AS THE WORLD TURNS: by Ambrose Evans-PritchardNews Weekly
The gathering storm.
, August 7, 2010
Today's release on manufacturing activity by the Richmond Fed is pretty ghastly, as you would expect given that the effects of fiscal stimulus are now wearing off at accelerating pace ... and given that the structural East-West imbalances that lay behind the global crisis are getting worse again.
This follows yesterday's horrendous fall in the Texas business activity index from the Dallas Fed, which fell from -4 in June to -21 in July. "Thirty-one percent of firms reported a worsening of activity, up from 22 percent in June," said the bank.
Forgive me if I am becoming a "leading indicator" bore but these turning points in the cycle are fascinating. The US Conference Board's index of consumer confidence fell again in July to 50.4 after plunging in June.
"Concerns about business conditions and the labour market are casting a dark cloud over consumers that is not likely to lift until the job market improves," said the Board.
This follows the fall in the ECRI leading indicator for last week to -10.5, a level that has always been followed by recession in the post-war era. ...
All of this squares with the fall in truck shipments and rail car loadings over recent weeks.
"What we're looking at is an invisible wall, which we've run into here. Which, essentially, as far as I can see, is a typical pause that occurs in an economic recovery," said Alan Greenspan earlier this month.
"I will grant you that this is not a normal economic recovery. We've just come out of what I believe is the most extraordinary and virulent global financial crisis that the world has ever seen."
"I don't know where the end game is. Something has got give here...," he told CNBC.
As David Rosenberg at Gluskin Sheff reminds us eloquently every week, the bond markets are telling us that we are already in a deep and intractable depression - which does not preclude Japanese-style rallies, technical recoveries, and bursts of growth, all within a Kondratieff Winter.
I have no idea what assets prices will or will not do. My area of curiosity is the global economy, and where it intersects with political, cultural, and historical forces. ...
In the end, the global macro economy will dictate the outcome.
So watch the Chinese banking system. Watch Japanese exports. Watch OPEC as it keeps cutting output to hold up the oil price. ...
Watch the M3 money supply in the US as it contracts at a 10pc annualised rate. And for goodness sake watch the Fed Board.Extract from Ambrose Evans-Pritchard, "Drip after drip of deflation data", The Telegraph (UK) blog, July 27, 2010.