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Monday, 21 April 2014

Hot and cold data from China, the States and Spain

Last night I enjoyed one of the periodic dinners with my tame central banker. Over the years we have spent entire evenings discussing the finer points of Japan’s lost decade, the risks and benefits of securitisation, the efficacy of monetary policy and the value of GDP as a measure of a country’s economic strength. Yesterday, we talked about the weather in Spain and the joys of taking the children to Eurodisney.

Anthony Peters, SwissInvest Strategist

I suppose that, to a certain extent, it is understandable that we have given up trying to second guess the world. It might of course simply be the effect of having hung around too many street corners in the City for too many years and knowing in our hearts that we don’t have a clue what is going on, macro-economically, or it can simply be that we now value our “down-time” more than we used to. It might, however, simply be that monetary policy is so well flagged now that the fun has gone out of speculating what might happen next.

We all know the one about one not being able to have a one-handed economist and yet, there is a lot of truth in the joke. Economic releases, globally, swing one way and then the other and as fast as once can begin to contemplate getting bullish, one finds the stool kicked out from under one’s feet again. Yet, there is no joy in going short either.

Sure, banks can split themselves into good banks and bad banks but that is still no more than putting lipstick on a pig as the duff loans will simply weigh on the economy from a different corner.

Take as an example today’s release of the September HSBC Flash PMI for China. It reported today at 47.8. In some books that is further evidence that Chinese manufacturing continues to contract which is bad. In other books it is better than the 47.6 reading in August which is good. And in other books again it is as near as damn it the same as the last one which is neither here nor there.

I suppose that as fed up as we have become with the nonsense about kicking the can down the road, we could also become rather bored with looking for half full and for half empty glasses. The simple fact seems to be that we are, at best, holding station and that the global economy is, net/net, going nowhere in a hurry.

Up a bit, down a bit, up a bit down a bit……

Firm or soft?

US new housing data for August was on the softer side which was not helped by a fairly significant downward revision in the July figures too. On the other hand, existing home sales were better than the forecast. Given the excess housing stock which is still hanging around from the boom, one would want to see properties which have been repossessed by the banks getting sold off and these count towards existing home sales.

On the other hand, the building trade and hence the jobs market only benefits marginally and needs to see new properties being built. Do we celebrate the one or bemoan the other?

I have watched on how, over the years, the quantity of economic data to which we are treated has increased until we are where we are now which is, frankly, surrounded by white noise. We used to live perfectly well with weekly money supply, monthly employment, CPI, PPI, merchandise trade and industrial production as the major indicators as well as the obvious quarterly GDP in its three incarnations. You know what? We weren’t any better or worse at forecasting the economy and we got to go for long lunches too. At the moment, our economic analysis seem to me to be a bit like feeling obliged to guess the weight of an elephant to the last gramme.

We keep reading of how well Spain is doing, of how the balance of payments is drifting back into the black as imports fall while exports remain stable. That all might be true but that does not take away a million completed but unsold residential housing units and does not detract from the recent report that the banks’ loan books have deteriorated again and are now (if my memory serves me right) 9.8% in default.

Sure, banks can split themselves into good banks and bad banks but that is still no more than putting lipstick on a pig as the duff loans will simply weigh on the economy from a different corner.

However, last night, none of this was discussed. We have jaw-boned it to death over copious dinners during the past few years and nothing has really changed. Just for once, with summer temperatures in Spain having hit nearly 50 degrees, talking about the weather was more interesting.

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