Stated in ‘negative terms’ the result is ‘dis-synergy’. Many things can result in dis-synergy, one of the greatest of which in the context of the world economy can be negative contagion, as negative economic occurrences in one country can negatively impact economic occurrences in one or more other countries. Thus the old saying that if ‘America sneezes, other countries catch colds’.
This makes China of particular importance, particularly given the current clear signals of Eurozone economic deterioration, where collectively the Eurozone at U.S.$17.6 trillion represented 25% of 2011 reported world GDP (source: Wikipedia).
Consider this in the context of latest 20,000 foot China economic reports and commentaries that suggest:
- year/year Q2 2012 GDP growth is down to 7.6% from 8.1%;
- further continual erosion of new residential housing starts that has persisted, largely unabated, for over 12 months;
- bad loans are increasing in the ‘informal’ part of China’s banking system, often referred to as China’s ‘shadow banking system’;
- current negative changes to China’s capital flow impacted in part by current lower China exports than has been the case in the recent years; and,
- current economic conditions in both the Eurozone and the United States result in no reason to believe China’s exports will pick up materially in coming months.
Clearly one might:
- question the efficacy of reported China economic statistics;
- also reflect on current reported China GDP growth rates, and think them excellent when compared to both historic and current GDP growth (and in some cases, decline) rates in the developed countries; and,
- also reflect on the difficulty to create perpetual growth at a given rate expressed in percentage terms, as the base from which the percentage is measured continuously grows. This is reflected in the following numbers which assume $1,000 is compounded annually for 25 years and all capital is held and reinvested:
- incremental return on accumulated capital in year 1 – $80;
- incremental return on accumulated capital in year 25 – $507;
- accumulated capital value at end of year 25 – $6,848.
The foregoing ought not to lead one to the conclusion that China’s current forecast growth is, viewed in isolation, either poor or terribly disappointing. The real issue is that any reduction in China’s percentage GDP growth is ‘on the margin’, and may have a disproportionate affect on growth – and hence economic recovery and well-being – in the developed economies generally, and perhaps in resource dependent economies such as Australia and Canada in particular.
Topical Reference:
China is probably doing worse than the headline GDP growth suggests, from
Also Sprach Analyst, July 13, 2012 – reading time 3 minutes;
3 threats to China’s second half economic recovery, from
Also Sprach Analyst, July 16, 2012 – reading time 3 minutes, and
Shadow Banking in China – The Wenzhou experiment, from
The Economist, April 7, 2012, reading time 2 minutes.
Snippets From Today’s Brief Commentaries
Snippet #1: Simply put, if some investors and traders are able because of their sheer size, personal connections, or for any other reason to learn analyst opinions ahead of release of their reports, the playing field would have bumps, and maybe big bumps, in it.
Snippet #2: That question, simply stated is: What impact, if any, is the evermore enhanced communication and knowledge of world activities having on environmental activists, unionized and non-union workers, and others who initiate these protests? Perhaps little, if any, but one thing that is virtually certain is that communication of world information will be ever more available going forward.
Brief Commentaries prompted by world headlines
Eurozone >> Germany: European Stability Mechanism ruling postponed
The European Stability Mechanism (ESM) is a proposed replacement for the current European Stability Fund that to date financially supported Greece, Ireland and Portugal. A week ago, in circumstances where some Eurozone politicians then apparently said the ESM would be in place today (July 16), the ESM had not been ratified by all Eurozone governments.
It has now been announced that Germany’s Constitutional Court, previously expected to render its decision on the ‘constitutional compatibility’ of the ESM last week, will now not render its decision until September 12 – two months from now.
While such decisions are important, one has to wonder with every delay of consolidated Eurozone government cooperation how many ‘grains of sand’ now reside in the top half of the Eurozone hourglass.
Topical Reference:
German court to rule on EU bailout fund in September, from
Deutsche Welle, July 16, 2012 – reading time 1 minute; and
Europe’s stability mechanism remains elusive, from
CNN Money, Ben Rooney, July 11, 2012 – reading time 2 minutes.
Eurozone >>Italy: All 2012 GDP estimates negative
The Bank of Italy, Italy’s economy minister, and an Italian employers lobby all predict Italy’s 2012 GDP will decline by +/-2%. This makes Italy clearly something to focus on as economic conditions in Spain in particular, and the Eurozone generally, seem to be in a state of continuous decline.
Topical Reference:
Italy economy minister sees 2012 GDP fall “little less” than 2 percent: paper, from
Reuters, Philip Pullella, July 15, 2012 – reading time 1 minute.
Financial Markets: Do some investors have an ‘information advantage’?
A level playing field has always been perceived as important when it comes to availability of disclosure by public companies and by analysts. Analysts continuously talk with company managements. Pursuant to that process analysts gain information that assists them in forming their value opinions and writing their reports. Analyst opinions, reports and recommendations can and do influence the market prices of the companies they report on.
Simply put, if some investors and traders are able because of their sheer size, personal connections, or for any other reason to learn analyst opinions ahead of release of their reports, the playing field would have bumps, and maybe big bumps, in it. Arguably, this is significantly more important in what now are largely trading markets, than is or would be the case if the financial markets reverted to being the investment markets as they were before computer based algorithmic trading became a ‘big deal’.
If you participate directly in the financial markets you should be certain to read the following referenced article, and then think hard about what you read.
Topical Reference:
Surveys Give Big Investors an Early View From Analysts, from
The New York Times, Gretchen Morgenson, July 15, 2012 – reading time 4 minutes.
Brief Country Risk Commentaries prompted by world headlines
Africa >> Mauritania: One dead at Mauritania mine site
While even a single death in a developing North Africa country is not something to be taken lightly or cavalierly, an important question arises from what seems to be an escalation in violence in multiple countries related to resource exploration and development. That question, simply stated is: What impact, if any, is the evermore enhanced communication and knowledge of world activities having on environmental activists, unionized and non-union workers, and others who initiate these protests?
The answer: Perhaps little, if any, but one thing that is virtually certain is that communication of world information will be ever more available going forward. Thus, if enhanced world communication is not influencing things today, it is very likely enhanced communication will influence such things tomorrow.
Topical Reference:
One dead in clashes at Mauritanian MCM site, from
Mineweb, from Reuters, July 16, 2012 – reading time 1 minute.
