No fat ladies singing
One early reaction in China to the Politburo’s rate cuts was for a Shanghai banker to jump to his death from a high window. A bit extreme perhaps, but as Ambrose Evans-Pritchard points out, there is no net addition of stimulus in the package. So while dead bankers rarely bounce, what happened around the world yesterday looks more and more like the apparent optimism of a dead cat.
For an hour or two overnight, things were looking up as the Shanghai powered ahead by 4%. But then that was wiped out, and the Index was 1.3% down on the day…yet another new 8-month low.
Euro stocks are looking nervous, and an hour into the mission the FTSE is already 1.4% down, dipping below 6,000 again. But what many observers seem not to notice is that yesterday’s US rally ended with a distinct sound of bouncing feline cadavers. Take a squint at this:
Two things are clear from these graphs. First, towards the end of yesterday, the S&P sold off again. It is still nearly 700 points adrift of the pre Black Monday high.
Second – and here’s me being ‘totally wrong’ again – the most consistent feature of the panic day and yesterday was a rise in US ten year yields. Rising rates? I will keep on about it until somebody catches on.
All the US indices were down yesterday, in what CNN referred to as ‘an unravelling’ of the rally. To be exact, it was the most severe collapse of a rally since 2008. The S&P 500 is 1% away from erasing all its gains since the end of 2013, and its futures for today look shakey at best: climbing to 1.7% in the early CET hours today, as the Chinese sell-off returned, it has slashed to 0.5% in the last hour.
The stimulation announced by Beijing yesterday isn’t going to work solely because it’s shuffling the same pack again: it will fail as much because it’s like giving Speed to a bloke about to be executed: it isn’t going to make him walk any faster towards the gallows. There is no market out there to buy Chinese crap because neoliberal ‘policy’ has slaughtered both spending power and confidence further down the social scale.
Look at what Yanis Varoufakis (naive negotiator but first class economist) wrote about China over four years ago:
“To buy time, the Chinese government is stimulating its growing economy and keeps it shielded from currency revaluations, in the hope that vibrant growth can continue. But they see the omens. And they are not good. On the one hand, China’s consumption-to-GDP ratio is falling; a sure sign that the domestic market cannot generate enough demand for China’s gigantic factories. On the other hand, their fiscal injections are causing real estate bubbles. If these are unchecked, they may burst and thus cause a catastrophic domestic unwinding. But how do you deflate a bubble without choking off growth? That was the multi-trillion dollar question that Alan Greenspan failed to answer. It is not clear that the Chinese authorities can.”
As I keep on saying, rock and hard place. When the Boys from Beijing finally work this out – and start a crucifixion programme for Shadow Bankers – I don’t believe they will ‘do a Greenspan’; I think they will take the hit in two ways that offer them the best geopolitical advantage:
- They will pull out all the stops to get investment monies back in again: ‘buy at the low point’ selling plus increased debt rates
- They will turn from defence to offence, and from narrow market considerations to broader geopolitical opportunities…perhaps in concert with other equally desperate Brics.
Never underestimate the desperation of the Poor. When defeat is staring them in the face with nothing to lose, then it’s time to really fear them.
Earlier at The Slog: Anyone notice Osborne reducing bank customer guarantee by £10,000?
The Slog 