Ambrose Evans-Pritchard: Can the soufflé really rise again?
By Ambrose Evans-Pritchard
August 26, 2009 - Two facts that should give pause for thought.
1) Japanese data released on Thursday showed that exports fell yet again in July. They are down 39.5% to the U.S., and 26.5% to China.
Japan is the world’s second biggest economy. It lives on exports. It is also a key part of the supply chain for the Chinese economy. How can this hard data be reconciled with the extreme V-shaped recovery already priced in by the markets?
By the way, Toyota is suspending a key production line at its Takaoka plant in central Japan. It is cutting global capacity by one million vehicles.
2) The Baltic Dry Index measuring freight rates for bulk goods and commodities has been falling almost continuously for eleven weeks, dropping from 4,290 to 2,778 on Thursday.
Is this just a glut of ships or is this telling us what the Shanghai market is also telling us, that credit tightening by the Chinese government is pulling the rug out from underneath the latest commodity bubble?
There is something wrong with the entire recovery tale, which ignores the fact that excess plant is still at the highest level since the Great Depression (capacity use is 70% in Europe, 68% in the U.S., 65% in Japan, and as low as 50% in some countries, according to the World Bank’s Justin Lin). Companies will have to cut jobs and investment.
Soaring “confidence” indicators have decoupled from reality. The world economy is still prostrate. GDP has shrunk 4%, 6%, 8%, even 12% or more in a large group of countries. There it more or less sits, like a deflated soufflé.
August 26, 2009 - Two facts that should give pause for thought.
1) Japanese data released on Thursday showed that exports fell yet again in July. They are down 39.5% to the U.S., and 26.5% to China.
Japan is the world’s second biggest economy. It lives on exports. It is also a key part of the supply chain for the Chinese economy. How can this hard data be reconciled with the extreme V-shaped recovery already priced in by the markets?
By the way, Toyota is suspending a key production line at its Takaoka plant in central Japan. It is cutting global capacity by one million vehicles.
2) The Baltic Dry Index measuring freight rates for bulk goods and commodities has been falling almost continuously for eleven weeks, dropping from 4,290 to 2,778 on Thursday.
Is this just a glut of ships or is this telling us what the Shanghai market is also telling us, that credit tightening by the Chinese government is pulling the rug out from underneath the latest commodity bubble?
There is something wrong with the entire recovery tale, which ignores the fact that excess plant is still at the highest level since the Great Depression (capacity use is 70% in Europe, 68% in the U.S., 65% in Japan, and as low as 50% in some countries, according to the World Bank’s Justin Lin). Companies will have to cut jobs and investment.
Soaring “confidence” indicators have decoupled from reality. The world economy is still prostrate. GDP has shrunk 4%, 6%, 8%, even 12% or more in a large group of countries. There it more or less sits, like a deflated soufflé.
