Chinese slowdown, US GDP revised lower and eurozone debt spiral grows
Posted on 23 November 2011 with 2 comments from readers
Financial markets faced a triple whammy over the past 24-hours with HSBC’s preliminary China manufacturing survey indicating a contraction and falling to a 32-month low, Q3 US GDP revised down and credit spreads continuing to blow-out in the eurozone as the downward debt spiral grows.
The China Purchasing Managers Index came in at 48 compared with consensus expectations of 50.1 meaning that the world’s largest manufacturer is shrinking. The implications for commodities are clearly negative as China is the world’s largest consumer of industrial commodities. Hong Kong and Shanghai stocks fell again.
US GDP down
The US GDP data for the third quarter followed a spate of relatively benign or even modestly positive economic reports and sent Wall Street lower yesterday with futures today also indicating a lower opening.
Meanwhile, German chancellor Angela Merkel did not give an inch on eurobonds or ECB bailouts in a speech to the German parliament this morning. Bond markets continue to push yields higher on Italian and Spanish bonds while it looks increasingly unlikely that Greece will get its next tranche of bailout money.
It is very hard for observers on the other side of the Atlantic to understand what is wrong with Germany. But Germans see this very differently. They consider the Bernanke Fed to be a madhouse and courting economic disaster with balooning debt levels and money printing.
Quite simply the amount of money being spent to generate low levels of economic growth is going to undermine the very recovery that it is supposed to be creating. History will be the judge on who is right but those US analysts who believe the eurozone will come around in the end just do not get it.
Lost decade
A lost decade of economic growth, high unemployment and higher levels of inflation loom for the US and eurozone. And it is all about unsustainable levels of debt in an era of debt deleveraging. The juice that fuelled fast growing economies is gone, and worse being sucked out.
All markets eventually over-correct but we see little sign of markets in extremis except in the US and UK bond markets which just have to be unsustainable at these yield levels in the context of surging yields in the eurozone periphery and now France.
Investors are going to have to be swift on their feet and diversified to avoid being pulled down by this storm as readers of the ArabianMoney newsletter are learning (subscribe here).
2 Comments posted by readers:
WOW !!! German 10-year action nearly fails from buyers strike, to send Germany a message? Europe is spiraling out of control fast now. They had better agree to printing SOON.
Note the new Fed draconian stress test conditions for banks. Why are they so EXTREME? It doesn’t exactly inspire confidence when they make banks plan for 14% unemployment with massive USA GDP contraction. Is the US Government planning something that they know will hit the world economy?
People on CNBC are saying that the Europeans don’t have too much longer to get their act together, and do something to prevent a complete meltdown of Europe which will spread around the entire world. CNBC is interviewing Oliver Sarkozy from his farm. He is saying they will be forced to print and that Europe has 3 months MAXIMUM until ‘COLLAPSE’ if they don’t act. He works for the Carlyle Group, the biggest money there is (Bush family and friends.) . Roger Altman, former Assistant Treasury Secretary is on too. CNBC has convened a ’special Euro Zone Crisis Summit’ program because of the German auction news. They are saying a TRILLION won’t be enough, and that Europe is in FAR worse shape than the USA was back in 2008. Sarkozy says at LEAST 2.1 TRILLION will be needed to stabilize the European crisis. Byron Wein says gold will go up next year, but whether it will hit $2,000, he can’t say.
Initial USA weekly jobless claims up slightly at 393,000- not too good. 12 week continuing claims up 68,000 to 3,691,000. It looks like I will be sitting on cash for a while yet, because the European economy is larger than the USA’s. I need to watch the CD of that CNBC show again. (I made a copy to get Wein’s prediction discussion results that he made for 2011, but they couldn’t get to discussing them because of the German auction problem.) It was hard to absorb all the dire news at one time.
HAPPY THANKSGIVING TO ALL OF YOU.
Investors have only bought two-thirds or less of German 10 year bonds. If this continues and bond investors refuse to buy sovereign debt more and more, then where will they put their cash?
If the pension and insurance bond purchasers start to buy silver and gold, then bullion prices will begin to take off since they have sooooooooo much cash.
In the past bullion bubbles, the percentage of total investment in gold has been around 35%, perhaps 40%. These figures are simply enormous compared to the 1% or so currently invested in bullion. What they will do to gold and silver prices is mind-boggling.