Wednesday, August 19, 2015

Even the experts are conflicted

I've written so many times about the economic problems I see coming towards us that I'm sure many of my readers are bored with the subject by now.  Nevertheless, I found a perfect illustration today of why it's so difficult to forecast developments, and how different (and equally eminent) journalists can come to diametrically opposed conclusions from the same data.

First, Ambrose Evans-Pritchard argues that 'China's August scare is a false alarm as fiscal crunch fades'.

Gothic warnings of a Chinese collapse this year will look silly by Christmas. The reckoning has been delayed again.

. . .

On cue, the economy is already coming back to life after hitting a brick wall over the winter. Credit growth jumped to a 31-month high in July. The monetary base has grown at a 20pc rate over the last three months, implying an economic spike later this year.

. . .

Wisely or not - depending on your economic religion - the Communist Party has now reverted to stimulus as usual. The local governments issued almost $200bn of bonds over the two months of July and August. Beijing coyly describes its fiscal spending as "proactive". Turbo-charged would be another way of putting it.

The property crash is already a memory. House prices have risen for three months. Sales were up 18.9pc in July. This matters more than anything happening on the Shanghai stock market. Moody's says real estate in all its forms makes up a quarter of Chinese GDP.

. . .

At the risk of sticking my neck out, I think that Gothic warnings of a Chinese collapse this year will look silly by Christmas. The reckoning has been delayed again.

There's more at the link.

On the other hand, Peter Spence (looking more at the stock market than at property) claims 'China's stock market swings as investors fear Beijing stimulus is over'.

A turbulent day on the markets reflected concerns that the housing market could be overheating, and that Beijing might stop propping up equity prices.

Since turmoil hit Chinese markets in June, Beijing has sought to correct a sharp fall in share prices by restricting the number of stocks that can be traded and by leaning on state-backed bodies to snap up shares.

An estimated $4 trillion has been wiped off the value of Chinese equities in just three weeks earlier this year, although they are still higher than they were this time a year ago.

In addition, poor economic numbers in the last month have suggested that China's economy is slowing down. Recent data showed that exports fell by 8.3pc in July compared with the same month a year earlier.

Some experts had been expecting China to boost exports in a bid to shore up growth. Beijing's decision to weaken the yuan - also known as the renminbi - last week appeared to support this view, as a weaker currency should make China's exports cheaper.

However, the Commerce Ministry appeared to quash this theory on Wednesday by saying that China’s exports could continue falling in the months to come.

Analysts at Barclays expect that China’s moves will just be the first steps in a larger depreciation of the yuan, which they expect to fall by 6pc against the dollar by the end of the year. The devaluation added to concerns that the world’s second-largest economy is in a more fragile state than official numbers reveal.

Again, more at the link.

When two experienced journalists can look at the same country, on the same day, in the same publication, and read such different things from the publicly available signs, is it any wonder that people the world over are confused about what to expect?

The best advice I can offer is to determine what risks might directly and immediately impact you, in your current location and financial situation, then determine what you can do to minimize them or mitigate their impact.  This would include risks like disruption to essential supplies, a temporary bank closure or failure of the electronic banking and credit system, that sort of thing.  There are things you can do to safeguard yourself against them to at least some extent.  On the other hand, if the risk is something you can't do anything about, either through preparation or to avoid it, then there's no point worrying about it.  It's in the same class as an asteroid falling on you, or an as-yet-unknown seismic fault letting go beneath your feet and swallowing you.  As the old saying reminds us, "When you gotta go, you gotta go!"



Anonymous said...

Wow, perennial doom and gloom monger AEP says not to worry?

The man who's been wrong more times than ... oh, I've lost count.

Now I'm afraid.

Graybeard said...

I've been beating on this drum, too. What can't go on eventually won't go on, it's just that someone always seems to pull something out of their nether regions and somehow the collapsing pile doesn't.

But your two conflicting views on the same day in the same journal reminds me of the saying, "if you laid all of the economists in the world end to end, they wouldn't reach to a conclusion".