Clearly, anyone who follows my writings on this blog, in my newsletter and even on Twitter, are aware of my massive skeptism about the supposed recovery we’re all hearing about in the U.S. Indeed, I don’t think there is any recovery underway at all but there’s simply an attempt being made by industry to identify what the new “normal” is. And it is my feeling that this new “normal” is going to be a much smaller number than what anyone is expecting. For God’s sake, GAP stores reported this morning that their August sales for 2009 are about 3% lower than their August 2008 sales (and the 2008 number was fairly dismal). One might expect their stock price to get crushed on this bad news but that’s not the case this morning. It seems people were expecting their sales to decline 8%, so this decline suddenly becomes “good news”. Just like this morning’s report on new claims for unemployment. Last week it was reported that 565,000 people filed a new claim for unemployment and the expectation was that claims would fall by 5,000 people this week to 560,000. When the numbers were announced the number for last week was “revised” up to 574,000 people and the claims for this week came in at 570,000. So does the media report that claims were 10,000 people WORSE than was expected? Nope. Here’s the headline that just ran on CNBC:
“Jobless Claims Dip Less Than Expected”
What drivel and how irresponsible. I know that the media, politicians and the mouthpieces for the large banks, brokers and investment funds can continue to try and cheer-lead the economy into recovery. But this is all nonsense. Not a single economic statistic is actually pointing toward a recovery and it baffles me that any of these people can speak about how positive things look with a straight face.
Which brings me to China.
You might have heard that their stock market has taken some blows in recent sessions, but the bubble I worry about is not their stock market. I personally think that their entire economy is a house of cards waiting to fold up like a cheap suitcase. As an economist it has always been difficult to believe the statistics that come out of China because they are supplied by the Chinese government and everyone knows that all these numbers are artificially rosey. So basically any examination of what might really be occuring there has to happen by running the numbers through some sort of filter and making an educated guess. My observation right now is that far too many people around the world are sort of counting on China to lead the global economy back to prosperity.
I encourage you to consider a simple question though. What if they don’t.
What if their fiscal condition is actually much worse than anyone thinks, which I propose is a definite possibility. Their most recent report is that the Chinese economy grew at a 7.7% pace in the first half of 2009. I find that harder to believe than Madoff’s performance numbers. I struggle to believe their economy grew even 2% in the first half and I think it’s perfectly within reason it may not have grown at all.
The thing that got my attention recently and caused all kinds of alarm bells to start ringing was when the government announced that worker’s wages increased 13% during the first half of the year. It’s not that such an increase wouldn’t be good news, but it just doesn’t seem like there are any Chinese workers who seemed to hear about it. In fact, the state run newspaper in China, which is the mouthpiece of the Communist Party, actually ran many sarcastic comments made by citizens about this fictional 13% increase in pay.
Hmmmm. It’s one thing when Mike Gasior doesn’t believe a single statistic released by the Chinese government. But it’s yet another thing when the government run media actually starts to make fun of the numbers too.
The Chinese government also issued massive quantities of debt to fun an assortment of “stimulus” programs but they don’t operate in the transparent way that most other G7 type countries operate.
What if China were to turn into a debt-fueled bubble of their own? What if American consumers actually remain conservative and don’t buy enough Chinese goods? What if China can’t grow their own consumer class fast enough to replace the Americans? What would happen to the price of oil and other commodities if China were to suddenly not need so much of them?
I don’t believe anything about this pretend recovery and I’ll continue to point you to Japan to see how bad things can get and how long the misery can last to give you an idea of what the future might hold for the U.S. The Japanese began their bleeding 20 years ago and it continues to get worse to this day. As I write this blog post the Nikkei 225 index is just about 70% lower than it was 20 years ago. I wonder how people would feel about a 4,000 Dow Jone Industrials number.