Global Fallout from China’s Industrial Slowdown

From Mark Spiegel at the Federal Reserve Bank of San Francisco:

The recent slowdown in China’s economic growth has caused a great deal of concern, particularly among global trade partners that export to China. On November 3, China’s President Xi Jinping announced that expected real GDP growth over the next five years would be no lower than 6.5%, which is one-half percentage point lower than the previous estimate. The industrial sector has been particularly weak as it has expanded by only 0.2% over the past year. In addition, imports to China continue to fall dramatically, as shown in Figure 1. Import values in October 2015 were almost 19% lower than they were in October of the previous year.

However, a number of analysts (for example, Lardy 2015) have argued that concern about the slowdown in the Chinese economy–and the associated reduction in Chinese imports–is overblown. Instead, they point to the resilience in the country’s service sector. This sector has indeed been a source of relative strength, with reported growth of 11.9% over the past four quarters.

In this Economic Letter, I show that the strength of China’s service sector is not likely to provide much support for gross exports from the rest of the world over the short term. The steep recent decline in China’s imports is consistent with the country’s growth pattern across different sectors. There has been a strong positive relationship between slower growth in gross imports and slower growth in industrial output over the past 15 years. However, imports and service outputs do not show a significant relationship. These results hold both for imports from non-commodity exporting advanced economies and for advanced and emerging market economies that export commodities to China. Therefore, from the rest of the world’s point of view, an increase in China’s service sector does not offset a similar magnitude decline in its industrial sector….

Read more at Economic Research | Global Fallout from China’s Industrial Slowdown

Ben Judah: The ruthlessness of Vladimir Putin

From Ben Judah, author of Fragile Empire: How Russia Fell In and Out Love With Vladimir Putin:

In the summer of 2012, Vladimir Putin returned as Russia’s president, after four years of playacting as a pliant prime minister. I spent time in St Petersburg trying to sift through his murky myth. Everyone who knew him, everyone who had worked with him – I wanted to track them down. My calls usually rang unanswered. When old voices picked up they abruptly hung up on hearing my requests. It was like chasing a ghost. The old, hard-bitten police chief who worked with him in St Petersburg in the 1990s was still a little stunned by Putin’s rise. “I thought he was just an insignificant official at the time.” The city’s town-hall orator, another former colleague of Putin’s, also remained baffled. “When he became president I threw open my photo album to see us together. But he wasn’t in a single one. He’d slipped out of every frame. I sometimes wonder if he even has a reflection in the mirror.”

….Putin acknowledges that the KGB evaluated him as a man with stunted emotions. His instructors concluded he was at risk, not of succumbing to the temptations of women or drink, but because of his pervasive “lowered sense of danger”. He was also classified as a man unhelpfully unsocial…. This, I fear, is what makes him so ruthless.

Read more at:Ben Judah: The ruthlessness of Vladimir Putin

What To Do About Debt | Project Syndicate

From Richard Kozul-Wright, author of Transforming Economies: Making Industrial Policy Work for Growth, Jobs and Development:

Global debt has grown some $57 trillion since the collapse of Lehman Brothers in 2008, reaching a back-breaking $199 trillion in 2014, more than 2.5 times global GDP, according to the McKinsey Global Institute……

Much of the concern about debt has been focused on the potential for defaults in the eurozone. But heavily indebted companies in emerging markets may be an even greater danger. Corporate debt in the developing world is estimated to have reached more than $18 trillion dollars, with as much as $2 trillion of it in foreign currencies. The risk is that – as in Latin America in the 1980s and Asia in the 1990s – private-sector defaults will infect public-sector balance sheets….

Read more at What To Do About Debt by Richard Kozul-Wright – Project Syndicate

Four key areas where Aussie investors must tread carefully

Andrew Starke quotes Guy Bruten, AllianceBernstein’s Senior Economist for Asia:

“In its latest statement on monetary policy, the Reserve Bank of Australia highlighted that we’re only about halfway through the adjustment in capital spending in mining,” said Bruten. “It’s gone from 8 per cent of GDP to around 5 per cent, and the central bank thinks it could fall to below 3 per cent.”

This suggests that more job losses will flow from the sector. There are concerns, too, about the tax revenue benefits of some resource projects as they move from the investment and construction phases to become fully operational……

“Against this background, we need to ask ourselves whether housing in 2016 will come to the economy’s rescue in the way it did in 2015,” said Bruten. “I am not among those who see a possible housing crash, but I don’t think we can afford to be complacent. “The last time it looked as though we might be heading for a housing crash was in 2003, when the background was very different – there was a very strong boost to the economy coming from commodities and from tax cuts, too.”

“…..The only certain thing about 2016 at this point is that it’s going to be another year of uncertainty.”

Read more at Four key areas where Aussie investors must tread carefully

More evidence that captured Russians were military intelligence officers

From Halya Coynash:

The court hearing on Nov 23 in the trial of two Russians captured in May 2015 in eastern Ukraine demonstrated yet again what an uphill battle the men’s defence lawyers will have to convince anybody that their clients, Yevgeny Yerofeyev and Aleksandr Aleksandrov, were not active Russian military intelligence officers [GRU]. Efforts at previous hearings to claim that the men had been pressured or even tortured into presenting themselves as GRU officers fail to explain why they told this to everybody, including their compatriots during one to one conversations.

….The men were visited in hospital on May 20 by representatives of the OSCE Monitoring Mission who pointed out that they spoke to them “without the presence of Ukrainian authorities” and that both had said that they were Russian military servicemen on a reconnaissance mission. They were also seen by the International Red Cross who did not express any concern.

Read more at More evidence that captured Russians were military intelligence officers ::

Die Zeit: It’s propaganda, stupid!

Maxim Eristavi, co-founder Hromadske International, tells what he has learned from being in the epicenter of the intense media warfare between Russia and the West:

First, word fights matter more than actual battlefields.

Propaganda is far worse than any usual media polarization. It ruins families, endangers lives, and starts and ends wars. I remember one Hromadske story from the epicenter of one of the biggest battles in the Eastern Ukrainian war. Our reporter went to the city of Debaltseve hours before it was captured by Russian and rebel forces. The town was shelled heavily back then. But, all interviewed locals were sure that the Ukrainian army was responsible, despite acknowledging that to do this they would have to shell their own positions in the downtown as well. The Ukrainian TV and radio was cut off here months ago.

Secondly, Russian propaganda isn’t designed to convince people.

What it does instead is radicalizing the society, pushing it to extremes and destroying the middle ground for any debates. And then you have a perfectly fertile soil for political manipulations on a grand scale. Let’s be clear: neither Russia, nor Eastern Ukraine are internet black holes like North Korea or Iran. People have access to almost all internet resources possible. In Russia an impressive 77% of the population have a stable internet access, and before the war Eastern Ukraine also had the biggest and most dynamic rate of new internet users after Kyiv. People are able to hear the other side’s point, they just don’t want to.

…..Fifth, the truth is never in between what Russian media and Western media report.

….Any educated person in the West knows that truth is always somewhere in the middle between two biases. So you would usually consume something from Russian media and then Western media and settle for the middle. This is well-understood by the Kremlin and they manage to use it perfectly by positioning their media as ‘an alternative voice’. So, by creating ridiculous parallel reality of lies and theatrics, they don’t expect you to believe in it. They instead create so much confusion that it shifts the middle further towards them.

The truth is always in between two biases, but never in between bias and pure lies.

Read more at Die Zeit: It’s propaganda, stupid! — Medium

NATO Confronts Russian Base on Turkey’s Border – Bloomberg View

From Josh Rogin:

The clash between Russia and Turkey is destabilizing, but the real destabilizing move was Putin’s decision to place a new power-projection and access-denial base just miles from a NATO country without any consultation. NATO chose not to deal with that dangerous situation for months. Now the alliance has no choice.

Read more at NATO Confronts Russian Base on Turkey’s Border – Bloomberg View

Richard Russell, Publisher of Dow Theory Letters, Dies at 91

From Bloomberg:

Richard Russell, who shared his technical analysis with subscribers through the influential Dow Theory Letters since 1958, has died. He was 91.

Richard published many interesting insights over the last half-century and contributed greatly to the field of investing.

Read more at Richard Russell, Publisher of Dow Theory Letters, Dies at 91 – Bloomberg Business

The Commodity Roller Coaster| Project Syndicate

From Carmen Reinhart, Professor of the International Financial System at Harvard University’s Kennedy School of Government.

…..At this stage of the commodity cycle, price declines typically retain downward momentum. By the end of the boom, many commodity exporters had already initiated investment projects to expand production. As these investments bear fruit, the increased supply will sustain downward pressure on prices. And many emerging-economy governments’ understandable aversion to running substantial and persistent current-account deficits will lead them to counter weaker export prices by increasing export volume, even if that drives down prices further.

This commodity-price roller-coaster ride is probably not over yet. While we cannot know for sure what will happen, it would be prudent to brace ourselves for another drop – and do what we can to avoid a crash.

Read more at The Commodity Roller Coaster by Carmen Reinhart – Project Syndicate

How Close Are We to Seeing People Ride Real Hoverboards? | Industry Tap

Cool. Always wanted one.

Read more at How Close Are We to Seeing People Ride Real Hoverboards? – Industry Tap

Bank of America: The ‘Great Divorce’ Between the World’s Two Largest Economies

Luke Kawa at Bloomberg quotes David Woo, head of global rates and currencies research at Bank of America Merrill Lynch:

“On the eve of the December FOMC meeting, we think the question is not whether the U.S. economy can live with higher interest rates and a higher U.S. dollar. The question is, given the semi USD/RMB peg and China’s increasing open capital account (which come at the expense of China’s monetary independence), whether China can live with higher U.S. interest rates and a higher U.S. dollar. We are skeptical. This is why we think the USD/RMB peg, a marriage of convenience that has been the anchor for the global growth model for the better part of the last 15 years, is headed for a divorce, and we think the RMB devaluation on Aug. 11 was a first small step in this direction.”

Read more at Bank of America: The ‘Great Divorce’ Between the World’s Two Largest Economies Will Drive Currency and Rates Markets in 2016 – Bloomberg Business

The multi-trillion dollar liquidity problem at the heart of the global financial system | Telegraph

From Ben Wright at The Telegraph:

Since the financial crisis, global financial regulators have rightly been attempting to make banks safer. They have done this by, for example, banning proprietary trading, making it harder to lend government bonds in the repo market and, most importantly, forcing banks to deleverage.

One of the upshots is that it is now much more expensive for banks to hold securities on their own books and therefore provide liquidity in the market. Deutsche Bank recently noted that the amount of outstanding corporate bonds has doubled since 2001 but dealer inventories of these securities have fallen 90pc over the same period…..

….as Bill Gross, the famous bond investor, said earlier, that risk hasn’t been eliminated – it’s just moved elsewhere in the system.

Read more at The multi-trillion dollar liquidity problem at the heart of the global financial system – Telegraph

The planned obsolescence of the public interest | On Line Opinion

Great example of how land taxes can be used to fund new infrastructure, from Karl Fitzgerald, Projects Coordinator for Earthsharing Australia:

After decades of tax reviews, Treasury is finally modelling the effect of Land Taxes on the macroeconomy…..

Former New York Mayor Bloomberg grasped the economic potentials by reaching out from his local government role to finance the extension of the state run No.7 train line to the Hudson Yards. The added amenity of the train extension was projected to deliver $30 billion in additional property taxes over the next 30 years. Infrastructure bonds were sold to the market with repayment via the increase in land values. This is world best practice at least cost…..

Read more at The planned obsolescence of the public interest – On Line Opinion – 12/11/2015

Arthur C Clarke, satellites and democracy | On Line Opinion

From Barry York:

It is very hard for tyrants and dictators to control a populace that has access to global telecommunications….

Ten years ago, 16% of the world’s population accessed the Internet. Today it is 40% – and growing. Satellites are the key to extending access to remote areas of the planet.

Satellite manufacture is entering a new phase with mass production in the near future. Google has a plan to build 180 satellites that will bring the Internet to the remote and poor parts of the planet. A more ambitious venture, involving Sir Richard Branson, the founder of Virgin Airlines, seeks to put 648 small light-weight satellites into orbit in the coming years to ensure that there will be affordable Internet access for the four billion humans currently without it….

Read more at Arthur C Clarke, satellites and democracy – On Line Opinion – 30/10/2015

Iron ore price crashes through $50 |

From Frik Els at

“It’s going down significantly,” Katie Hudson, managing director and senior investment manager at Goldman Sachs Asset Management Australia told the Financial Review on Wednesday: “The major producers are adding incremental volume at around $US20 a ton, that gives you a sense of where the vulnerability is.”

Iron ore miners invested north of $100 billion in new projects and expansions since the start of the decade and most of those projects are now delivering or will do so soon. The big three producers are following a scorched earth policy of raising output and slashing costs to weather low prices and push out competitors.

This week top producer Vale announced record third quarter shipments of 88 million tonnes despite idling 13 million tonnes worth of high cost operations. More astonishing is the fact that the Rio de Janeiro-based company was able to reduce cash costs to just $12.70 per tonne (it’s in the high teens at Rio Tinto and BHP).

Read more at Iron ore price crashes through $50 |

Iron ore headed for the smelter

Bloomberg News quotes Zhu Jimin, deputy head of the China Iron & Steel Association, representing major steel producers, at their quarterly briefing on Wednesday:

“Production cuts are slower than the contraction in demand, therefore oversupply is worsening.”

“China’s steel demand evaporated at unprecedented speed as the nation’s economic growth slowed,” Zhu said. “As demand quickly contracted, steel mills are lowering prices in competition to get contracts.”

Little wonder that bulk commodity prices are falling sharply.

RBA: Bulk Commodity Prices

Australian producers have been ramping up production to compensate for lower prices.

RBA: Bulk Commodity Exports

But with further production due to come on line, the market looks ready for a meltdown. This from David Llewellyn-Smith at Macrobusiness:

Yes, China is still shutting in supply and is on track for 270 million tonnes this year but it’s not going to drop enough in the future (at the very best down to 200mt) as Roy Hill, Sino, Anglo, Vale and India (and possibly Tonkolili as well) continue the great ramp up, adding another 200mt plus in the next two years even as Chinese steel production keeps falling at 2-3% per year, taking 40mt per annum out of demand….. the total seaborne iron ore market is about to peak and then shrink….

The ASX 300 Metals & Mining Index is testing its 2008 low. Breach appears likely and would offer a target of 1700*.

ASX 300 Metals & Mining Index

* Target calculation: 2200 – ( 2700 – 2200 ) = 1700

North America

The S&P 500 respected support at 2050 and is headed for a test of the previous high at 2130 on the back of strong earnings performance. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure but expect strong resistance at 2130. Reversal below 2050 is unlikely, but would warn of another test of primary support at 1870.

S&P 500 Index

* Target calculation: 2000 + ( 2000 – 1870 ) = 2130

A declining CBOE Volatility Index (VIX) indicates market risk is easing.

S&P 500 VIX

NYSE short sales remain subdued.

NYSE Short Sales

Dow Jones Industrial Average is similarly headed for a test of 18300, with 13-week Twiggs Money Flow rising steeply.

Dow Jones Industrial Average

Canada’s TSX 60 continues to test stubborn resistance at 825. Weak 13-week Twiggs Momentum, below zero, indicates the market remains bearish. Breakout would signal an advance to 900, but reversal below the former primary support level at 800 is as likely and would warn of another decline.

TSX 60 Index

* Target calculation: 775 – ( 825 – 775 ) = 725


Germany’s DAX is testing resistance at 11000. Recovery of 13-week Twiggs Money Flow above zero indicates medium-term buying pressure. Breakout above the descending trendline would suggest another test of the previous high at 12400. Expect stubborn resistance, however, and reversal below 10000 would warn of another decline.


The Footsie is similarly testing resistance at 6500. Breakout above the descending trendline would suggest another test of the previous high at 7100. 13-Week Twiggs Money Flow troughs above zero indicate long-term buying pressure. Reversal below 6250 is unlikely, but would warn of another test of primary support at 6000.

FTSE 100


The Shanghai Composite Index continues to test resistance at 3500. Respect is likely and would indicate a re-test of government-backed support at 3000.

Dow Jones Shanghai Index

Hong Kong’s Hang Seng Index is retracing to test support at 22500. Respect would indicate a rally to 24000, but failure remains as likely and would test primary support at 21000. A 13-week Twiggs Money Flow trough above zero would indicate (long-term) buying pressure.

Hang Seng Index

Japan’s Nikkei 225 is testing resistance at 19000. Breakout would signal another test of 21000. Respect is less likely, but would warn of another test of primary support at 17000.

Nikkei 225 Index

* Target calculation: 19000 + ( 19000 – 17000 ) = 21000

India’s Sensex encountered resistance at 27500. Rising 13-week Twiggs Money Flow troughs above zero indicate long-term buyiong pressure. Expect another test of 26500 but respect is likely and would indicate continuation of the rally. Reversal below 26500 would warn of another (primary) decline.


* Target calculation: 25000 – ( 27500 – 25000 ) = 22500


The ASX 200 is retracing to test medium-term support between 5200 and 5300. Reversal of 21-day Twiggs Money Flow below its rising trendline indicates (medium-term) selling pressure; decline below zero would strengthen the signal. Breach of 5200 would warn of another test of primary support at 5000. Recovery above the descending trendline is unlikely at this stage, but would suggest another test of 6000.

ASX 200

* Target calculation: 5000 – ( 5400 – 5000 ) = 4600

Zero deposit loans for Chinese investors in Australian property market |

From Angus Grigg:

One of China’s biggest financial institutions is offering zero-deposit home loans for off-the-plan apartments in Melbourne and the Gold Coast, a practice at odds with efforts by Australian regulators to tighten lending standards and cool the property market….

The RBA must be viewing this with alarm. The property bubble is one Chinese export Australia does not want to reach these shores.

Read more at Zero deposit loans for Chinese investors to spur Australian property market |

S&P 500 reporting in full swing

Of the 172 S&P 500 stocks that have reported for Q3 2015: 120 beat, 37 missed, and 15 met their estimates.

S&P 500 Q3 2015 operating reports

Sectors with the highest percentage of misses so far are: Materials, Energy and Financials. Lowest are: Information Technology, Health Care, Telecom and Utilities.