Wednesday, July 24, 2013

Two contrarian financial warnings

Both of these "warnings" are from an economic blog -- ZeroHedge -- that is aggressively bearish on both the American and Chinese economies.  The first deals with the absurdly high stock market valuations in the US; here are several statements:
At this point, the market is beyond overextended...What’s truly worrisome is that stocks are rallying higher and higher while economic fundamentals get worse and worse. GDP estimates for the second quarter have been reduced to 1% or even lower. Goldman Sachs has growth at 0.8%. Barclay’s sees 0.5%. And Morgan Stanley sees us hitting 0.3% growth.

These are truly horrible forecasts coming after the brutal downward revision for the first quarter (from 2.4% to 1.8%). And when you consider that growth is slowing like this while the Fed is running QE 3 and QE 4, then it becomes quite clear that the Fed is fast running out of out of evidence that QE accomplishes much of anything.

The signs of this are already showing up in corporate results. IBM, Intel, eBay, Google, Microsoft, Philip Morris, Blackberry have all missed revenue estimates.  Corporate profits can be manipulated in a variety of ways. Revenues on the other hand cannot be fudged. Either money comes in the door or it doesn’t. The fact that so many firms are missing revenues estimates does not bode well for the market.
And the second pessimistic projection involves the Chinese economy:
Another “growth story” is dying before our very eyes...China is rapidly approaching ZERO growth. This is not less growth, but ZERO growth as in full-scale economic collapse from the days of 12% GDP growth per year.

Over 99% of “analysts” are missing this, but it is a fact. If you ignore the ridiculous GDP numbers (which even China’s Premiere has admitted are a joke in the past) and look at more accurate metrics, it’s clear China is collapsing at an alarming rate. Case in point, Electrical consumption rose by just 2.9% in the first quarter of this year.

How on earth can you generate GDP growth of 7% when you electrical consumption is rising by just 2.9% is beyond me. And when you consider that China is experiencing this weak growth despite having pumped over $1 trillion into its economy in the same quarter (an amount equal to 14% of China’s total GDP) you begin to understand the scale at which things are imploding in the People’s Republic.
Both articles have much more analysis as well as informative graphs.  You can find the first article here, and the article on China, here.