TR EMERITUS – The Voice Of The Lunatic Fringe – 淡马锡评论 – formerly Temasek Review

UPDATE on Global economies are heading for turbulence, ARE WE IN TROUBLE GOING FORWARD?

THE STOCK MARKET PERSPECTIVE The first week past this initial write-up “ Global economies are heading for turbulence – ARE WE IN TROUBLE GOING FORWARD” dated 5th July 2010 saw global markets rose sharply, ahead of the US corporate reporting season, confounding market analysts. European markets rallied on BP’s increasing optimism of resolving its Gulf of Mexico Deepwater Horizon oil spill issue and expectation that no major European banks would fail the “stress” tests. Over the other side of the Atlantic, US investors also came back into the market with a vengeance after returning from the US Independence Day holiday. The big factor underpinning the market ebullience was thought to be the two-months equities sell-off even as economic fundamentals deteriorated. On 8 July 2010, the International Monetary Fund warned that “A potential spill-over of sovereign risk to European banking sectors and fiscal policy challenges “give us reasons to be less optimistic than we were three months ago” http://sg.news.yahoo.com/afp/20100708/tts-finance-economy-imf-growth-c1b2fc3.html Against this gloomy economic background, and NO GOOD OVERHEADECONOMIC NEWS OR ANY OTHER CORPORATE NEWS, US stock market actually staged a spectacular rebound. In the four sessions shortend week ended 9 July 2010, the Dow gained 512 points, or 5.3%. The S&P 500 rose 5.4% and the Nasdaq was up 5% - the best week in almost a year, just ahead of the first wave of quarterly corporate results due next week. http://money.cnn.com/2010/07/09/markets/markets_newyork/index.htm Was the European and US stock markets taking a risk posture to suggest a strong corporate results ahead proving the strength and substance of the economic recovery leaving the IMF grim warnings behind to be buried of economic history? Or was that a relief rebound which chartist calls a “technical rebound” of a deeply-oversold position of two months of sustained sell-off? The spectacular market rebound in US had two characteristics. Most of the gains on each trading sessions were in late afternoon trade or sometimes in the last hour after choppy trading but volume were light relative to recent past, giving some hint of the tentative speculative drive of stocks up north. In other words, the buying were “cautiously optimistic” in anticipation of better corporate results. Interesting to note that in that exciting week, bond prices fell lifting yield on 10-year US Treasury bond to slightly over 3.05% from around 2.8% and there were signs of slight gains in oil and metal prices. European markets too, benefited from increasing confidence that the first Greek auction in the debt market would be well received. Interesting enough, China was in the market buying up Greek sovereign debt alongside Japanese sovereign debt as well. Some confidence did returned to stock markets on these “improving” fundamentals as that week progressed. News that Bank of Korea, South Korea’s Central Bank, unexpectedly raised its benchmark interest rate on 9 July 2010 by 25 basis points to 2.25 per cent from record lows to pre-empt inflation as the domestic economic recovery gains momentum was well-received in Asian stock markets. After South Korea achieved its largest-ever trade surplus in June and together with a much faster-than-expected growth in industrial output in May, Bank of Korea revised its economic outlook to to expand 5.9 per cent this year, faster than its previous forecast in April of 5.2 per cent.. The reasonable assumption is that is economic recovery is gaining momentum. http://www.theaustralian.com.au/business/markets/south-koreas-economy-to-pick-up-speed/story-e6frg926-1225890624388 This piece of good news gave further impetus to optimism that the Asian “chopstick” economies at least might have consolidate a firmer recovery grip. Asian stock markets rallied in sympathy of optimism. CORPORATE RESULTS AND OUTLOOK PERSPECTIVE. Unfortunately, the optimism DID NOT LAST as big US corporate results began to hit the market – mostly below expectations for some high profile globally-competing entities, excluding certain items impacting comparability with prior year. Compounded the announced weak results, excluding certain items impacting comparability with prior year, were some pessimistic forward earnings guidance such as Samsung, Tupperware Inc, BHP-Billiton along with dismal macro-economic numbers coming out of China and USA. Tupperware’s diluted earnings per share for 2nd qtr is a diluted 93 cents, a spectacular record but diluted earnings per share in management guidance of forward outlook is forecast to be 54 to 59 cents. The steep pessimism in that profit outlook warning is apparent. Tupperware is a global giant direct marketing kitchenware products and they are expecting tough times ahead in consumer demand for even basic kitchen use products - globally. http://files.shareholder.com/downloads/TUP/968598419x0x387875/778de13f-bca4-4694-a57d-281ea991584a/2Q_10_Earnings_Release_Final_Complete.pdf What about BHP Billiton? BHP is the largest mining entity in the world is also cautious about the short-term outlook of the global economy "Uncertainty surrounds the near term prospects for growth in the developed world as governments adjust fiscal policies following a period of significant stimulus and subsequent increase in sovereign debt levels," BHP Billiton warned. http://www.theaustralian.com.au/business/news/bhp-cautious-on-short-term-global-outlook/story-e6frg90f-1225894887558 Now let us look at Samsung, the world’s largest chip-maker and three times larger than its competitor, Sony Corp. Despite its size, market share and scale economies advantages, Samsung is facing tough times in its key markets. Analysts’ consensus forecast of 4.8 trillion won in operating profit against Samsung’s own estimated its April-June operating profit at a median 5.0 trillion won ($4.09 billion) in a range of 4.8-5.2 trillion won. BUT ALL THAT LOOKS OVER-OPTIMISTIC NOW. Samsung’s profit guidance now stood a a mere 4.41 trillion won – that is 12% shave off as the actual result is pending announcement end of this month. http://www.samsung.com/us/aboutsamsung/news/newsIrRead.do?news_ctgry=irpublicdisclosure&news_seq=19687 It will be watched very closely by the markets and economists as to the strength of the electronic consumer market looking at Samsung’s forward profit guidance in the 3rd quarter. As of now, the picture does NOT look optimistic at all. There are a few exceptional positive factors benefiting the disappointing results now awaiting Samsung and a store of negative factors emerging over the horizon. http://finance.yahoo.com/news/Samsung-growth-to-slow-as-rb-4022898826.html?x=0&.v=4 Sales of liquid crystal display flat screens is likely to benefit from robust TV demand growth during this year summer's World Cup. That won’t be repeated and should slow down in the 2nd half as pent up demand have been amply satisfied. Analysts expect sluggish demand from Europe after a nearly 10 percent tumble in the euro made import more expensive. The full impact is yet to be felt as Euro fell only from end April 2010. Margins and sales volume in EU will be hit by adverse falling exchange rate movement of the declining euro – these could have been factors behind the downward revised profit guidance from Samsung’s management. They do not bode well for chip making or the electronic consumer market. On the topline revenue number, Samsung now expects roughly 34.6 trillion won on sales compared to the same 1st qtr revenue of 32.5 trillion won – a mere 6% gain and expected to be falling as the year progresses. On those numbers, one can expect, on balance, to see stock markets to react adversely rather than positively when Samsung released its actual results at the end of this month. Of the major corporate results in US, the first result came from Alcoa, the aluminium giant. Because of its varied GLOBAL customer base from consumer packaging to construction and infrastructure and transport, its result is viewed as good proxy of indicative forward GLOBAL economic trend and outlook. Alcoa swung to a profit after striking a 6% increase in sales revenue over 1st qtr 2010 firing up market optimism when Alcoa’s chairman boasted that the global “economic recovery has legs”. But a closer look at its accounting number paints a different picture. http://www.alcoa.com/global/en/news/news_detail.asp?pageID=20100712006733en&newsYear=2010 The revenue increase was brought by a 1% decreased in realised aluminium price to customers. Not surprisingly, the most price-sensitive packaging sector saw the biggest revenue growth of 17% .Commercial transportation expanded by 10% - this one is the tail end of the one-off cash for clunkers surge in demand – thanks to Obama’s stimulus tax credits while building and construction had the benefit of strong export market in China where cutback in power consumption forced a decline in local production. On the earnings front, the picture is also not that rosy as it first appeared. Net income of $136 million were struck after Alcoa reduced its overhead by more than $311 million in the first 6 months – without which 2nd qtr positive earnings could NOT be achieved. The only economic recovery legs I could see of Alcoa results is a type of prosthesis legs. Klaus Kleinfeld, Alcoa’s chairman and CEO believes that China will account for much of the 2010 growth in consumption, with higher sales in the heavy truck and trailer, beverage can packaging and commercial construction sectors. But China’s manufacturing has slowed down near the end of 2nd qtr 2010.! In North America, Alcoa sees sales dropping by 23 percent to 27 percent for commercial building and construction. It expects beverage can sales to be flat. As of 2009, about half of Alcoa's sales were in the U.S., 27 percent in Europe, 15 percent in the Asian-Pacific region, with the remainder in North and South America. http://biz.thestar.com.my/news/story.asp?file=/2010/7/13/business/20100713115215&sec=business Alcoa reported sales growth “ in many markets” it competes in the 2nd Qtr 2010 . Yet Mr. Kleinfeld see huge drop in US demand for building and construction by between 23% to 27% in 2010 INDICATING THAT HE EXPECTED US ECONOMY TO SLOW DOWN CONSIDERABLY. Intel results followed Alcoa with above-seasonal revenue growth which the US stock market liked, expected and consistent with industry’s analysts expectation that the tech sector will benefit from an uptick in corporate demand as the economy recovers. But strangely enough, its stock prices actually tanked on announcement of results. The reasons offered by analysts was that "multiple indications of slowing demand" from Europe, China, the PC manufacturers and U.S. retailers such as Best Buy and Costco. The belief is that INTEL had seen the best of past and first half strong performance which is NOT durable looking from other sources within the same industry. Semiconductors are said to be at the end of the electronics food chain and thus are the last to feel any inflection in demand. And as Samsung’s own results is likely to bear out this month end, the peak of the unusual seasonal consumer electronic market demand is past. http://www.marketwatch.com/story/us-stocks-slip-on-retail-sales-but-tech-shines-2010-07-14 Intel painted a rosy outlook of global economic recovery BUT ASIAN MARKETS GREETING THE RESULTS WERE NOT IMPRESSED AT ALL AND SINGAPORE STOCK MARKET ACTUALLY FELL 6 POINTS THE DAY AFTER. Let us look at the possible reasons. Intel reported a margin improved to 17% on sales in 2nd qtr 2010 compared to 13% in the corresponding period in 2009. Given the recovery from extreme depressed economic conditions prevailing then, the slight recovery in margin was not unexpected. 2009 second qtr results was also affected adversely by a charge of $1.45 billion related to a European Commission antitrust fine. Net earning rose to $2.9 billion in 2nd qtr 2010 against the loss of $398 million the year before same qtr. Intel sales grew by 34% from a low depressed base of 2nd qtr 2009 to $10.8 billion. But compared to its 1st qtr 2009 sales revenue of $10.3 billion and net income of $2.4 billion, the 2nd qtr 2010 result is HARDLY IMPRESSIVE. Sales grew by a mere 5% and net earnings grew by 20% in a recovery from very deep trough. http://files.shareholder.com/downloads/INTC/968696269x0x364951/c922fa5e-d636-4915-8ace-7cd371ee8d38/Earnings%20Release%20Q12010.pdf In guidance forward, Intel is forecasting a 7.4% increase sales – not a big expectation from current trend of slow growth. A slew of big high profile corporate results came in on 16 July 2010 – GE and a couple of banks – there were way below expectations. REVENUE FELL when compared to 2009, indicating the tightness of market demand slowing revenue inflow in a difficult global market conditions WORSE THAN 2009. GE – the world’s largest conglomerate is truly a bellwether stock of the global economy - bragged of strong performance and rosy outlook. “GE's economic environment continues to improve," said Chairman and CEO Jeff Immelt. Market critiques disagree. I can’t help it but look at GE long-term share price chart. It showed that GE had been a “dog’ business for its patient shareholders for close to a decade. http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=ge&sid=0&o_symb=ge&freq=2&time=13 Let’s look at the accounting numbers for objectivity of recent performance analysis. Two comments from GE merit closer scrutiny in conjunction and its relevance to understanding the economic outlook GE faces. Pre-tax earnings at GE Capital swung to a profit of $741 million, even as the benefit from tax write-downs continued to fall, reaching about $100 million in the recent quarter. Meanwhile, GE Capital is winding down its debt and restructuring with a strategy to refocus on its core businesses of infrastructure and industrial products. Stronger performance at GE capital came from winding down its badly-bleeding consumer credit divison to focus on infrastructure and industrial products financing i.e. corporate business I guess because the US consumers are considered to be “dead”. Secondly, the write-back from hollow log accounting is near the tail end of that hollow log implying that GE had either had modestly over-provided in prior periods or aggressively writing back overprovisions to bring GE Capital back to profitability. GE IS CAPITAL IS NOT PERFORMING at all of organic business, especially consumer credit. Revenue at GE's energy infrastructure unit came in at $9.54 billion, off about 9%, although profit climbed 3%. – that is worrying REVENUE HAS FALLEN. It is amazing that their revenues here did not at least have a rebound from recesssion lows last year – not just at GE Capital but in all other key businesses of GE. Revenue at its technology infrastructure unit came in at $9.06 billion, off 6%. Profit at the unit declined 11%" Equally, it is also amazing that energy and tech infrastructure sales are lower despite emerging markets growing gangbusters with infrastructure growth of all kinds. http://seekingalpha.com/article/214926-ge-lights-on-lights-off There were big infrastructural projects, not only In China, but in India, Persian Gulf states, Europe, America, Australia and even in Africa. So what does that tells us about the global economic health? THE INFRASTRUCTURAL STIMULUS SPENDING worldwide has been no help to GE and some of these stimulus spending in China is being curtailed now will aggravate the adverse economic outlook next year and beyond unless China steps up again its stimulus spending and risking overheating its property sector. GE RESULTS DID NOT GIVE ME ONE REASON TO BE OPTIMISTIC. Together with the GE results release were some major banks and Google. They all reported LOWER THAN EXPECTED REVENUE AND REVENUE DECLINES COMPARED TO RECESSION-RIDDEN 2009! US stock market took a beating that day led by GE down 1.1 percent, while Bank of America tumbled 4.7 percent and Citigroup lost 1.9 percent. Google Inc. sank 4 percent. Banks are lifeline of business and they are licking wounds of the 2009 GFC meltdown even as late as 2nd qtr 2010!. Of the US banks, only JP Morgan reported better revenue and earnings. Its 76% increase in second-quarter profit was due in part to a 23% reduction in reserves for loans unlikely to be paid back. Again, better results was due to hollow log accounting. JP Morgan’s Chief Executive Jamie Dimon poured some cold water on the market's excitement over the results, noting that losses from bad consumer loans "remain at extremely high levels." Consumers in US is still facing very tough times de-leveraging. http://www.marketwatch.com/story/stocks-open-down-as-data-offsets-jp-morgan-results-2010-07-15 Well Fargo reported increasing value of its bad loans portfolio which must yet be ominious indicative sign that the healing of consumer spending wounds have NOT yet completed. Clearly the EU and US economy is troubling in spite of better economic outlook prevailing on this side of the Pacific. http://noir.bloomberg.com/apps/news?pid=20601087&sid=aMEuJBqkIojU&pos=5 As of yesterday, 21 July 2010, nearly 76% of the S&P 500 companies reported higher than expected revenue and earnings –same as recent quarters but the key questions unanswered remain – are the revenue estimates too low in the first place and what is the quarter to quarter performance this year rather than comparing to the depressed base of 2009. http://www.marketwatch.com/story/us-stocks-falter-on-health-tech-earnings-2010-07-21 Our analysis showed that Intel’s 2nd qtr revenue and earnings did fantastically well compared to 2009 results but not on a quarterly to quarterly basis to show the economy has really turned around. GE was also a complete disappointment on the global basis. Two other notable results are worth mentioning before we move on to examine the global economic macro-economic data. They are Apple and Coca-Cola. Apple is ready to overlap Microsoft in the forseeable future reported strong revenue and earnings growth lifted by new product innovations sales of i-phone. Coca-cola reported volume sales growth and market in all markets EXCEPT EUROPE. Now imagine EU consumers could not longer casually afford a bottle of ubiquitous COKE – that must send compelling warning that consumer demand in EU has either cratered or about to crater into the ravine of demand collapse. Coca cola’s quarterly revenue rose 5% to $8.67 billion with with 2% growth in North America and 6% internationally suggesting weak US consumer market relative to international economic environment. "The state of the global economy remains uncertain in many regions, affected by ongoing deficit concerns in Europe, recent downward revisions to China's economy and weakened consumer confidence," said Muhtar Kent, chief executive, in the earnings report http://www.marketwatch.com/story/volume-share-gains-push-coca-cola-profit-higher-2010-07-21 There are pockets of strong corporate results, notably Caterpillar, 3M and UPS with sales and profits gains. Caterpillar 2nd Qtr sales of $10.409 billion is 26.3% gain on lst qtr 2010 much-depressed sale revenue of $8.238 billion – itself much lower than 1st qtr 2009 figure of $9.225 bln. Indeed 2nd qtr 2009 sales was further depressed at $7.975 billion, so the illusory “improvement” in Caterpillar is somewhat exaggerated by the much lower base in 2009 and 1st qtr 2010 actual performance. Net profit rose to $707 milion in 2nd qtr 2010 compared to $223 million in the 1st qtr 2010 – thanks to costs cutting and strong orders from mining and energy businesses globally. Asian trade flows helped UPS to do a lot better, highlingting the continuiing strength of the Asian recovery story at least until the 2nd qtr of 2010. Likewise 3M achieved a marginal growth of 6% in sales from $6.7 billion in 2nd Qtr 2010 against $6.3 billion in the first qtr of 2010. Its strongest growth was in emerging market and its business is MAINLY CORPORATE. Compared to the low base of 2nd Qtr 2009 when corporate were trimming expenses aggressively, 3M’s sales and earnings growth “look” a lot more impressive. The key conclusions that this author arrive at are - the corporate results in US to date look good superficially but on deeper examination is NOT great and in some instances seems troubling of real achieved outcomes and forward outlook guidance. - US economy is still very weak – no sign of underlying improvement in top-line revenue for a lot of major corporations like GE, Bank of America, Citibank, IBM and disturbing forward-looking profit guidance from consumer basics like Tupperware, Coca-cola, Well Fargo etc. Samsung and Intel tell of peaked demand and seasonal slacks in consumer electronic demand forward and this cannot be good for Singapore. - EU market is very weak – can’t even sell more coke as euro fell making foreign imports generally more expensive for distressed consumers and that spells trouble for China. You cannot expect inflationary spending booms as EU turned on the deflationary austerity spending by sovereign Governments. - stimulus spending globally on infrastructure stalled economic deep recessions but NOT cured it as the results of GE’s troubling infrastructural sales shows. - Asia is the only bright spot but that is dependent on the weaker (in comparison) US economy and this is also slowing, judging from the shrinking revenue base evident from banking results, Alcoa’s forward forecast and the on-going winding down of GE Capital’s consumer credit division. MACRO-ECONOMIC PERSPECTIVE NOW LET US NOW LOOK AT SOME GLOBAL MACRO-ECONOMIC DATA. It is worse than this author expected in the last write-up. Conditions deteriorated significantly in the last qtr according to the IMF in early July. This came as the global equity markets is said to suffered more than $US11 billion ($12.5 billion) of net outflows in the first week of July, 2010 amid fears of a double-dip recession. http://www.smh.com.au/business/markets/double-dip-fear-sends-investors-to-cash-20100709-103jn.html Interesting enough, the lure of gold and precious metals as a hedge against uncertainty helped commodity funds top the list of EPFR Global-tracked sector funds once again in early July. Spot gold rallied from March to June 2010 by a mere 13% in US dollar term as the euro fell by more than 25% against the US dollar indicating that investors are fleeing EU financial market into US dollars and gold. http://www.xe.com/currencycharts/?from=USD&to=EUR&view=10Y Gold, in the view of this author, is NOT seen as a ideal CURRENCY HEDGE for European investors at least but more of a generalised broader uncertainty hedge of global economy in which any deflationary collapse of US economy will also perhaps shrink demand for gold and leaving spot price of physical gold vulnerable. Any collapse of US dollar in subsequent another deep US recession would be hdeged by having some investment in gold. These are indications of economic turbulence and unfathomable uncertainty sweeping financial markets. http://www.kitco.com/charts/livegold.html The initial confidence in equities at the beginning of this month also saw bond yields on US 10 year treasury bond rising to 3.05%. Money has flowed out of BOTH EQUITIES AND US DOLLAR 10 YEAR BONDS. Since then, the euro has recovered slightly by about 6% relative to the US dollar, US 10-year bond yield fell backward to 2.89% and spot gold declining also 6% to US$1178 per oz from its recent peak of US$1,251 per oz. GOLD IS MORE SENSITIVE TO US DOLLAR ASCEND THAN US DOLLAR DECLINE evidencing again the lack of one-to-one currency hedge volatility but more to economic uncertainty generally also reflected in volatility of US 10-year bond yields. In the base metals market, copper has fallen 12.5% , nickel 22%, zinc 21% , lead 20% and aluminium 20% from their recent peaks. http://www.kitcometals.com/charts/aluminum_historical.html And of late, bulk commodities like iron ore ( by about 10% in the last few weeks) suddenly and metallugical coal has levelled off despite very steep increases since May 2009. It is not surprising that ST also reported recently falling dry bulk commodity ship loading space. Steel sector is weak – not just in China but in India, US and EU. Falling demand was the key factor and there is no relief in sight indicating that the credit squeeze is having its bite in Chinese infrastructure, residential construction and manufacturing CONCURRENTLY as indicated in my introductory write-up of early July. Baoshan Iron & Steel Co. -- China's second largest steel mill by output, cut the price of its its hot-rolled-coil (HRC) and cold-rolled-coil (CRC) products by 5% last week back to the first qtr of 2009 citing weak demand. Hot-rolled coil (HRC), a benchmark for flat steel, used by the automobile and white goods majors. That must indicate a weakness in autos and white goods manufacturing in China and also globally since China is now the world’s largest steel producing nation. http://www.marketwatch.com/story/chinese-steel-mills-suffer-slumping-demand-2010-07-14?dist=news As much of Chinese steel produced are exported to global markets, concerns have been expressed about European steel demand being reduced there by up to 2 million tonnes a month across the continent. http://www.theaustralian.com.au/business/mining-energy/falling-demand-from-chinese-steel-mills-hits-ore-price/story-e6frg9dx-1225894294488. Indian steel sector is suffering the same fate with intense pressure on hot-rolled coil (HRC) with prices falling by 2,000 rupees per tonne last month to 32,000 rupees per month – a 6% fall in prices even though iron-ore price last month was stable around US$120 per tonne and coking coal was trading around US$200 per tonne. End buyers of steel are said to be de-stocking – yet another pointer to slowing auto production forward as car sales keep hitting new peaks. http://www.mineweb.com/mineweb/view/mineweb/en/page39?oid=107518&sn=Detail&pid=92730. The best might be over for now as car manufacturing are gearing up for production of clean energy lithium battery-operated car mass manufacturing in Japan. http://sg.news.yahoo.com/afp/20100720/tts-japan-auto-company-honda-7d7070a.html Over in US, the steel market is also not better. This is also apparent from the prices of molybdenum and manganese used in steel production which have fallen below their recent trendlines. US import licenses dropped 14.9% in June from May 2010 to 1,773,206 tonnes after a six months consecutive import surge of 35% this year but remain more than double the level of a year ago. As US steel prices are said to be lower than global level, US steel imports of Chinese steel will shrink forward as China modify its export tax rebates for steel products take toll. http://seekingalpha.com/article/213667-june-steel-report-import-licenses-drop-china-surges US car manufacturing were not as strong as initial auto data sales show and most likely to have peaked already because of cash for clunker incentives. http://money.cnn.com/2010/06/29/news/economy/auto_sales_weakness/index.htm?postversion=2010062910 Autos is big industry in US and since most of the Obama’s stimulus package was meant for corporate rescue and some consumer spending items like (over-supplied) housing and cars rather than industry, infrastructure and construction, steel consumption is likely to constrain once the incentivized purchases ended. In fact, manufacturing is the strongest pillar of US economic recovery due to inventory re-stocking BUT THIS HAD FALTERED in June, extends into July and seems to be continuiing in the September qtr as the re-stocking is drawing to a close. http://www.marketwatch.com/story/factories-slowing-in-july-sentiment-surveys-say-2010-07-15 Philadelphia Federal Reserve Bank said the Philly Fed manufacturing sentiment survey declined to 5.1 in July from 8 in June and 21.4 in May. The reading is above zero, which shows the sector is still expanding, but the breadth of that expansion has diminished and dimishing very fast. This must point to weaker economic growth, employment into the second half of this year and consistently with falling demand for steel in the otherwise strong US manufacturing sector. A preliminary estimate released last month showed US gross domestic product expanded at a 1.9 per cent annual rate in the second quarter. This compared unfavourably with the twice-revised 1st Qtr GDP growth of 2.7% due to lower consumer spending. The evidence points a downward trend in US GDP growth that sustained into the second half. But even that is likely to be revised downward I believe. Why? http://www.marketwatch.com/story/fed-to-mull-stimulus-moves-just-in-case-2010-07-14?pagenumber=2 Federal Reserve officials last week agreed that the outlook for the recovery had softened between April and June, with financial market tension due the European fiscal crisis as the leading culprit. They also trimmed their officials forecast for growth over the next two years adding the unemployment rate might remain higher next year than they had expected. With interest rates just slightly above zero, analysts warned that the Fed has no economic lever to deal with any sudden adversity in steep decline. Consumer demand has weaken and consumer confidence plummeted further in July hitting the lowest level since August 2009. University of Michigan index fell to 66.5 in early July from 76 in late June. It is shocking because the June reading was the highest level in more than two years and then this sudden drop to threaten consumer spendings adding to US economic woes. http://www.marketwatch.com/story/us-july-consumer-sentiment-plummets-2010-07-16 And it came after US Government data showed increasing unemployment numbers in June and steep US factory orders declined in May, posting the largest drop in 14 months as transportation related orders tumbled. Factory orders again declined into the month of July 2010 in continuation of that adverse trend. http://www.marketwatch.com/story/factories-slowing-in-july-sentiment-surveys-say-2010-07-15 There is therefore risks of higher unemployment ahead leaving consumer increasingly tight-fisted with their wallets. As for inventories, inventories of U.S. wholesalers rose in May as warehouses were restocked with machinery and other durable goods, while sales registered their first decline in 14 months. This is a trojan horse. Unless sales picks up – unlikely as consumer cut spending in June, July and maybe into the next qtr as unemployment is ready to rise again to clear stocks – there will be a period of wholesalers de-stocking ahead to run, depressing manufacturing further going forward. As of current indication, US Consumers are still very busy engaging in plastic surgery of pruning their credit card debts. According to the Federal Reserve, total household credit outstanding has declined for seven quarters in a row. http://www.marketwatch.com/story/plastic-surgery-and-the-double-dip-2010-07-20 This prolonged de-leveraging, unparalleled in the post war era, has begun to take its toll on consumer spending. June retail sales declined after rising (tepidly) during the previous eight months. Sales unexpectedly dipped 1.2 percent to 362.5 billion dollars in May from the previous month, according to data from the Commerce Department. http://sg.news.yahoo.com/afp/20100612/tts-us-economy-retail-sales-c1b2fc3.html Since retail sales make up one-half of consumers' spending, and thus, one-third of the gross domestic product, it would be difficult for the economy to expand in the absence of a rise in these outlays. Besides hurting from the drop in employment, most households are also suffering from a decline in their wealth because if the drop in prices of homes and their investments continues. House prices are vulnerable to further decline despite record low mortgage rates. Resales of U.S. homes fell 5.1% in June to a seasonally adjusted annual rate of 5.37 million as a federal subsidy for home buyers ends, the National Association of Realtors. The expiration of the tax credit has devastated the housing market http://www.marketwatch.com/story/existing-home-sales-fall-51-as-tax-credit-ends-2010-07-22-10200 In fact, housing starts fell another 5% in June after a 15% drop in May, to a seasonally adjusted annual rate of 549,000, the lowest level in eight months, the Commerce Department estimated. A DOWNWARD TREND HAS BEEN FLAGGED. http://www.marketwatch.com/story/us-housing-starts-fall-5-to-8-month-low-2010-07-20 New housing starts is now back in the dumps where is was a year ago after federal tax credits for buyer expired. This is NOT surprising noting that sales of new single-family homes plunged 33% in May to a record-low level after a federal subsidy for home buyers expired, according to the US Commerce Department http://www.marketwatch.com/story/new-home-sales-plunge-33-to-record-low-in-may-2010-06-23 Pending homes sales also tumbled in May to lowest level on record after tax credits expire. The number of buyers who signed contracts to purchase homes dropped in May to the lowest level on record, a sign the housing recovery can't survive without government incentives. http://finance.yahoo.com/news/May-pending-home-sales-tumble-apf-2024500274.html?x=0 Sales agreements for previously occupied homes dropped 30 percent in May from April. The index fell to 77.6 from 110.9. May's reading was the lowest dating back to 2001.The index also was down 15.9 percent from the same month a year earlier. Sales of existing home in June fell by 5.1% against expected 10% . It was better than expected but the continuiing fall is yet another disturbing illustration of the weak housing sector. Americans are still selling their homes in the face of an over-supplied market. On the manufacturing front, industrial production is also weakening in June and the rebound shown in US leading economic indicators proved unsustainable. Expansion in the U.S. manufacturing sector moderated in June after three months of very rapid growth. The Institute for Supply Management index fell from 59.7% in May to a reading of 56.2% for June. http://www.marketwatch.com/story/manufacturing-growth-moderates-in-june-2010-07-01?dist=bigcharts Following an upwardly revised increase of 0.5% in May,the index of leading economic indicators declined 0.2% in June http://www.marketwatch.com/story/june-leading-indicators-fall-slower-growth-seen-2010-07-22-102000 THE DYING US HOUSING MARKET, SLOWING MANUFACTURING SECTOR AND FALLING RETAIL SALES STRONGLY SUGGEST THAT THE US ECONOMIC RECOVERY IS STALLING OR HEADING FOR A STEEP DECLINE. About the worse economic news that emerged out of US this week is Beb Bernanke’s public pronouncement that the Fed will ease monetary policy if growth slows down further, particularly if employment weakens. http://www.marketwatch.com/story/bernanke-stresses-he-is-ready-to-ease-2010-07-22?dist=news If Bernanke is NOT positive of US economic outlook, how can we? Eurozone Eurozone saw some late improvement of economic data. May industrial orders were up contrary to market expectations despite the sovereign debt crisis. May industrial orders across the euro zone rose 3.8% compared to April and rose 22.7% compared to May 2009. Adding on, we saw its flash estimate July Purchasing Manager Index edging up slight to 56.7 in July compared to 56.0 in June suggesting that production had a slow grind ahead. But EU is not a one shade monolith. Analysts cautioned that the increase was driven largely by a sharp rise in German PMI, which jumped to its highest level since February 2007. Like South Korea, it has been known that German exports have done very well as conditions in emerging economies continue to improve. The strong outcome in the July PMI data "probably reflects Germany's outperformance -- in the manufacturing sector in particular. Of some concern is the deceleration of increase in export orders despite the cheaper euro ( which should have help exports) hint of lack of demand growing forward as the restocking cycle in export markets may be over. Overall, the nascent recovery is charting through rough waters of fiscal austerity and long journey ahead of improving export competitiveness following steep depreciation of the Euro in the last quarter. The International Monetary Fund, in its latest report, warned that The recovery, driven mainly by external demand, "is likely to be slowed in the near term by market tensions related to sovereign risks” http://sg.news.yahoo.com/afp/20100722/tts-finance-economy-imf-europe-509a08e.html PIIG members of EU faced intense pressure of immediate action of credible fiscal adjustment to establish the path toward long term fiscal sustainability. The European Central Bank warned that government debt in the 16-nation zone is forecast to reach 88.5 percent of gross domestic product in 2011, or roughly 8.3 trillion euros (10.0 trillion dollars). http://sg.news.yahoo.com/afp/20100606/tts-ecb-eurozone-bank-banking-sector-pub-c1b2fc3.html Despite a strong and far-reaching eurozone policy response to the crisis, IMF warned "market confidence will take time to restore. Countries facing market pressures have no option but to adjust forcefully and meet their deficit targets." Much of continental Europe, namely Greece, Italy, Spain, Portugal, is now on austerity drive with determined efforts to cut budget deficits to restrain public debt to an acceptable percentage of GDP. In June 2010, the German Government announced a 80 billion euro spending cut combined with up to 15,000 job cuts in the public sector, as part of a sweeping austerity package. New taxes will also be imposed on air travel and the nuclear power industry. http://edition.cnn.com/2010/BUSINESS/06/07/merkel.germany.spend.cuts.ft/index.html Britain’s forward economic outlook is just as gloomy. The new Government inherited from its predecessor one of the world’s worst public deficit rocketed to a record-high of 156 billion pounds in the 2009/10 fiscal year which ended in March, as severe recession hit tax revenues and as the government spent billions of pounds on bailing out banks. http://sg.news.yahoo.com/afp/20100620/tts-britain-economy-finance-budget-cac1e9b.html All these forced tough fiscal discipline and will definitely have negative impact on economic aggregates. NOT surprising that Coca-cola’s 2nd qtr earnings already announced that its sales in EU is the only market sector which experienced negative growth. EU has slowed down but its impact is still to be felt in China in the coming quarters. China & the Rest of Asia. Manufacturing is also slowing in China. Chinese manufacturing activity grew at a slower rate last month than in May. China's official purchasing managers' index (PMI) fell from 53.9 in May to 52.1. A separate measure, the HSBC China Manufacturing Purchasing Managers Index also showed a slowdown, falling for the third month in a row to 50.4, from 52.7 in May. At close to 50, it suggests that Chinese manufacturing sector is CLOSE TO SHRINKING. Does that surprise me? The answer is NO. It is in the Chinese trade data recently announced. http://www.chinadaily.com.cn/china/2007-07/10/content_5430541.htm Exports in June soared 21.7 percent to US$179.6 billion while imports grew 14.2 percent to US$76.4 billion, the customs agency said. The record trade surplus, despite gloomy global economic conditions, confounded many analysts but in reality hide a multitude of disturbing facts. US trade deficits with China escalated further – the reason is the rush of glut-filled Chinese steel exports into US ahead of the expiration of export tax rebates to be lifted by China soon. What is more disturbing is the decline in the value of imports. Noting that China is an over-sized glutton of bulk commodities especially iron-ore and coking coal, imports were expected to be higher shrinking Chinese trade surplus. Why? It is because iron-ore prices lifted up another 40% in the 2nd qtr 2010 (though declined about 8% in the last fortnight) and coking coal price have surged in that interval. Therefore the fall in imports of these dry bulk commodities reveal a disturbing trend in steep fall in the VOLUME of iron-ore and coking coal imports forced upon by the much slowed-down steel sector supplying steel inputs to infrastructure and manufacturing sector. Other metal prices have also fallen in the 2nd quarter 2010. Crackdown on overheating property market have hurt infrastructure, construction and manufacturing sectors in China at the same time and its impact crunches commodity prices. Since mid-April, mid-April, global prices for aluminium are down 18 per cent; for copper, 13 per cent; for lead, 19 per cent; and for nickel, 27 per cent http://www.theaustralian.com.au/business/news/crackdown-on-overheating-property-market-crunches-commodity-prices/story-e6frg90x-1225895901641 China is confronting a property market bubble probbaly worst than the US. Straits Times, July 10, 2010 page B25 has this interesting news item – 65 million empty homes – one big bubble. Oh I am sure it is. Dr Yi Xianrong, an economist with the Chinese Academy of Social Sciences disclosed that estimates from electricity meter readings showed 64.5 million empty apartment and houses in urban China, many of them bought by speculative buyers hedging on ever rising property market of no ending. Chinese Government is aware of speculators buying 2nd and 3rd properties relying on bank borrowings. Dacronian new monetary policies put in place recently halted the insanity of these wild speculation but they hurt all other sectors of the economy. There are fears that manufacturing is also peaking for much of Asia’s emerging economies. South Korea and Taiwan’s manufacturing logged their 16th consecutive months of expansion and India its 15 months of consecutive expansion. In a world where the macro-economic environment is tepid, how long can these bullish run continues? Samsung which accounts for nearly 12% of South Korea GDP will report a lower than expected 2nd qtr results and forecast to slow even further for the rest of this year is a case in point. There are other warning signs. The purchasing managers' indexes, released early this month, showed more muted rates of growth in China, India, South Korea and Taiwan. http://www.marketwatch.com/story/asian-factory-data-may-signal-rebound-has-peaked-2010-07-01 As government are forced to cutback spendings and steep currency djustments in Europe and the winding down of consumer tax spending credits in US, demands for Asian manufacturing exports must now take into account the realities of slowed-down consumer spendings in these countries. Analysts believe, and I agree too, is that the strength of manufacturing upswing in Asia in the last 12 months had the benefits of a restocking cycle which followed the credit freeze from the end of 2008. This has ended – noting steep decline in consumer spending in housing, retail goods and banking services evident from 2nd qtr US corporate results released in the last fortnight. What implications these developents has for Singapore? Tough times and increased risks of external shocks of a global double dip starting from US. The much touted global economic recovery spoke of in the last 6 months is tepid, fragile and shallow. The US economy slowed from a twice-revised-downward 2.7% growth in GDP in the 1st qtr to a even considerably slower 1.9% in the 2nd qtr (maybe subject to downward revision again??) and increasingly deteriorating retail, housing conditions, continued de-leveraging of consumer debts, worrying employment trends and a clearly slowing manufacturing sector which was until recently a stellar pillar of its recovery core. Europe is on austerity drive and decline in euro is hurting badly consumer’s ability to spend even on a bottle of coke. Tupperware’s gloomy forward profit guidance signal weakening demand even in emerging markets. China is definitely at risks of a hard landing instead of a soft one as manufacturing were hit CONCURRENTLY with infrastructure and construction sector. Both China and US spoke recently of further stimulus spending before year end if the economies continue to weaken faster than expected. How can they, may I ask? In China’s case, it will risks rekindle the property bubble so soon and in US , such a decision will escalate US Government’s public debt relative to its GDP to increasingly difficult to manage of stress levels and financial market tolerance in the bond market. I do see global economies perching dangerously on the tightrope and updates of corporate results in US showed very little organic growth on a quarter to quarter basis. When the economic recovery is shallow and weak, it is very vulnerable to sudden shocks and this is what we must expect. Be warned that bond prices has risen and yield on 10-year US Government bond is down back to 2.89% now. Gold seems to be factoring sensitivity to uncertain economic outlook reacting with muted enthusiasm to Bernanke’s “unusually uncertain”outlook prognosis leaving me to guess that there is downside to current spot gold prices. LET ALL BE FOREWARNED HERE. Ben Bernanke is openly pessismistic of US economic outlook in the short-term in his congressional testimony this week. My own prognosis judge that there is at least a 70% chance of a double dip before the final quarter of calendar 2010 with big negative consequences for Singapore unless both US and Chinese Governments take an about turn to stimulate their economies again, however unpalatable this policy dilemma means. Anyone disagreeing?? Federal Reserve Chairman Ben Bernanke called the economic outlook "unusually uncertain" but avoided naming any new steps to jump-start growth http://www.marketwatch.com/story/us-stocks-falter-on-health-tech-earnings-2010-07-21 His comments DO NOT give me confidence that he knows what to do when that happens. FASTEN YOUR SEAT BELTS, MATES! Enjoy the rough roller-coaster ride awaiting ahead. Zhen He UPDATE on Global economies are heading for turbulence, ARE WE IN TROUBLE GOING FORWARD? Read More →

新加坡GDP草坪更翠绿？

作者：新加坡文献馆 2010年7月15日新加坡公布的经济数据引发了两岸三地报章的响亮回应：新加坡经济表现抢眼；新加坡GDP破表；新加坡GDP15% 冲全球第一；星GDP料增 15% 远胜香港；新加坡的惊叹号，台湾的问号，等等。这种洋溢着赞叹的媒体标题强化了新加坡经济的成功形象。然而，李光耀的新加坡是否真的就是江山如此多嬌？经济情势一片大好？这些漂亮的新加坡经济表现有多少真实性？当然，新加坡经济有其成功的一面，但数据呈现的只是片面不是全面。要解读新加坡经济表现之前有必要先了解一些基本的约束条件，缺乏这方面的基本常识，而只根据统计数据进行表面分析是不妥当的，难免会有偏差，甚至于会误判。每一个国家的政经大环境都有其本土性，而有关新加坡统计数据的特殊性，尤其是涉及新加坡经济表现的认知，有3大特色：其一，新加坡经济统计数据有其可使用性问题。其二，新加坡经济增长有其特殊性，其三，新加坡经济结构亦有其特殊性。首先，决定并形成这些约束条件的环境因素源于李光耀的政治思维。在新加坡的政治文化里国家讯息包括统计数据是非常重要的战略资源所以都严格保密。在‘你只需要知道你应该知道的’原则下，个人政治权力的虚实决定个人掌握机密资讯的多少。相信，在新加坡能够掌握国库清单与人民行动党干部清单的知情者，应该就只是政治权力核心的三儿个人。比如，即便民选总统的宪法责任是护卫国库，但总统并没有理所当然的知悉国情，而是通过公开途径向政府索取相关资讯。这位首任民选总统曾任内阁部长多年，且身居副总理之高位；由此可以知道，讯息在新加坡的战略性与机密性；即便是副总理也无知国库的虚实。以此类推，也应该是只有党秘书长才掌握干部清单。另外，新加坡双语政策已有40余年历史，但按李光耀的说法许多国人不知道这是个不对称的双语政策，这反映何事？这是个典型的资讯流失，又何以会是如此？那是因为政府要人民知道的事，会大事渲染，政府不要人民知道的事，即便其讯息已经在公共领域也不会引起人民的注意。这现象亦说明了在半真半假的讯息里，只有半张选票的人民只需要知道那不真实的部分。还有，明哲保身的官员不会越权去知道自已不应该知道的机密，更不会揭晓一些人民不应该知道的真相。换言之，官员会选择少知道或者不知道，又或者是知道后尽快忘掉。这种潜规则于是塑造了统计数据的三项特性。其一，新加坡的行政资料数据化，收集与整理资讯皆具效率，所以李光耀对新加坡经济，社会与政治的动向了如指掌。然而，这套正确，全面与完整的数据是新加坡官方数据的机密版本。新加坡官方数据的公告版本是修饰的版本；通过定义上不明确界定，模糊了统计数据原有真面目。比如，在新加坡的人口统计里，公民、永久居民与非公民；新移民人口和公民移居外国人口等等并没有明确数据，只能凭数据定义去界定新加坡人口的确实状况。但是，使用这种以揣测的加减法去分析经济现象容易出乱子。 2003年，南洋理工大学根据官方的统计数据解读了一些经济现象，一位新上任的代部长训斥这份经济报告为‘垃圾’。一位借调到劳工部的国大同行说：如果能够从这组数据中得出这样的结论，应该可以拿到诺贝尔奖。显然的，熟悉新加坡情况的学者会得出‘垃圾’结论，反映了官方统计数据的使用性不佳。讽刺之言更进一步证实了知内情者知道那是一些不能轻易使用的数据。理所当然，报告与资讯之间有其因果上的垃圾必然性。其二，2010年2月23日，财政部长：‘… 长期的增长。劳动生产力是一个核心的议题，… 要把生产力年成长打到2-3%，是个主要的挑战。…过去十年，新加坡的生产率年均增长只有1%… 。’ 2010年2月初，根据新加坡经济战略委员：新加坡的劳动生产力远远落后于美国和日本等国，制造业和服务业的生产力大约分别为美国和日本的55%到65%。提升生产力规划始于1970年代初。1979年政府推行‘第二次工业革命’试图利用高工资政策来迫使制造业进行机械化以提高生产力，但计划彻底失败，过后，引进大量廉价劳工来满足外商对人力生产因素的需求。 Peebles & Wilson (2002: 59) 记载了克鲁科曼的评述：‘新加坡的经济增长和生产力的提升完全没有关系，其生产总值的增加主要是来自资本与劳动力因素的增加。香港的情况则恰好相反，其经济增长是来自生产力因素。新加坡的状况不足为奇，因为较早之前就有过类似的论述。’ 按克鲁科曼的原文：‘新加坡的经济增长可以用经济投入来作全面的解释。这其中完全没有效率的增值。从这个层面来看，李光耀的新加坡经济和史太林的苏联经济是双胞胎，其经济成长是来自生产资源的投入。当然，新加坡比前苏联更繁荣…因为新加坡更接近，但低于西方经济体的效率。’(Krugman 1994: 71) 克鲁科曼对新加坡的未来经济增长不表乐观：‘因为当前的形式局限未来的发展，在现有经济架构下，提升劳工素质的空间有限。’ 提升生产力有40年的历史，是人民行动党政府始终无法解决的经济困境。这一种无力解决经济问题的现实又如何值得其他经济体羡慕，甚至于作为借鉴的模式？其三，2010年7月13日，李显龙在休斯敦指出：经济增长强劲的主因是两间赌场酒店开幕，以及制药业的增长…；要推行…改造经济、提升工人技能和提高生产力等计划。如果我们无法实现较长期的结构性经济改革，未来将无法取得持续增长。这番谈话显示了新加坡经济结构的问题：政府始终无法改变对外来资本，外来技术和外来市场的高度依赖。这样的经济架构缺乏主动，置疑了可持续增长的稳定性。新加坡的外资制造业，如石化工业，制药业，高科技产品等等巨额投资有利膨胀GDP，但对提升本地经济素质则虚多实少。这在新加坡经济历史里有先例可查。 Helen Hughes (1969) 指出石油工业的巨额投资有利GDP增长但对就业增长并没有多大帮助。新加坡是依赖劳工密集经济创造就业机会。 W G Huff (1994) 解释：早年的石油商只是利用新加坡的地理位置进行直接贸易，不经手中间人，所以新加坡并不分享利益，但是巨额石油贸易带来经济发展迹象。然而，英国官员却指出：这对我们的统计数据制造了错误的印象。 1995年OECD 把新加坡列为更先进的发展中国家，时任副总理的李显龙坚持新加坡仍是发展中国家。官方对新加坡经济结构的评估是：新加坡经济缺乏一个已发展经济体的广度和深度，所以无法和先进发展中经济体进行竞争。这一争议亦涉及GDP人均概念。新加坡认为由于经济中有很大的外来因素，加上新加坡人口少，因而带来了GDP人均偏高的非真实现象。 Peebles & Wilson (2002: 135) 探讨了这一问题：以新加坡经济体来比较，其生产额是相对的庞大，是谁从中得益？是什么程度的好处？新加坡GDP中有相当部分来自外资企业和外来劳动力，这些都不是新加坡人的所得。为此，统计局设计了本土GNP概念 (Indigenous GNP, IGNP) 。以2000年为例子，35%的GDP是来自外资，所以IGNP是GDP的65%；新加坡只从IGNP分得好处。这一年的GDP人均是S$42,212而IGNP人均是S$ 38,445；证实了GDP人均偏高的说法。虽然经济组织结构是个复杂的问题，但是，从石油业历史与人均概念中还是可以一窥经济增长和新加坡老百姓之间有着何等的财富分配关系。新加坡的社会现实是，老百姓很难从经济增长中分享直接经济利益，但却无可避免的要分担其所带来的通货膨胀和社会成本。从这回的GDP增长来看，赌场从概念，设计到建筑，以及赌场科技包括荷官与保安多由外来人力承担；制药业的科技包括设备与尖端人力也都是外国入口。而新加坡老百姓未见其利先受其害：人民不仅付出了更高的车资，又要更使劲的挤进站无虚位的MRT。那么，谁又从中得益？显然的，谁能够把薪金和GDP挂勾谁就能夠得益。新加坡经济结构的特殊性：先进工业生产和大量廉价劳力入口，就是新加坡社会贫富两极化的根本原因。这是经济结构性和财富分配的问题，官方的代罪羔羊，全球经济一体化现象只是加剧了这个早已存在的新加坡经济困境。新加坡经济的本质在许多学者文献中都有评论，并且解释了个中缘由。然而，一些新加坡人包括撰稿人还是似懂非懂，所以经常有半真半假或者以假当真的论述，从而导致外围观众真假难分的以讹传讹。回头看看，台湾何需惊叹？台湾人的创业精神不就让新加坡人望尘莫及？一个在中国大江南北搞得风生水起，一个在苏卅折翼而返。新加坡超越香港？香港中小企业经济已经跨越边界融入中国南方经济；谁是这个大池塘里的大鱼？从另一个角度来看，新加坡，香港，台湾和中国大陆，是谁制造了更多的亿万富豪？这个情况不是一清二楚的吗？ 2010年7月23日中央社转载了南洋商报的报导，李显龙：‘这种增长速度是因为经济从谷底反弹而出现的“特殊”现象；再加上有一些新的发展项目，例如2座综合度假区开张，但这不代表明年或今后也能取得同样的增长率。’ 诚然，新加坡的经济表现没有什么值得惊叹，相反的，这种特殊经济表现更显露了新加坡的经济隐忧。有说旁观者清，看来这也未必正确，或许‘欲知庐山真面目，唯有身居此山中’。 Read More →