Various people have been talking about a "hard landing" for China being an annual growth rate down to 4-6%, noting that the government needs about 9%-10% just to absorb population growth.
China today reported 6.8% growth in 4th quarter 2008 - but that's vs. a year ago, not quarter-to-quarter, as is typically reported. In actuality, China's economy apparently contracted 0.3% in the fourth quarter of the year, and new projections indicate 1Q09 will not be any better. (More details here.) Please consider this in relation to Brad Setzer's previously-linked commentary about the importance of Chinese imports not dropping off. Looks like Brad's fears are about to come true.
Relatedly, so are those of several other people: Minyanville says to take Treasury Secretary Geithner's commentary about China being a currency manipulator very seriously, calling it a declaration of economic war. And yet, China is right now buying lots of short-term US treasuries that let the US finance its twin deficits, and has been making a lot of rumblings about not doing that so much anymore because it's costing them a lot of money, and their economy is tanking. This is a very dangerous game. Remember this commentary and Chinese imports news when you read Brad Setzer's remarks on bond flows and US treasuries, further below in the US section. These threads tie together.
(Side note: Angang Steel saw profits drop 55% in 2008. Second largest steel company in China, and indicative. Please ignore that "angang" sounds like a lolcat chewing noise. If you can manage to ignore that, you've got much more self control than have I. ANGANGANGANGANGANGANG)
This Morgan Stanley report downgrades growth projections in several key areas, particularly Brazil, where "[r]ecent data show that Brazil’s economy has come to a sudden stop."
Yoshikawa Hiroshi, Tokyo University economist, forecasts a three-year recession in Japan, also saying that a forecast of US recovery in 2009 is also "too optimistic." Nikkei Net News also reports on Treasury Secretary Geithner's comments warning Japan against trying to intervene to keep the Yen down against the US dollar, as Japanese exports plunge 35% yoy in December. Sony has missed forecasts badly, swinging from a projected profit to large loss, and plans to cut 16,000 jobs.
So Japan is having some trouble. But while that's true, England is in a much, much worse spot, Brad Setzer noting that "it is even possible that the UK might end up experiencing something vaguely akin to the sudden stop in central bank purchases," and one commenter noting that it's pretty clear that the only buyer for Pound Sterling right now is the Bank of England. The sharp plummet in Pound Sterling value over the last few weeks certainly makes that a valid proposition.
(Side note: The UK government may not be able to bail out Barclays via taking a stake, thanks to a previous Abu Dhabi deal. Oops.)
The ruling Tory government in Ottawa is saying good-bye to surplus, and hello to Can$100B in new debt over the next few years. That erases all the debt-payoff managed during the previous decade, but, well, Canada's still better off than the rest of the G7.
California State Controller John Chiang, by the way, is refusing to carry out Governor Schwarzenegger's furlough order, as he believes it is illegal.
Dr. Roubini at RGE Monitor also ups his estimate of total credit losses in the US banking system to as much as US$3.6 trillion. (A partial breakdown here; sadly, much is behind a pay firewal.) The Obama team at least acknowledges that there is "no quick fix" for the banking system, and has received from plaudits for improving transparency out the gate (except from blithering hacks, who have declared it "not American"), and similarly positive responses to other actions, such as new ethics initiatives and pay freezes. Mish Shedlock also approves of the plan to sign the Cardholders Bill of Rights, as he considers unilaterally-modifiable terms to be a crime against contract law. Discover cardholders should see particular relief, given that company's particularly abusive practices. And finding any full story about this is nontrivial, but former Fed chief Paul Volker did in fact say that rescuing the banking system will cost several trillion dollars. Incoming Treasury Secretary Geithner says there are no plans to increase the TARP beyond US$700B, but I doubt that will hold.
Brad Setzer looks at the new bond flows data and acknowledges that "If the US weren’t the US, I suspect analysts would now be worried about a fall in the quality of financing for the US external deficit," which is to say, look out, Treasury market collapse! But he thinks it won't happen because it's the US - which is a little unfair - he notes that thanks to the oil price collapse, the US current-accounts deficit has declined, but I think that's more than countered by the flood of new Treasuries being issued to float things like the TARP. Demand has collapsed for everything but very short term US Treasuries. Corporate bonds demand has gotten even worse - this is a very ugly set of graphs. (Do you remember the Geithner commentary on China and currency manipulation from above? If not, go back up and read it, keeping this in mind. These things tie together in very important ways.) Credit-default swaps - more or less insurance on debt, and a measure of risk - continue their steady trendline up.
The big local story is Microsoft missing earnings estimates - badly, withdrawing guidance forward without providing anything new, and laying off 5,000. Mish Shedlock goes so far as to call Microsoft's business model into question, which I think is about six steps too far, but I note it anyway.
Microsoft's layoffs are only part of a much larger picture that includes a major surge in first-time unemployment claims, well over expectations. Also, housing starts declined again to the lowest number since records started being kept in 1959. Numbers were even lower than expectations, and homebuilder sentiment continues to plumb new depths. Marketwatch's Irwin Keller thinks we're near the nadir for housing, but that rather ignores cascading job losses which are really just picking up steam now, and also ignores the inevitable swing below the 3x-income rule, so I think he's whistling in the dark. But there it is.
American rail cargo traffic has fallen 17.9% since one year ago. Seeking Alpha has long commentary on "ghost malls" - a result of collapsing retail.
Here comes protectionism: Seeking Alpha - which should know better - is also pushing "import certificates" to "regulate" (read: retard) imports, and "promote" exports. Essentially, they're licenses to import goods, tradable (and auctionable) and tied dollar-per-dollar to exports. This never. works. I don't care if Warren Buffet did come up with it in 2003, these things always start trade wars. (See also: economic war with China, and related stories, above.) And trade is already through the floor.
Why is oil down? Lots of reasons, not the least of which being driving in the US has fallen by 12 billion miles per month as of November. That's -5.3%, which is pretty large by percentage, and godt dammit Americans drive a lot..
Finally, in looter news, Former Merrill Lynch Chief Executive John Thain resigned from Bank of America today after "he failed to tell the bank about mounting losses at Merrill late last year." To wit: covered them up, and now BoA needs money. Lots of money. Unpleasant! But even worse, from a gall standpoint: "Merrill Lynch paid billions of dollars of bonuses to its employees, three days before completing its life-saving sale to Bank of America Corp (BAC.N), the Financial Times reported on its website on Wednesday." Billions in personal looting on their way out the door. Billions.
I want to see some perp walks.
Yes, I did mean preying. C.f. looters.