Two months ago I attended a dinner of Wall Streeters at a proper club in midtown Manhattan; it called to mind the locker room scene in the movie Wall Street<\/i><\/b> where Gordon Gekko wisely opines, \u201cThat’s the thing you gotta remember about WASPs – they love animals, they can’t stand people.\u201d\u00a0 Anyhow, in attendance at the dinner was my friend Bill, the Smartest Strategist on Wall Street.\u00a0 Bill told me after the dinner, \u201cTom, the reason the ISM was so weak [it was 49 that month] is that China is slowing down.\u201d<\/p>\n
Bill was right, as usual.\u00a0 I know almost nothing about China, except what I read in The Financial Times<\/b>.\u00a0 But what I read is pretty scary; if you apply a little logic it is reasonable to conclude China growth will be much worse than current consensus. Yesterday in an FT column, \u201cwise man\u201d Gavyn Davies made these salient points:<\/p>\n It gets worse.\u00a0 The latest figures on exports and imports were much weaker than expected, which is not surprising because all of China\u2019s major markets are growing slowly, if at all.\u00a0 The FT <\/b>quotes a \u201cspokesman for the customs administration\u201d as saying, \u201cOur country is facing serious challenges.\u201d<\/p>\n So, to summarize, the two major drivers of China\u2019s growth, exports and investment, are slowing sharply.\u00a0 A credit bubble is being popped.\u00a0 And much of the credit growth of the past few years funded government projects which, by definition, were made at least partly for political not economic reasons.<\/p>\n Even if the government has the capital needed to prevent a \u201cChina Syndrome\u201d meltdown, we can expect Wall Street economists to keep ratcheting down their forecasts\u2014a lot.\u00a0 For the past couple of years the major Wall Street houses have been playing a dainty parlor game of cutting their China GDP growth forecasts 10 or 20 bps at a time\u20147.5%, 7.4%, 7.2%.\u00a0 My guess is that, before they are done cutting, they will be debating whether growth is above or below 5%.\u00a0 Even competent, well-managed governments of giant, sprawling nations that are simultaneously grappling with a credit bubble, overinvestment by governments, and a sharp slowdown in exports should not be expected to engineer an oh-so-soft landing in GDP growth.<\/p>\n Copyright 2013 Thomas Doerflinger.\u00a0 All Rights\u00a0 Reserved.<\/p>\n","protected":false},"excerpt":{"rendered":" Two months ago I attended a dinner of Wall Streeters at a proper club in midtown Manhattan; it called to mind the locker room scene in the movie Wall Street where Gordon Gekko wisely opines, \u201cThat’s the thing you gotta … Continue reading \n