readers
The green shoots of recovery have been nothing more than a bounce before a renewed plunge into the economic abyss. This is a very pessimistic statement, and yet there seems no obvious reason why the recession should come to a sudden end, except that we would all like it to happen.
It is also possible to re-visit some of the recent good news and come to bad conclusions. Take the oil price recovery, this might show demand recovering or it might just be down to speculation. Either way it is very bad news for consumers, aviation and industry.
Rising interest rates
Or for that matter the bond conundrum: bond prices are falling as investors shift into equities and interest rates are rising. This increase in interest rates hits the profits of the companies whose shares are rising in value, never mind the struggling consumer with a mortgage.
Then you can see the lower than expected US jobless figure last week as a sign of recovery or treat the increase in unemployment to 9.4 per cent as a sign of many more people in trouble.
Trade figures are also not great. For May Indian exports fell 33 per cent, Korean exports by 28 per cent and Malaysia’s 26 per cent. Global air freight is still down 20 per cent on a year ago. Across Asia exports represent almost 50 per cent of GDP, so this is especially significant in the region that optimists think will lead the recovery.
China crisis
Even the Chinese mega spending plans, which have kept GDP from falling much this year, could be doomed if exports, down 25 per cent, do not pick up. And how is that going to happen with the American consumer turned into a born-again saver?
The danger with a global recession of the sort we have just encountered for the first time is that it becomes a downward spiral. One country’s contraction becomes another’s crisis leading to an implosion of domestic demand. China has been fighting hard to avoid that but it remains to be seen if this can be pulled off.
Is it realistic to think the workshop of the world can emerge relatively unscathed from a global recession? That is something that most economists prefer not to try to answer.
no Comments posted by readers:
Thanks Peter, good to see that I am not alone in my thoughts! The “all is well – thank God its all over” mantra is starting to drown out any logic. I find the vast majority of mainstream media/commercial news (local papers, Business news, etc) are all cheer leading the green shoots/recovery story – possibly for their own motives (advertising $$).
Speculation and Leveraged risk are not dead yet…think they are venturing back into oil, commods, currency and equities looking to re-gain losses. time will tell
The Chinese are spending and spending big time in China. Their car sales just surpassed those of the US in the first 5 months of this year by nearly a million cars!! You also have laptop computers and mobile phones which is a materialistic trend for Asians as they change them in around a year or so when new models come out which is not always the case in the US.
Thanks for a good dose of the current “Yin-Yang” global economy.
I read a significant number of very enlightening blogs, and quite surprisingly, no one has raised the $64 trillion question, as we move into the midpoint of 2009; and the question I have is this:
When the global stock markets start to fall again, as they surely will, where will the big investors (hedge funds, mutual funds, investment banks, etc.) be moving their money?
Certainly not US Treasury bonds.
Ditto, for US stocks.
Oil? Doubt it.
US Treasury Bills… yep.
Precious metals… yep.
But what about the rest of their money? Or will the lion’s share go into US T Bills?
obewon I think you are correct. One other thing to think about. As the market keeps going up recently, volume is down which is not a good thing and insiders are selling into the rallies. It is a dangerous time to be a little guy in the market. Good time to be sitting in cash I think.