And later they'll say - "oh, we didn't notice the elephant!"

on the 28th of February 2013 we had two interesting data released - the Chinese PMI and the US GDP prelim.

(if you want this article in Russian press this => link <= статья на русском)

the red text with a "10" on the chart says "10 months" - 10 months period of Chinese manufacturing total status quo. i suggest the readers don't pay much attention to the HSBC chart (although it too had shown manufacturing contraction for a year and a half, which nobody cared to take into consideration) for two reasons: 1) HSBC is a banking indicator and 2) it is weaker than CFLP PMI (the higher chart) because CFLP is a) a logistics index and b) has 3000 respondents* as oppose to 430 for HSBC (although just a month ago they had 820 respondents*). it means CFLP has less statistical error and i tend to trust logistics researchers more than banking ones... though HSBC did show negative stats for more than a year in the end of 2011 and entire 2012...

however, the world chooses not to notice this obvious slowdown in the Chinese manufacturing. but what are the roots of this slowdown? in my last thread "the last bull" i indicated that the Chinese manufacturing is slowing down due to decrease in demand from the EU. the EU imports 1/3 of the Chinese products. it's a huge market! and we all know what is going on in Europe. i mean when you have countries within the EU with 25% unemployment rate and with overall unemployment gradually escalating it's no wonder that the demand is falling - how can people buy if they are unemployed?!.. just yesterday on March 1 we had the European unemployment figure at 11,9% - it's at a new record high. and despite all so called actions from the ECB (though while Draghi is there we mustn't worry about any actions - this man will not rest until he'd murdered the EU). the Italian unemployment figure (which the Italians have 2 for some reason) jumped to 1) monthly = 11,7% (from 11,3%) and 2) quarterly = 11,2% (from 10,7%). (just for information they had a 6% unemployment in 2008...)

I call the future crisis - the demand crisis, so if you see the name elsewhere you'll know who came up with it)). multiplied by inflation and expensive euro this crisis is doomed to happen... and it won't be as possible to blame it on banks this time like we did with the 2008 crisis where banks manipulated bad mortgage bundles and gave out those mortgages to pretty much everybody (and not just 1 mortgage per "body"); nor will it be possible to solve this crisis with the FED's favorite tool - the QE'x'. we are likely, for the first time, to see a crisis within the fundamental component of any economic model - in the demand. and like i said such a crisis is not fixable with QEs...

the chain reaction will start in the EU. when demand collapses the countries will be forced to enact some major protective measures and this in turn will hammer some of the major producers such as China. 2 things will then happen simultaneously - 1) the Chinese manufacturing will cripple. and 2) the Chinese will dump their products to any other country that was not quick enough to act protectively. as a side affect of the crippling manufacturing unemployment in China will start to raise. and China is one of the most populated countries on Earth, so even a 1% increase in unemployment will mean millions of people. countries that fail to protect their industries from Chinese dumping will see some major damage to their own industries. with all the protection measures that different countries will take i can even picture some damage done to the WTO...

this chain reaction will continue in many different directions and involve pretty much all countries including Australia, Japan, etc. everybody affects everybody. and China affects everybody. the demand collapse in the EU will result in less gas and oil consumption affecting Russia. the decrease in demand for steel in China will affect Russia and Australia. and so it goes and goes and it will sail all the way to the USA... one cannot ignore the US - it's the biggest economy in the world (still). it will suffer from cheap Chinese products as well and it's production will suffer due to less demand from the EU. not to mention less demand from within. look at Walmart!..

i'd call this crisis an ideal crisis. nothing but hammers and anvils... and what can we do about it? lower interest rates that are already at zeros? print more money? isolate the way USSR did?.. start a wa-a-ar? - well, that sure is one of the most favorite things the US likes doing. it should be expected. however before we actually witness the crisis and determine the nature of this crisis we cannot really say much about how to fix it...


in the beginning of the thread i mentioned the US GDP preim. figure. i must say it is absolutely not a happy number. only 0,1% growth for the 4th quarter of year 2012. my original prediction was that it would be better than GDP for 3d Q. the 3d Q was "the stuff pre-orders for new year" and the 4th Q was supposed to be "the retail" quarter and was supposed to be even better than the 3d Q. but it didn't happen...

so, now we'll be hearing the media squeezing news out of a finger about how good the housing market is or how good the unemployment figures get... well in the US it might be the case. but the US is the last country in this chain - the elephant is much closer. in fact two elephants - first the EU will collapse and then - China. and it will be very hard not to notice these two elephants fall down.

thanks for reading.







*forexfactory.com