Batten down the hatches

[Doom?]

WARNING SIGNALS OF A DOUBLE-DIP RECESSION FLASH BRIGHTLY ACROSS THE WORLD

Global bond markets are flashing warning signals of a sharp slowdown in growth across the world and a possible slide toward a double-dip recession and outright deflation.

The yield on two-year US Treasuries has fallen to a record low of 0.61pc in a flight to safety, a level not seen during the depths of the Great Depression. Ten-year yields dropped below the ­psychologically sensitive level of 2.96pc.

Such levels are clearly incompatible with assumptions on Wall Street for 3pc growth in the second half of this year. “If the bond market is correct then this recovery could be dead in the water,” said Jim Reid, credit strategist at Deutsche Bank. The credit markets tend to sniff out trouble first and have acted as an early warning alert at every stage of the financial crisis over the past three years.
Mr Reid said deflation has emerged as the dominant risk in the West and will force central banks to renew quantitative easing, the Americans “pre-emptively” and the Europeans “only when their backs are against the world”.

Triple tremors from the banking crisis in Spain, crumbling confidence in the US, and a setback in China’s leading economic indicator all combined with a vengeance on Tuesday. “The market in risky assets has capitulated ­today amid fears that the ­global recovery is petering out,” said Gavan Nolan, head of credit at Markit.

Rumbling in the background are influential voices warning of a global slide into economic quagmire. Nobel Laureate Paul Krugman said premature tightening in much of the North Atlantic region at the same time would lead to ­disaster. “We are now, I fear, in the early stages of a third depression, primarily a failure of policy. Both the United States and Europe are well on their way toward Japan-style deflationary traps. The Fed seems aware of these deflationary risks, but what it proposes to do is, well, nothing,” he wrote.


China’s Shanghai composite index of equities fell 4pc on Tuesday and is now 55pc below its peak in late 2008. The authorities have been tightening this year to slow inflation and curb property speculation as home prices in Shanghai and Beijing reach 13 times incomes, but it is unclear whether they can engineer a soft-landing in an economy where state-owned banks have built up huge hidden debts.

The Baltic Dry Index that measures freight rates for bulk goods – and watched as a proxy for the ups and downs of the Chinese economy – has dropped by 40pc over the past month.

In Europe, investors remain jittery as the European Central Bank prepares to shut its emergency facility of €442bn (£361bn) of one-year loans, the largest sum ever lent by a central bank.

A report in the Financial Times that Spanish banks have been begging the ECB to extend the one-year scheme has heightened fears that they are totally shut out of the interbank markets. The shares of BBVA fell 7pc and Santander fell 7pc.

The ECB is offering a three-month tender on Wednesday, which will indicate how many banks are under strain. Hans Redeker, curency chief at BNP Paribas, said this facility is unlikely to reassure the markets. “This just builds up a tidal wave of short-term funding needs that all need to be rolled over at the same time,” he said.

The Spanish cajas or savings banks are clearly in trouble, relying on the ECB for 21pc of their funding. There were signs of an incipient run on Spanish banks on May 7, an episode described by ECB president Jean-Claude Trichet as perhaps the most serious crisis since the First World War. These pressures linger. The Spanish daily Expansion reports that the Bank of Spain has ordered inspectors to track capital flows abroad after the haemorrhage of €18bn in the first half of the year, mostly to accounts in Switzerland, Luxembourg and Ireland.

“Foreign capital flight is under way. This can only make matters worse given the climate of insecurity and the country’s lack of credibility,” said Borja Duran from Wealth Solutions in Madrid.

The latest twist is a rise in credit default swaps on Italian debt, which jumped 16 basis points to 203 yesterday. An auction of Italian bonds this week went badly, with low bid-to-cover ratios.

The Bank of New York ­Mellon said its flow data had picked up a relentless flight from both Greek and Italian debt. It is clear evidence that the EU’s €750bn shield with the IMF for eurozone debtors has failed to restore the confidence of global investors, who fear that the EU’s austerity strategy risks setting off a self-defeating downward spiral.

Spreads on Greek debt have jumped 350 basis points since the EU announced its plan in early May. Portuguese and Spanish yields have both jumped sharply despite direct action by the European Central Bank to force down yields. Private buyers are clearly dumping their holdings onto the ECB as fast they can.

Mr Redeker said Japanese life insurers and institutional investors are slashing their ­estimated $700bn holdings of European debt. The funds are being recycled into yen, which reached ¥107 against the euro yesterday, the strongest in nine years.

The flight to safety in Tokyo depressed yields on Japanese 10-year bonds to 1.11pc. There are concerns in any case that Japan itself may be sliding back into deflationary deep freeze. Japan’s unemployment rose in May for the third straight month to 5.2pc. ­Industrial output fell slightly. Production of capital goods – a leading indicator – fell 4.4pc.

Italy has been largely immune to Europe’s bond crisis until now, thanks to high savings. None of its banks have required a rescue. However, fresh threats of secession by the Lega Nord and last week’s general strike over austerity measures have revived fears about the stability of the political system.

Italy’s public debt is the third largest in the world after the US and Japan. Everybody knows that if the crisis ever reaches Rome, the game is up for monetary union.

[Kubez]

Another buying opportunity? So soon?

[pffft]

I would get too jittery.  Most nations have introduced austerity measures.  The Uk for example, wont go into a double dip, nor will US.  Anyway the economy in asia is very strong, so I wouldnt go opening the vintage port until you get a real handle on whats happening.   One article of maybe's does not mean its all over.

You wont be getting that cheap condo anytime !  Keep Dreaming

[Cyclist]

If economic cycles of the past are anything to go by, a major depression must be looming around the corner.

Hang on to your seats folks !

[but...]

I thought we had to hang on to our hats...?

There's a 3-5% drop coming over the next 12 months according to the other thread!!! Yes, even though property prices just rose 2.6% in the month of May. So I guess that means we're going to see a 0.4% to 2.4% drop by mid-2011.

Batten down the hatches and hang on to your hats and seats!

[pffft]

My goodness a 4% drop, oh well thats it then, we may as well all go home.  Its all over then isnt it.  The pink slips are coming and the whole place is finished.   

Like I say, dont go popping the vintage port just yet.

Theres no crash coming.  You may have along wait.

[Realist?]

SPECTRE OF AN ECONOMIC RELAPSE TALKS MARKETS AS CHINA WOBBLES

Fears of an economic relapse across the world have begun to stalk markets again after pending homes sales in the US crashed by a third and a slew of weak data from China and Japan sent bourses tumbling across Asia.

The credit system is once again flashing warnings of extreme fragility, with the yield on 10-year US Treasuries plummeting back to crisis-levels of 2.89pc. Japan's 10-year bond dropped to 1.06pc, the lowest since the country's deflation battle seven years ago. Tokyo's Nikkei stock index tumbled to the lowest level since 2005 as safe-haven flight into the yen surged to levels that leave many Japanese exporters underwater.

"Double-dip is back in the lexicon," said David Bloom, currency chief at HSBC. "Everybody hoped that China's huge fiscal package would keep global growth going long enough for the West to recover, but it does not look like that is happening.

"China is now slowing but the US housing market is falling off a cliff. It's cataclysmic. In Japan the data is turning nasty, and fiscal tightening is just starting in Europe and the UK, so everybody is asking where the growth is going to come from," he said.

Goldman Sachs said its gauge of Global Leading Indicators had peaked. "Signs `under the hood' have pointed to some slowing momentum. Industrial growth is set to decelerate," said the bank.

The US National Association of Realtors said the numbers of home buyers signing contracts dropped 30pc in May from a month ealier, confirming fears that the expiry of subidies would lead to a cliff-edge fall in sales. "Tax credits merely cannibalised sales for the coming months, and did not succeed in jump-starting a lasting recovery of the housing market," said Teunis Brosens from ING.

The US property market is haunted by worries that a cluster of "option ARM" mortgages will reset upwards over the coming months, leading to a fresh wave of defaults. "Payment option ARMs are about to explode," said Iowa's Attorney General Tom Miller after a White House meeting on housing.

The new twist for investors is the sudden slowdown in China. The HSBC/Markit index of Chinese manufacturing has fallen from a high of 57.4 in January to 50.4 in June, the result of monetary tightening and curbs to cool the red-hot property market.

Wensheng Peng from Barclays Capital said the risk of double-dip is small. "We are seeing a policy-led soft landing, a slowdown that is desired and targeted by the government," he said.

However, analysts are deeply divided on China. A report by the European Chamber in China said there was pervasive over-capacity in steel, cement, chemicals, refining, and energy equipment.

"The Chinese government's massive stimulus package is being pumped into building new plants and adding uneccesary capacity. The problem is getting worse in many industries," it said, claiming that usage rates were as low as 35pc in some sectors.

Professor Victor Shih from Northwestern University in the US has warned that local entities have borrowed $1.7 trillion, using inflated land values as collateral. China's authorities have played down these concerns, denying that credit has been allowed to balloon out of control as it did in Japan during the 1980s. But it is an open question whether the Communist leadership can calibrate fine-tuning any better than the rest of the world.

Clearly China's slowdown is starting to send ripples through Asia and commodity markets, with knock-on effects for Australia. The Baltic Dry Index measuring freight rates for bulk goods has almost halved since October, a trend that is now surfacing within Chinese shipping and port data.

Japan's unemployment jumped to 5.2pc in May, and households have cut spending over the last two months. Industrial output slipped 0.1pc. Overseas shipments fell 1.7pc.

Europe's recovery looks ever more fragile. French consumer confidence has weakened for five months in row. The eurozone manufacturing index slipped in June. Britain has seen a sharp fall in new export orders. Turkey's exporters have reported a sudden drop in demand from Europe in June.

It is not yet a global double-dip, but bourses from Tokyo to Shanghai, Frankfurt, London, and New York are all signalling a clear risk that we face a "truncated" V-shaped recovery, a plateau where we grind along at best with stubbornly high unemployment. At worst, it could be the start of a deeper slump as yet more chickens come home to roost from the credit crisis.

"The world is starting to look more and more like Japan," said Mr Bloom.

[oh OK]

...so now they're saying it's NOT a double-dip, it'll be a truncated V. Well, that's a relief.

No need to batten down the hatches then?

[pffft]

I doubt if china will crash.  It may wobble but crash it wont.

[wazzziz]

China is on the up.  No signs of any bubble bursting there.

[yep yep]

China is on the up.  No signs of any bubble bursting there.

Hehe, wazziz is back and as clueless as before... The government in China is estimating a moderate 50% decrease in the inflated property prices for their stress tests.

But welcome back, you make good entertainment. Awaiting for your next silly remark.

[Diehardrisktakers]

I doubt if china will crash.  It may wobble but crash it wont.

Everywhere everybody are natural risk-takers these days. Open
up a line of credit and everybody jumps in. How the credits are
dished out and administered is anybody's guess. Your
connections and contacts determine your access to credit
irregardless of the vialibility of your business projects, big or
small. The trend is now on the up and up and there seems
to be no limit to anything. The natural gungho and
never-say-die spirit are the drivers. Gobble up any business
that cross your path, do not fear failure. Just do it and if it
fails it becomes the banks' problem. How much has been
committed by the banks and how, nobody really knows.
 One glaring segment is in property. The authorities are trying
to tidy it up but is it too late. The balloon must burst eventually
and the repercussions will be widespread in it's effects.
Risk-taking has entered into an extremely unhealthy and
unpredictable and apparently through easy arrangements, that
especially huge businesses are blindly swimming in dangerous
waters with no solid fundamentals. Huge debts are piling up to
keep  businesses moving with no concrete guarantee of
reasonable returns. It could very well be a huge termite
infested global business house we are in today and we have
to brace ourselves daily for the breakdown here and there
made worst by frequent worsening climatic phenomenons.
Whilst we applaud the human spirit and it's survival instincts,
there is now worst than ever, the  trend in dangerous and
uncontrolled risktakings in businesses and other fields
supported by lax fundamentals and throwing caution to the
winds.      

[wazzziz]

Well, singapore is on the up. Nothing will stop us here. This is the effect of the boosting of the population.

There is far more liquidity than there was a year ago. Look what we have achieved.

China will not crash, this is just what people expect after a period of prosperity, BUT ITS NOT CRASHING !!. 

China will just move onwards and upwards as we will also do here.

Theres no double dip, no bubble and all in all it looks pretty rosy here in Singapore.

[Kim Kim]

You sound like those recordings that incessantly blare out of speakers in North Korea to brainwash remind the public how wonderful life is.

[BOOO!]

The US economic recovery in recent quarters is little more than a "cover-up" and the world is headed for a "Greatest Depression," complete with social unrest and class warfare, says a renowned economic forecaster.

Gerald Celente, head of the Trends Research Institute, told Yahoo!News' Tech Ticker that there's no risk of a "double-dip recession" because the first "dip" never ended.

"We're saying there's no double dip, it never ended," Celente said. "We're looking at the Greatest Depression. There's no way out of this without [rebuilding] productive capacity. You can't print [money to get] out of it."

Celente, who has been credited with predicting the 1987 stock market crash, the collapse of the Soviet Union and the subprime mortgage crisis of recent years, said the US and other developed countries can expect to see the sort of social unrest the world witnessed in Greece this year once government attempts to shore up the economy fail and lawmakers turn to "austerity measures" to plug gaping budget holes.
Story continues below...

"You're going to see it all over the world," Celente said. "What they call austerity programs ... What are they doing? They're bailing out the banks and they're making the people pay for it. And the people don't like that."

Celente pointed to a near-riot that took place last week in Atlanta when 30,000 people showed up to be put on a housing waiting list, saying that the event is a harbinger of what's to come.

He also argued that the way unemployment is measured today masks a much larger joblessness crisis because "once you're off the unemployment rolls, you're no longer unemployed."

Celente said the current unemployment rate, if it were measured as it was measured during the Great Depression, would be around 17.5 percent. And he expects that number to rise to around 22 percent in the coming years.

"One of the good businesses to get in to may be guillotines," Celente quipped. "Because there's a real off-with-their-heads fever going on. People are really fed up."

Celente argued that the conditions needed for an economic recovery simply don't exist. "Let's go back to the 1990s. We're in a recession. What got us out of it? The Internet. It wasn't a government policy, and Al Gore didn't invent it."

But today, Celente argued, there are no new booming industries pushing towards economic expansion. And the US middle class may not have the right skills to take up the challenge.

"We went from a country that used to be merchants, craftspeople, manufacturers, to clerks and cashiers," Celente said. "We have to bring manufacturing back to America."

Celente agreed with his Tech Ticker interviewers that the green economy, which seeks to replace fossil fuels with alternative and renewable energy sources, is a good place to start on an economic recovery, but he said the Obama administration's handling of the issue was misguided.

Celente pointed out the US has committed $54 billion for nuclear power expansion, and has also committed to "clean coal" -- neither of which he sees as being large drivers of the green economy.

The government is "not putting money where it should go," he said.