SocGen: Taiwan's Green Shoot Down?

Wake-up call? There may be more yellow straws in the inventory story ... Watch out!
Click to enlarge, courtesy of Societe Generale.

Is China Transforming Itself In Financial Ponzi?

I read a post at naked capitalism "China Power Generation Falls, Suggesting Talk of Recovery is Premature":

According to the State Grid’s latest statistics, April’s national power generation totaled 274.763 billion kwh, a fall of 3.55%, year on year, and a decline of over 3% from the previous month.
The Ministry of Industry and Information Technology says that in the first three months of this year, China’s power consumption totaled 780.990 kwh, down 4.02%, year on year, and power consumption in March alone totaled 283.389 kwh, down 2.01%....

However, at the same time the credit is growing like mushrooms, more info at WSJ China Journal "Where Is China’s Surge In Bank Credit Going?":

One of the most talked about recent numbers in China’s economy -– the 4.6 trillion yuan (nearly $675 billion) in new bank loans extended in the first quarter –- is also one of the most confusing. It’s clear that a lot of lending has been pushed into the economy, but so far it’s not been that clear where exactly the money is going.
......
The central bank’s breakdown of new medium- and long-term borrowing, the kind most likely to be used to pay for investment, shows that 50.1% went to infrastructure in the first quarter. That clearly reflects how banks are being pressed to give priority to government stimulus projects. But such lending has its own risks. “Recent bank lending has been concentrated in government projects which, while helping drive rapid investment, also requires evaluation of local governments’ ability to repay the debts,” the central bank said.
Outside of stimulus projects, demand for credit is not as strong. Only 7.9% of new medium- and long-term lending went to manufacturing, and 11.2% to real estate development.
On the one hand, the figures could allay worries that the surge in bank lending is financing an increase in excess manufacturing capacity in China. On the other, it shows that many Chinese businesses are still having a tough time.

Contracting power consumption would suggest contracting industrial production, unless moved to energy efficient technologies, due to lower demand? How do they build that infrastructure, e.g., I would expect that concrete production requires quite a lot of power?

Well, is this country going to create GDP growth with excessive credit growth and fancy financial services?

SEB: Macroeconomic Review Of Latvia

SEB has published the April issue of "Macroeconomic Review of Latvia". It is definitely worth reading the full report, but here I list the headlines:

• Government agrees to cut the budget expenditure by 40% compared with 2008 which still means budget deficit of at least 7% of GDP.
• In February there was a surplus of 0.7 million lats in the Current Payment Account of the Balance of Payments.
• Tax revenues as at 19 April 2009 amounted to 565 million lats or 12.8% below the target.
• Moodyʹs has downgraded the government ratings for Latvia for liabilities in foreign and local currency from Baa1 to Baa3.
• In 2008 the annual budget deficit was 4% of GDP. The main precondition for introduction of the euro will depend on the government’s ability to straighten out the budgetary expnditure according to Maastricht criteria.
• The transit industry feels little influence of recession and shows only a slight drop in the first quarter.
• The rocketing provisions for doubtful loans turned the bank‘s profit in the 1st quarter into loss

At least the current payment account posted a surplus ...

Grantham On Moral Hazard Currently ...

Faith in government criminality? Could not resist to quote Jeremy Grantham:

... if you don’t think there is a special, one-off, super colossal dose of moral hazard out there today, you are sadly uninformed. The moral hazard in play today is of a massively larger order than any we have ever seen. (But given how strangely selective the moral hazard or bailouts have been, it is enough to make those susceptible to conspiracy theories think in terms of a financial mafia led by You-Know-Who. Too much seems to depend on which friends you have.)

Well, I do not know what I may add ... I did not expect such market veteran to speak of conspiracy theories!

Grantham: The Last Hurrah And Seven Lean Years

Jeremy Grantham of GMO is out with its quarterly letter. I look at the equity market in the US, led by "financial hero" once again today, and it feels I am done ...

Grantham has, in my view, these key things to say this time around:

Investor confidence is still fragile, and should we get a series of particularly shocking data points, which, in the unique position we find ourselves is quite possible (say, one out of three), then confidence could crack one more time and the market could go to a new low before the major anticipatory rally I’m describing. (This would make the current rally a short-term head fake.) In a rally to 1000 or so, the normal commercial bullish bias of the market will of course reassert itself, and everyone and his dog will be claiming it as the next major multi-year bull market. But such an event – a true lasting bull market – is most unlikely. A large rally here is far more likely to prove a last hurrah … a codicil on the great bullishness we have had since the early 90s or, even in some respects, since the early 80s. The rally, if it occurs, will set us up for a long, drawn-out disappointment not only in the economy, but also in the stock markets of the developed world.

and this:

To be honest, I believe that most of you readers are likely to be grandparents before you see a new inflation-adjusted high on the S&P.

Some other people I respect do not sound very bullish either, so I decided to sit on hands for a while, but it is trading environment:
James Montier: A Suckers' Rally or The Real Deal? @ FT Alphaville
Doug Kass: What a Piece of Work Is Buffett! @ TheStreet.com
Todd Harrisson: Randoms: Banking on More Capital @ Minyanville.com
Jeff Saut: Cognitive Dissonance @ Raymond James

still, there is room to get really exhausted...

Stokes: Will Latvia Start A Dangerous Domino Effect?

In the light of equity market dynamics this appears to be off the fire-line, but consider both sides of the trade ...

Mary Stokes has an article "Latvia: Will It Start A Dangerous Domino Effect?" at RGE Monitor today, here is the conclusion, but it is worth reading the full story:

Latvia is teetering on the brink of default and devaluation. If this small economy descends into crisis, it is likely to have ramifications far beyond its borders. Strong trade and financial linkages, not to mention similar macroeconomic vulnerabilities, mean a Latvian crisis would almost surely spread to Estonia and Lithuania’s economies.
A Latvian crisis would also have negative spillover effects on Sweden via its banks’ strong presence in Latvia and the mass defaults that would result from a Latvian devaluation given the high levels of fx-denominated lending (around 85%) there. While Sweden’s economy should avoid financial crisis, its growth prospects could be severely dented.
The big wildcard is how a Latvian default/devaluation would affect the greater CEE region. Direct trade and financial linkages between the Baltics and other CEE economies are limited. Nevertheless, many of these countries – particularly Bulgaria and Romania – share similar macroeconomic vulnerabilities to Latvia, meaning a crisis there could ‘wake up’ investors to the potential for crises in the rest of the CEE region.

Business Council's Survey Of Chief Executives Vs Insitute For Supply Management

There is an interesting story at Dow Jones Newswires today, some excerpts here (my emphasis):

NEW YORK (Dow Jones)--The recession will continue for the rest of 2009, say U.S. purchasing managers and CEOs, although the view from the corner office shows more improvement than does the outlook in the supply room.
The semiannual outlook survey released Tuesday by the Institute for Supply Management showed expectations for the remainder of 2009 have weakened in both the manufacturing and non-manufacturing sectors compared with sentiments expressed in December 2008, when the ISM did its last semiannual survey. "The December outlook may have been too optimistic because respondents had not fully gotten their arms around the problems in the economy," said Norbert Ore, who supervised the manufacturing segment of the ISM survey. In particular, the economy deteriorated faster and market prices became more chaotic, adding to uncertainty in early 2009.
The gloomier tone of the ISM outlook contrasts with the improved expectations reported Tuesday in the Business Council's Survey of Chief Executives, done with the Conference Board.

Ooouch! This reminds me what James Montier, the highly rated strategist at Societe Generale, wrote in October 21st, 2008:

Apart from corporate managers, the only group of people who don’t seem to expect a recession next year are the analysts.

or this is even better hitting the nail:

Memo to analysts: management haven’t got a clue. They don’t know any better than the rest of us. One of the great delusions of our industry is that we all expect corporate managers to know more than we do. Whilst their knowledge may be deeper than ours, it certainly doesn’t translate into a better ability to forecast the future.

Well, I do not know - does this applies today, but just came in my stupid mind ...
The story at Dow Jones Newswires, however, ends on more optimistic note:

Lately, economists have begun to see signs the economy's decline is easing. Indeed, the ISM's own reports on business activity within the factory and non manufacturing sectors showed improvement in April.
"The monthly indicators are more optimistic," said Ore, which is a good sign for the second half of 2009.

Norbert Ore supervised the manufacturing segment of the ISM survey, according to Dow Jones.
Well, all ISM indices still pointed to contraction (including sub-indices), but at a slower pace (improvement in the second derivative of contraction), in my view ... but media may be spinning. Or me?

Faith In Government Criminality ...

For those who do not have it (faith in government criminality) yet, some links to broaden the view (banking and financial industry in the spotlight):

New Stress Trial Balloon Floated @ naked capitalism
A Conflict of Interest is Not a Conflict of Interest If It Involves Goldman @ naked capitalism
Fed to Prop Up Commercial Real Estate Loan Pre Expected Implosion @ naked capitalism
Leaking under stress @ Paul Krugman
Bank capital hocus-pocus @ Paul Krugman

and the culmination at "finem respice" :
I Can Only Hope This Proves To Be Inflammatory Nonsense and Less Than Desired Duplication

some additional background info for beginners at The Baseline Scenario:
Irreversible Errors and Zombie Oligarchs

every lemming of style-drifting Buffett is obliged to buy Wells Fargo (WFC) now, even as S&P puts it on Watch Negative ... WFC is the second best stock at S&P100 today (as I write +21.5% on day). If the father Buffett says he is fine with WFC, why should anyone care of any capital raise?
No probs to put it in the context of Rational Expectations Hypotesis ... creditors are paid after shareholders get their buck, now. Rating clowns.

Saut: Cognitive Dissonance

Jeff Saut, the respectful strategist at Raymond James has posted his weekly missive, see the latest version here. Last time on this blog Jeff suggested this.
His call for this week (but read the full story) in very short:

The longest “buying stampede” chronicled in my notes is 41 sessions. Today is either session 39, if you measure from the intraday low of March 6th (666 basis the S&P 500), or session 38 if you measure from the March 9th closing low of 676.53. In either event, we have made a lot of money over the last eight weeks and continue to think the trick from here will be to keep that money. Longer-term, we are pretty optimistic. Near-term, we are cautious. If I had to buy something today it would be the emerging markets like Brazil since most of the emerging markets didn’t make new reaction lows in March like the S&P did. Moreover, I think they will be the leaders in the next bull market.

Consider as a probability!

Seven Fat Years Continue ... Now At Lattelecom

Bubble blower, the former prime minister of Latvia, Aigars Kalvitis ends up at Lattelecom. This should be a miracle assuming the dire straits of Latvian economy. Obviously, Lattelecom should be destined ...

Picture courtesy of krabjiem.lv!