A Brief Update

Tuesday, February 03, 2009

Macro Man is still snowed in today, though at least this morning's snowfall lasted for 20 minutes rather than 20 cm. While he has very few hard and fast rules in life, one of them happens to be "when the UK transport authorities advise you to avoid travelling, you'd best follow their advice."

And so he finds himself at home once again today, watching a webcast of a conference he was supposed to attend this morning. So you'll have to pardon him if his attention is once again diverted...though not so much that he hasn't noticed a couple of new datapoints confirming that his favoured themes remain very much in play.

Over the weekend, South Korea released preliminary data for January external trade. The results were grim. Exports tumbled by a great-than-expected 32.8% y/y. While that is a terrible figure, looking at the actual total decline in exports is perhaps even more shocking- exports are down 47% since the middle of last year. So the theme of collapsing global trade looks to be alive and well.

Of course, the decline in Asian exports isn't happening in isolation. Sure, the dislocations in trade finance explain some of the decline in trade. But ultimately, the world's consumer of last resort has quit consuming, a development that should prove more enduring than the inability to finance shipping. The latest data on the US savings rate show an uptick to 3.6%; this is the highest non-distorted (via stimulus packages or Microsoft dividends) rate in more than a decade.

Macro Man would submit that regardless of the size and nature of any stimulus, household savings are on an inexorable upwards trend for another few years. And that spells trouble for those countries and companies whose growth model is based on selling stuff to Americans.

Perhaps China will fill the gap? After all, the Chinese have stepped on the fiscal stimulus gas, and domestic equities have put in a decent show so far this year. Perhaps the Chinese will take over the role of "big spender of last resort"?

Good luck with that. Beneath the surface, there is reason to for considerable worry with respect to Chinese growth. Anecdotals suggest a large and rising unemployment problem...which obviously explains some of the rationale for the stimulus. From Macro Man's perch, the actual story 9rather than the reported newsflow) from China looks set to get worse before it gets better. And given that Chinese policy is made based on the real story rather than reported statistics, it looks like we'll be waiting a while before a) Asian exports to China pick up, and b) USD/CNY goes lower (indeed, there's a non-zero chance that it drifts up from here.)

Posted by Macro Man at 10:40 AM  


I am outraged that you decide to follow the advice of the transport authorities rather than that of your mayor, who said that snow shouldn't be used as an excuse for a mass skive.

Anyway, what is 2 days off this quarter's UK GDP equivalent to? 2% (2 over 90 days)?

bsanchez said...
12:29 PM  

20 cm and the country is closed. What kind of trains do they use in England anyway, toy or lego? It's time they admit that UK is a third world country in order to collect some UN sponsored aid to develop their infrastructure....Let´s get Britain into the 19th century at least.

Anonymous said...
1:29 PM  

No x-country skiing in to work, eh ?

Oh well a very nice post.

Wen's Davos speech is very straight-foward and the magnitude of the proposed stimulus is very large.

Given the surge in migrant unemployment and the resulting stability risks we may have more to worry about than the "mere" collapse of trade.

This circles back - German AND Japanese exports are down thru lost Chinese demand. I think they call that feedback.

Wen was particularly interesting on the need to investment in futures and changing the economic structure to be more internally focused. Even Putin gave lip service to such and free-markets !

dblwyo said...
1:35 PM  

Yeah lets drag the UK into the 19th century...we'd just own a lot more junk than we already do.

Anonymous said...
2:35 PM  

Hey MM, a few weeks back you were looking at going long wti vs brent in the crude world. Here's a link with my 2 cents worth and other thoughts.

SFOT said...
2:37 PM  

Anon @ 1:29

Amusingly, the trains are from Germany, France and Italy. I remember when they replaced the ageing (but well-made) 1950s slamdoors about 4years ago with Italian-made ones. When there was frost or snow, they didn't work, apparently because they weren't heavy enough to break through the thin layer of ice on the electric 3rd rail so they couldn't power up!

cp said...
2:44 PM  

Ah, cp, how's the new gig treating you?

I will confess to preferring the new trains to the Coronation-era numbers. For one thing, they are properly ventilated with air-conditioning, so they are less intolerable in the middle 6 months of the year. Moreover, it is nice to know that you're only sitting on 4 years of muck, rather than 50.

Sadly, both the track and the signalling systems seem to work as if they hadn't been changed since I.K. Brunel laid them down 150 years ago....

SFOT, I learned the hard way to avoid WTI/Brent spreads a few years ago...and while I did try a little long crude foray a few weeks ago, it was both short-lived and unprofitable.

Macro Man said...
2:50 PM  

Hi MM,

will you please help me get this thing straight? Your current favourite themes seem to be a) the global trade slowdown and b) the increasing threat of protectionist and beggar-thy-neighbour policies (by the way, "foreign workers row at Lindsey"; "EU attacks buy American clause": two headlines just seen in today www.bbc.com...).

Now, the "global trade slowdown" theme commands shorting AUD or SGD. But what about "beggar-thy-neighbour" policies? Buying gold, as in your January 26th post?

Read you later, AT

Anonymous said...
3:57 PM  

Being snowed in is Great!

We haven't had the opportunity this year here in Denmark but maybe we will get lucky.

The heaviest snowfall comes between Jan and March so there is still time.

fajensen said...
4:07 PM  

MM, I take it you're not a big backer of the Chinese views put forward at this mornings conference?


Anonymous said...
4:13 PM  

AT, I suppose long gold is one way to play that view, though I am not sure if totally buy into it yet. Another might be to go long USD/CNY forwards if they come back down another couple of pct, on the expectation that the Chinese will eventually respond to US pressure by pushing it higher.

CS, let's just say that I don't see much point in saying "we have a below consensus forecast with risks to the upside." Zzzzzzz....

Macro Man said...
4:21 PM  

gold running with financials (XLF) again today as has been a strong tendency:

hard to sell treasuries down here with another horrible non farm friday on deck

Anonymous said...
5:11 PM  

Looking at the Rate of Change of the US consumer savings growth, it is additional point to warry about. That goes too fast to me. It could be another factor for "falling off the cliff" story.

Family Man said...
7:27 PM  

why are the shashr and bidy going up if china is so shit?

Anonymous said...
7:33 PM  

Because nothing goes down in a straight line. Chinese equities have rallied substantially less off their lows than US homebuilders, for example, while the BDIY has fallen nearly as far in the last six months as, say RBS....and rallied less off its lows.

Tiny rallies in stuff that has collapsed means very little in my view...particularly in stuff as opaque and illiquid as Chinese equities and shipping.

Macro Man said...
7:49 PM  

china is the 21st century economic power according to jimbo. look at what the dow did in the 20th century. don't fight it macro man, buy some 2823 and make so money!

Anonymous said...
9:06 PM  

also how much trades in chinese equities in $? a LOT. i can't remember the numbers but i remember being surprised that it was more than tokyo?

Anonymous said...
9:26 PM  


Anonymous said...
7:51 AM  

Sure...and the market cap of the Shanghai A index, open only to locals (who cannot invest anywhere else)is 10.98 trillion....and the market cap of the B index, open to foreigners, is 6.44 billion. (this data from Bloomberg.)

This is a market where Petrochina was once the most valuable company in the world...primarily because it had a free float of 1.5%.

So I am really quite sceptical of the economic signalling value of Chinese equities.

Macro Man said...
8:03 AM  

better than the govt manipulated statistics? i agree its not perfect but studies repeatedly show stocks go up 6 months before the economy. i doubt the us market was much better at least in the early days. international investing from the us guys a relatively recent phenomenon i'd say. chinese mkt topped well before the economic data came out shit also.

Anonymous said...
9:36 AM  

the free float might exarcebate the extent of the move but not the direction?

Anonymous said...
9:58 AM  

how does the shashr look vs. chinese pmi? i'd bet shashr is a good if volatile leading indicator.

Anonymous said...
9:58 AM  

shashr and kospi were great lead indicator in august last year... they were making 52 wk lows i think when the s&p etc were ranging...

Anonymous said...
10:00 AM  

shashr and kospi were great lead indicator in august last year... they were making 52 wk lows i think when the s&p etc were ranging...

Anonymous said...
10:00 AM  

Hi MM,

New gig is going well so far, thanks - certainly beats spending the day watching LEH stock price!

True, the trains are much more comfortable (at least, if you exclude the overcrowding).


cp said...
1:12 PM  

Good to hear. I think you guys are right upstairs from us...should grab a beer sometime.

Macro Man said...
1:22 PM  

Sure, I'll drop you a bbrg.

cp said...
3:26 PM  

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