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This bear is not capitulating
Posted by Ambrose Evans-Pritchard on 16 Oct 2007 at 16:02
A chorus of banks and City gurus now inform me with almost triumphal self-confidence in their daily notes that fears of economic contagion from the credit crunch have been discredited as “unfounded” or “overblown” or plain “hokum”.
The US is in recession. And don't get me started on Europe
Well, Fed rescues are nice if you can get them. Although, with Producer Price Inflation running at 4.4pc and the US dollar index breaking through support to all-time lows, I should have thought that the Fed’s room for manoeuvre was getting tight.
Yes, the Baltic Dry Index measuring shipping freight rates has smashed through 10,000 in an explosive rally, after quadrupling this year. But the BDI is a lagging indicator. It reflects shipping rates for ores and grains that were bought weeks or even months ago. It tells us very little about the future.
Base metals prices are more revealing. Nickel and aluminium are falling. Dr Copper – viewed by some as the world’s most reliable economist – is ailing a little.
Barclays Capital – until now uber-bullish on base metals – said the mood at last week’s London Metal Exchange jamboree was edgy. Premiums are falling. “Concerns were raised whether this was the result of de-stocking or a sign of weaker underlying market conditions. This was particularly true for copper, with some participants reporting a double-digit fall in bookings,” it said.
The share price of the German steel trading firm Kloeckner plunged by a quarter last week after warning of a “slump” in the steel market. It said prices for cold-rolled stainless steel had fallen 35pc over the last six months.
A reader sent me these quotes from Bill Zolars, head of the trucking company YRC Worldwide. The $10bn group has operations in 80 countries.
“The economy is driven by people making and shipping stuff. They are not making and shipping as much right now, and we see that every day,” he said.
“We’ve got a window now of about ten weeks or so where we should really see a big increase in shipment volumes as we get ready for Christmas. We have not seen that, and that’s a concern. Right now, if things continue to deteriorate, I’m worried we may head into a recession,” he said.
Well, let me go one up. I suspect the US already is in recession.
Japan is not so hot either. Japanese housing starts fell 23.4pc in July and 43.4pc in August as new laws came into effect. That comes after an outright contraction in GDP of 0.3pc in the second quarter.
Germany is faltering, again. Indeed, it seems to suffer from the Japanese disease of perennial disappointment – evidence of what can happen when the working population starts to shrink.
The latest OECD trade data shows that German exports fell 1.6pc in the second quarter, even before the credit crunch. This is revealing. Germany is still the world’s biggest exporter by far, easily surpassing China.
Elga Bartsch, Morgan Stanley’s German economist, says the country is far less robust than people realize. Manufacturing orders contracted 0.9pc over the third quarter, although Berlin has yet to wake up to the full danger. “The risk is that politicians are operating with their eyes firmly on the rear-view mirror, not realizing that the next downturn is already in making,” she said. Car sales have fallen below the level of 2001.
Don’t let me even start on the impending troubles in Spain, Ireland, France, and Italy as the housing booms deflate.
I’ll stick to my bet that the Wall Street will test the August lows again before this dust-up is over. That means another 140 point drop on S&P 500 to around 1,400 (on daily closings).
Once that boil is lanced, we can then decide whether this bull will charge on for another eighteen months as it did after the shake-outs in 1987 and 1998.
This bear is not capitulating.
This bear is not capitulating
Posted by Ambrose Evans-Pritchard on 16 Oct 2007 at 16:02
A chorus of banks and City gurus now inform me with almost triumphal self-confidence in their daily notes that fears of economic contagion from the credit crunch have been discredited as “unfounded” or “overblown” or plain “hokum”.
The US is in recession. And don't get me started on Europe
Well, Fed rescues are nice if you can get them. Although, with Producer Price Inflation running at 4.4pc and the US dollar index breaking through support to all-time lows, I should have thought that the Fed’s room for manoeuvre was getting tight.
Yes, the Baltic Dry Index measuring shipping freight rates has smashed through 10,000 in an explosive rally, after quadrupling this year. But the BDI is a lagging indicator. It reflects shipping rates for ores and grains that were bought weeks or even months ago. It tells us very little about the future.
Base metals prices are more revealing. Nickel and aluminium are falling. Dr Copper – viewed by some as the world’s most reliable economist – is ailing a little.
Barclays Capital – until now uber-bullish on base metals – said the mood at last week’s London Metal Exchange jamboree was edgy. Premiums are falling. “Concerns were raised whether this was the result of de-stocking or a sign of weaker underlying market conditions. This was particularly true for copper, with some participants reporting a double-digit fall in bookings,” it said.
The share price of the German steel trading firm Kloeckner plunged by a quarter last week after warning of a “slump” in the steel market. It said prices for cold-rolled stainless steel had fallen 35pc over the last six months.
A reader sent me these quotes from Bill Zolars, head of the trucking company YRC Worldwide. The $10bn group has operations in 80 countries.
“The economy is driven by people making and shipping stuff. They are not making and shipping as much right now, and we see that every day,” he said.
“We’ve got a window now of about ten weeks or so where we should really see a big increase in shipment volumes as we get ready for Christmas. We have not seen that, and that’s a concern. Right now, if things continue to deteriorate, I’m worried we may head into a recession,” he said.
Well, let me go one up. I suspect the US already is in recession.
Japan is not so hot either. Japanese housing starts fell 23.4pc in July and 43.4pc in August as new laws came into effect. That comes after an outright contraction in GDP of 0.3pc in the second quarter.
Germany is faltering, again. Indeed, it seems to suffer from the Japanese disease of perennial disappointment – evidence of what can happen when the working population starts to shrink.
The latest OECD trade data shows that German exports fell 1.6pc in the second quarter, even before the credit crunch. This is revealing. Germany is still the world’s biggest exporter by far, easily surpassing China.
Elga Bartsch, Morgan Stanley’s German economist, says the country is far less robust than people realize. Manufacturing orders contracted 0.9pc over the third quarter, although Berlin has yet to wake up to the full danger. “The risk is that politicians are operating with their eyes firmly on the rear-view mirror, not realizing that the next downturn is already in making,” she said. Car sales have fallen below the level of 2001.
Don’t let me even start on the impending troubles in Spain, Ireland, France, and Italy as the housing booms deflate.
I’ll stick to my bet that the Wall Street will test the August lows again before this dust-up is over. That means another 140 point drop on S&P 500 to around 1,400 (on daily closings).
Once that boil is lanced, we can then decide whether this bull will charge on for another eighteen months as it did after the shake-outs in 1987 and 1998.
This bear is not capitulating.
)
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