I've Got A Pin . . .

Anybody got a bubble?

Well, according to Bloomberg, global markets just had their best weekly rally in nearly two years!!  Yeah!!http://www.bloomberg.com/news/articles/2015-03-19/most-asian-futures-down-with-oil-dollar-holds-rebound 

Germany and the U.S. are trading at or near record levels and most markets are certainly at the highest levels they have seen since 2007.  Every thing is just honky dory.  Everything except . .

Factory Orders -

Down six months in a row.  Last time that happened was like 2008.  Remind me, what happened in 2008?

GDP 4th Quarter Actual and Forecasts - 

Recently released estimates for the fourth quarter GDP dropped to 2.2%, which is down from a GDP of 5.0% in the third quarter.  And this estimate is lower than the preliminary estimate.  Now my guestimate on the estimate that followed the preliminary estimate is that it will be wrong to the upside too.  .http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm 

And don't look for a lot of improvement this year.  The 2015 forecast put out by the Atlanta Fed has been falling like a rock the past few weeks.  At the beginning of February it was forecast at a 1.9% increase and now is at a meager 0.3%.  Not a pretty picture.   https://www.frbatlanta.org/cqer/researchcq/gdpnow.cfm 

Now the good news is the GDP forecast for Europe this year is a whopping 1.3%, but then again that is their Winter 2015 report that was done in January and came out in February, when the U.S. forecast was somewhat rosier, so who knows.  The next one is due out there in May.  http://ec.europa.eu/economy_finance/eu/forecasts/2015_winter_forecast_en.htm 

I note that if this forecast is accurate the European GDP will increase this year the most since 2010.  Let's just say that is a tad surprising when various countries there are squarely in deflation and most are still struggling.  But hey, why be a pessimist about it.  There has to be a reason why Germany's stock market is not only setting new records regularly but is leaving records of 2007 in the dust.  Really, there has to be a reason doesn't there?  Please, please tell me there is a reason the DAX is trading around 50% higher than it was then.  In the famous words of Sargent Schultz: "I know nothing, I hear nothing, I see nothing."

Wholesale Sales and Inventories

Hey, of these two one is up and one is down - that's at least neutral right?  I wish it worked that way.  Alas, the sales are down and the inventories are up in the U.S. 

http://www.census.gov/wholesale/pdf/mwts/currentwhl.pdf

Not wholly surprising given the rapid rise of the dollar against most currencies.  Imports are cheaper every day, so U.S. manufacturers are feeling the pain and will likely do so for a quite some time to come.

Along the same lines, it is worth noting that the factory order numbers in the U.S. were down in January for the sixth straight month, despite consensus forecasts for a slight rise.  Again, the rising dollar could be partly to blame or possibly, just maybe, perhaps, it is a slowing U.S. economy.  Never mind, forget I even said that.  It could never happen.

China to the Rescue!?

The big China economic engine should help salvage some of the abysmal numbers around the globe, right?  After all, it is the second largest economy after the U.S.  Now I did note last month that internal government forecasts on economic growth in China were recently reduced but still - at 7% - better than pretty much anywhere else.  Not so bad.  Well, not so bad if you believe the Chinese government.

I know it is shocking, but I am a smidge skeptical about government forecasts in general and when it comes to China am in pretty much total disbelief.  My point last month was simply that even the Chinese cannot fully hide that it is getting worse there.  If you dig deeper on China, and some very respectable people have, you will see it is heading for a very hard landing.  Certainly the government there will do everything it can to avert it but efforts to date have simply made the ultimate problem worse.

Mish, whose blog I highly recommend, notes that the debt in China is in the $30 US trillion range, which is about 300% of GDP, meaning GDP growth will need to be 21% just to service debt, and that ain't happening. 

http://globaleconomicanalysis.blogspot.com/2015/03/reality-check-how-fast-is-china-growing.html

To give perspective, the debt to GDP ratio in China is above the ratio in Japan (around 227%) and we all know what has been happening there for decades.  It is close to thrice (I love that word) the U.S. ratio, which is around 100%, and we all read regularly how bad that is.  Now I could go through how their numbers are terrible on every front but Mish does that well in the linked article.  Bottom line is that China, in my view, is heading for more than a recession and something a good bit worse than what we experienced here in 2008.  More akin to Japan, one might say, and Mish does.  This will not be pretty and it will not help the global picture.

P.S.

Following my post above the Mish pointed out a recent presentation by the Vice Premier of China, admitting that their economy is slowing and the growth of the past is "unsustainable" BUT there are bright spots.  With all these bright spots, one has to question why the government plans on spending more and generating the largest deficit (like it is not already way too big) this year than any other year since the beginning of the global crisis began. 

http://www.reuters.com/article/2015/03/22/us-china-economy-idUSKBN0MI01920150322

Then again, I could be all full of doo-doo.  You figure it out.