Update 3 - Global economies heading for turbulence, are we right at the door of “autumn” of a double-dip and a recession just waiting?

Ni Sha Ju Xia, Intel, Agrium, BHP-Billiton, Ssangyong Motor, Centennial Coal and increased volatility/ divergence of risks appetite, Mau Ku Lau Su, Mau Kou Tong Mein


Ni Sha Ju Xia – analogous Chinese proverb, fluid downhill wasting of mudslides brings with it both mud and sand together – combination of both negatives and positives, aptly describes Wall Street stock market behaviour since my last update on global economy outlook, but since then, the slide continues. US stocks slided down, paused and slide again, in two consecutive weeks of decline, just as I did lamented on 14 August 2010 at 11.08 am post in further comments to my last write-up, Update 2 – GLOBAL ECONOMIES HEADING FOR TURBULENCE, ARE WE EDGING CLOSER TO TROUBLE HEADING FORWARD?, published in Temasek Review on 13 August 2010.

At its Aug. 10 meeting of the Federal Open Market Committee, the FMOC were sharply split about move to further stimulate the faltering U.S. economy. Modest 1.6% rise in consumer spending in 2nd Qtr GDP, was largely sated by overseas production found US producers saw their stocks piling up on the shelves, lifted US GDP growth. With the build-up of “involuntary” inventory gain rising faster than retail sales, forward US production will be constrained. That explains partly the faltering manufacturing-led recovery. Initial onslaught of these “mud” trigger downhill came from FMOC’s negative downgrade of US economic outlook. “The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement after meeting Aug. 10.

http://noir.bloomberg.com/apps/news?pid=20601103&sid=aj9jBSab.4XE

That eerie pronouncement drove down US stock indices of between 3% to 5%. Oil prices fell 7%. US 10 year Treasury bond yields fell to a 16 months low of 2.58% , way down from 2.82% the week earlier. In the midst of these gloom, stronger-than-expected GDP statistics coming out of EU, particularly Germany, along with UK’s GDP growth of 1.1% and some big merger & acquisition news provided the silver linings.

A slew of corporate takeover moves including Canadian agribusiness giant, Agrium Inc. C$1.1 bln takeover bid for Australian agribusiness giant on 16 August, AWB Ltd agribusiness, BHP-Billiton’s surprise US$38.45 bln hostile takeover move on Potash Corp. of Satskatchewan Inc on 18 August, Intel’s US$7.68 bln takeover of McAfee on 19 August, South Korea’s state-owned oil company, Korea National Corporation making a 1.87 billion Pound hostile takeover bid for UK North Sea oil and gas EXPLORER, Dana Petroleum PLC on 20 August 2010. These takeover moves and strength of German 2nd Qtr economic rebound succeeded in providing the US and European stock markets with positive leads of some initial rebound and a MOMENTARY PAUSE in stability, only to be disappointed by stunning worse-than-expected surge in US unemployment numbers announced on 19 August 2010. On the same date, the Philly Fed's business activity index fell to NEGATIVE 7.7 in August from positive 5.1 in July, well below the positive 7.0 expected by economists.

http://www.marketwatch.com/story/philly-fed-index-negative-for-first-time-in-year-2010-08-19

As recently as March, the Philly Fed index stood at a healthy 21.4. Negative readings in the Philadelphia index indicate a majority of firms in the region are experiencing deteriorating conditions. Together with much weaker unemployment numbers, they strongly suggest some parts of the US manufacturing-led sector recovery are faltering. This collective news rattled US stock market – triggering the second leg mudslide of Ni Sha Ju Xia – burying the prevailing benign calm, even modestly hopeful, sentiments in global stock markets in its wake.

A trifecta of stocks, commodities including spot gold, euro fall in tandem and ( this author noted) US 10-year Treasury bond yields, in PERVERSE stunning reverse, actually backed up 33 basis points or 12.8% to 2.61% from 2.57% sequentially for the Friday at week ended 20 August 2010.

http://www.smh.com.au/business/markets/stocks-commodities-retreat-on-worldwide-growth-worries-20100821-139b6.html

BOND PRICES SHOULD RISE IN OPPOSITE DIRECTION OF EQUITIES BUT THEY FELL TOGETHER TO LIFT YIELDS!! China was said to be selling some US Treasury bonds since June worrying about the future direction of US dollar and looking for diversification. The rebound on the 10 year US Treasury bond yield, and seeming stabilisation at 2.61% since (until yesterday), is surprising especially when retail investors have been flocking to bonds and hedge-fund trading volume in U.S. government bonds have surged by more than 70% in the past year. Where is the 10 year Treasury bond support?

http://www.marketwatch.com/story/hedge-funds-pile-into-treasury-bond-market-2010-08-11

Was it Chinese selling or hedge fund exiting the explanation of this seemingly perverse US 10 year Treasury bond yields or something else underlying more sinister such as loss of confidence in all US dollar- denominated assets by all investors cashing out?

This observation led this writer to wonder if it was Mau Ku Lau Su ( Chinese proverb meaning the cats cry when the rats die in utter hypocrisy) or Mau Kou Tong Mein ( cats and dogs living in harmony). They tell a conflicting story. Either the bond or equity market lied or both are telling the truth of gloomier uncertain outlook ahead. That is to say, equities tell of pessimistic corporate growth foreshadowing double dip and bond is denying ( Mau Ku Lau Su) or investors are so pessimistic that they are cashing out of bonds to keep cash agreeing with equity market ( Mau Kou Tong Mein).

This author takes a view that it is more likely to be “Mau Kou Tong Mein” of two “false negatives” at work for a couple of reasons

a) Cyclicals are out of stock market favour – particularly technology stocks Cisco, Intel, Nvidia, AMD, Hewlett-Packard, Juniper, etc

b) Defensives are favoured in stock market – MacDonalds, Coca-Cola, Wal-Mart, Home Depot, Target, Tupperware etc are doing better

c) Recent Asian corporate takeovers are favouring basic utilities, telecommunication, food, resources sectors – defensives over cyclicals

d) Dollar recent rebound over euro and the unrelenting drives for yen despite a stalled Japanese economy and accelerating slowdown of the US economy to match – put it simply, it is cash over everything else seems to be in the investors ‘mindset.

e) Outside slowing China, fast deteriorating US and stalled Japan, Germany and the emerging economies of Brazil, Russia, Mexico, Australia, Canada, Taiwan, South Korea, Chile Turkey are too small, collectively, to provide “food” sustenance and durability to prop up the declining overwhelmingly much larger economies of US, China, Japan and EU (ex-Germany) – acknowledging mutual causations and interdependency. THERE IS MORE DOWNWARD PRESSURE ON GLOBAL ECONOMIES OUTLOOK AHEAD.

f) The U.S. Dollar Index ( DXY ) which tracks the currency against a basket of six others, jumped 0.8% in response and Yen surged – a flight to safe-havens from stocks, bonds, and commodities.

Or was that stock/bond perverse market behavaiour indicative of savvy market investors have some “ordered” clarity of thoughts in “cloud thinking”?. As in IT, cloud means change but it is NOT necessary confined to IT alone nor spiritualism.

http://energymatters.typepad.com/greenit/2010/02/cloud-thinking.html

That is to say, economies of the world are deploying assets differently, operating differently because goods and services are consumed differently. That means investing including M & A, as impliedly so, must also think differently because the “cloud” of turbulent change could come suddenly, violently and from unexpected triggers of both threats and opportunities. Small battered investors might rush for the exit doors when lightning strikes but corporates are on the prowl, hunting voraciously competitive assets like the Hewlett-Packard/Dell fight for 3Par Inc. Hewlett Packard depends on 1/3 of its earnings in the declining PC sector whilst Dell is 1/2 its revenue base. Cash deposits and investment in bond yields earn paltry return unlikely to meet the clamour of investors’ dividend demand, forcing them into acquisition drives for future earnings growth.

Indeed, it is arguably valid to suggest that the global economic landscape and architecture have changed – post the GFC. Granted cross-fertilisation across transnational borders, emerging economies have been the consistent key supporting pillars of much-stronger export-driven June quarter corporate results of multi-nationals across Europe, USA, South Korea and Japan, ranging from more German cars and machineries been sold outside Germany than within. Likewise, Caterpillars sold more construction equipments to mining industries outside USA in the same way as Alcoa, 3M, Dell Computers, Coco-cola, MacDonalds, Wal-Mart, Tupperware, JP Morgan Chase, Fedex etc sold more revenue toplines abroad into faster growth markets than economically malaise-struck USA and EU. Without these topline gains and tighter costs controls in place, most MNCs would not have achieved better sales and earnings in 2010 to date, compared to 2009 and would also find it very difficult to achieve growth sequentially as Europe tumbled into banking and currency crisis in the June quarter and US GDP growth already peaked in the final quarter of 2009.

European Economies – brighter outlook but unstable.

German economy cheered European markets with an exceptional 2nd Qtr growth of 2.2% announced on 13 August 2010 , its best qtrly growth since reunification. Capital expenditures, seasonal summer pent-up construction uptick and stronger foreign export trade helped the German economy recovered its lost momentum at the turn of 2009/2010, putting it back on a steeper recovery trajectory.

http://www.marketwatch.com/story/german-economy-expands-at-fastest-pace-in-20-years-2010-08-13

Much of the rest of EU is lumbering in varying distressed growth. Spain grew sequentially by a mere 0.2%, Italy by 0.4%, France by 0.6% but negative growth was recorded in Greece of 3.5% annualized. Gross domestic product in the 16-nation euro zone expanded 1% in the second quarter compared to the first three months of the year – signs of continuing lopsided improvement centred on Germany and France while most of the rest of EU practically stagnated.

http://www.marketwatch.com/story/euro-zone-second-quarter-gdp-up-1-tops-forecast-2010-08-13?link=MW_related_stories

They lend some support to glimmer of hope that Europe is not sinking fast as analysts feared and the slightly wider-than-expected margin of EU-wide 2nd qtr growth added a little more cushion to the risks of it slipping back into recession in the coming quarter as austerity bites. The 2nd half of 2010 was expected to be more challenging as fiscal austerity EU-wide spending to tackle bloated budget deficit bites deeper into employment, income and weak consumer spending. Unemployment EU-wide remains at 12 year high, forcing consumers spending curbs. France has already revised its 2011 GDP growth from 2.5% to 2%, pledging spending cuts to trim its public deficit from 8% of its GDP in 2010 to 6% in 2011.

Germany’s manufacturing-focused did very well in the June quarter but the seasonal construction’s steep upturn past the harsh winter slowdown are unlikely to be repeated. Domestic consumption is still weak . ECB warned that the 2nd half of 2010 is likely to be far less buoyant than the 2nd qtr super fast clip. Although many economists expect the German economy to slow down in the 2nd half, the German Central Bank, the Bundesbank, is far more optimistic. A week later, Friday 20 August, it revised the German forecast GDP growth for 2010 to 3% from previously 1.9% growth and it predicted little chance of another recession for the US. The announcement, conspicuously enough, had no positive impact on financial markets in neither Germany nor Europe. This upward revised forecast brings the German economy closer to the Pre-Crisis 2006 record GDP growth of 3.6% but it came up from a deep trough of 4.7% GDP decline in 2009.

http://www.marketwatch.com/story/bundesbank-lifts-german-growth-forecast-2010-08-19

Elsewhere, EU’s PMI, announced on 4 August 2010, edged up slightly in July to a 3-month high of 56.7 from 55.6 in June – lifted by manufacturing PMI. It fell back to 56.1 in August.

June German factory orders rose strongly in rebound by 3.2% over May which declined by 0.1% in April. Export sales climbed 5.7% in June helped by an 11.3% of new orders from the euro area.

http://noir.bloomberg.com/apps/news?pid=20601068&sid=aRSQTvxYbS3Y

Asia has the crucial driving-force for global demand and Germany profits from its export strength via a 13% cheaper euro. German business confidence surged to a three-year high in July. Bayerische Motoren Werke AG, the world’s largest luxury-car maker, said on Aug. 9 that sales rose 9.1 percent in July, spurred by demand in China.

http://noir.bloomberg.com/apps/news?pid=20601085&sid=akW7nftCtgqA

German manufacturing PMI manufacturing PMI slipped to a six-month low at 58.2 from a reading of 61.2 in July – a negative backdrop and warning sign.

http://www.marketwatch.com/story/german-composite-pmi-hits-four-month-high-in-aug-2010-08-23

German manufacturing boom is showing signs of instability, there are real continuing concerns in its principal markets. China is slowing and US manufacturing is weakening as well. Factory orders in the U.S., the world’s biggest economy, fell more than economists forecast in June, while China’s industrial output rose the least in 11 months. We need to monitor the German trade figures in August to assess the continuing strength of its trade dependent export sector. A pertinent question to ask - will Germany export strength and continuing manufacturing boom sustain if its major markets in China and US weaken further?

German investors and consumers are NOT equally bullish of its economic outlook. German retail sales fell in June and its investors’ confidence declined three consecutive months in a row to July. Volkswagen AG’s Audi unit and Daimler AG are countering weakening sales at home by selling more cars in China.

http://noir.bloomberg.com/apps/news?pid=20601085&sid=akKJ0Dkl45oo

Outside Germany, production of durable consumer goods in the euro area fell 0.9 percent in June from the prior month, when they rose 3.2 percent over April. Output of intermediate goods such as car engines and steel decreased 0.6 percent from May, when it gained 0.8 percent the month preceeding. As what Chris Williamson of London-based Markit economists said correctly, this author believes,

“It remains to be seen if the buoyancy of the euro zones core spills over to the periphery, or whether the periphery drags the core down.”

http://sg.news.yahoo.com/afp/20100813/tts-finance-economy-europe-509a08e.html

Whilst Europe is bathing is better times, the story across the Atlantic deteriorates significantly. Two words – “spectacularly terrible” sums up the somber mood. New Data showed a much worse trade imbalance.

“This is spectacularly terrible,” said Ian Shepherdson of High Frequency Economics, explaining that rising imports will eat into already anemic domestic growth as cash drains out of the economy.”

http://sg.news.yahoo.com/afp/20100812/tts-us-economy-trade-c1b2fc3.html

Chinese steeper-than-expected slow-down and terrified US consumers drawing oxygen out of the tepid US recovery as fiscal stimulus effects in both countries taper off. Financial markets are increasing nervous, particularly the Yen and Euro.

“The global markets have taken a turn for the worse on the back of an intense escalation in risk aversion,” added Joel Kruger, currency strategist at foreign exchange site Daily FX.

http://sg.news.yahoo.com/afp/20100812/tts-finance-economy-world-stocks-forex-c1b2fc3.html

Investors’ confidence have also drastically swung from a collective positive overweight in US stocks in July to net negative underweight of 14% in August according to a Bank of America Merrill Lynch fund manager’s survey. Fund Managers were decidedly gloomiest about US stocks since the Lehman Brothers’ collapse.

http://www.ft.com/cms/s/0/4bcd457e-aa33-11df-9367-00144feabdc0.html?ftcamp=rss

Fund managers portfolio mix, however, remains largely intact – keeping their proportion of equities to bond (safe haven) and slightly increasing their exposure to commodities and emerging market stocks. Are fund managers still playing for an upturn?. The honest answer is - I don’t know - for good reasons and information gaps. It is not known what percentage is cash now and if this varied over recent times. Given prevailing much-lower-than-average-trading volumes in global financial markets as both retail and institutional investors fled to bonds, it must be much easier for fund managers to re-weight the sectoral mix within equities than to liquify most of their equities into cash in risks aversion if that had been their preference. And of commodities, the mix is unknown if these are industrial base metals or in gold, the former is betting on economic recovery gaining momentum and the latter on a double-dip scenario. What this author found interesting is the apparent institutional investors’ appetite for gold, even at elevated prices. John Paulson and George Soros are both known to be bullish on gold.

Interesting to note that for Japan, a net 27 per cent of investors were underweight in August compared with 11 per cent in July, which made Japan the least-favoured investment destination.

Japanese economy - stalled

Over in the east, Japanese economy practically stalled in the 2nd qtr. To a mere 0.1% growth – all thanks to export moderation hanged by a rising Yen, which rose to a 15-months high against the US dollar, and fast fading of stimulus-driven recovery of consumption.

http://www.reuters.com/article/idCATOE67F01520100816?rpc=44

Translated on annualised basis, it is 0.4% against economists’ forecast of 4.4% annualised at the beginning of 2010. IT POINTS TO POSIBLY NO JAPANESE RECOVERY IN 2010 FROM THE 2009 global financial meltdown. This steep fall off also points to pretty tough journey ahead going forward. Seventh straight monthly increase in exports in July, albeit at a slower pace in June, proved insufficient to maintain its first qtr 1.1% growth in GDP. Declining export growths are now struggling to offset continuing weakness in domestic economic picture.

http://www.financemarkets.co.uk/2010/07/26/japanese-exports-continue-to-rise-in-june/

The strength of Yen surging to a recent 15-year high continues to stalk competitiveness of Japanese exports as its key markets in China and US weaken. More worrisome of this fact becomes more obvious when one notes that the slowing of Japanese exports coincides with the recent accelerating slowdown of Chinese manufacturing PMI closer to contraction – both reveals tough trading conditions in export markets.

Chinese economy - slowing faster

China’s General Administration of Customs reported a July import of 51.2 mln tonnes of iron ore, down 11.8% year-on-year comparison but 8.5% gain over June.

http://www.chinamining.org/News/2010-08-17/1282013615d38325.html

On a year to year basis, Chinese export growth had been shrinking in June to 21.7% from 32% in May and 30.5% in April.

http://www.cdeclips.com/en/business/fullstory.html?id=45998

The rate of growth in imports, applying similar measure slowed from 50% in April to 40% in May and 14.2% in June.

http://www.chinadaily.com.cn/china/2007-07/10/content_5430541.htm

As trade volume in unit and value terms continue to grow strongly and import felling steeply in June, it is not surprising that the dollar value of June iron-ore import was lower than July and it is surprising that the value of both July and June iron ore imports were below 2009 levels despite much higher import prices for this commodity in this year. Iron-ore volume import fell drastically as I correctly flagged in my earlier write up of UPDATE on Global economies are heading for turbulence, ARE WE IN TROUBLE GOING FORWARD? 24 July 2010. Coal import in July also fell. The picture painted is that the third qtr GDP figure could come in lower than the official forecast 9.2%, noting the steep fall in Chinese PMI in the last 3 months to July to 51.2 and new orders component of that PMI barely expanding at 50.9.

Chinese exports to the EU rose 5.4 per cent to $US28.67bn in July from $US27.2bn in June

http://www.theaustralian.com.au/business/markets/chinas-imports-slow-sharply/story-e6frg926-1225903490075

In that interval, the Yuan/Euro conversion fell from 0.12041 to 0.11312 representing a 9.4% appreciation of Euro. Chinese exports to Euro have slipped significantly in volume terms even though overall exports increased in July and maintained its growth path.

http://www.chinadaily.com.cn/busiess/201008/03/content_11085652.htm

Chinese auto sales rose 17.2 percent to 1.05 million units, according official Xinhua News Agency, down from the 19.4 percent growth reported in June. August sales are forecast to weaken further.

http://finance.yahoo.com/news/Report-Chinas-July-auto-sales-apf-559676424.html?x=0&sec=topStories&pos=2&asset=&ccode=

There other anecdotal evidence that the current credit squeeze had significant negative impact on its manufacturing sector. Demand for base metals slowed. Zinc price rise over the last 6 months have not kept pace with copper and zinc is heavily used to galvanise steel needed in construction industry and autos. Chinese farmers, who previously stockpiled metals for speculative gains, are now buying fertilizers instead, bringing cheers to potash demand globally. Idle factories in China trapped by loss of export market demand are now busy making cheaper “knock-off” counterfeits, selling to recession-weary US customers via internet on an industry-wide scale. You get a sense of desperation within the Chinese manufacturing sector, even though it grew consecutively for 11 months and retail sales growth eased in July.

http://www.cnbc.com/id/38504275

ASIAN TAKEOVERS – surge in business confidence outside Asia

In fact, in the few weeks before the first US stock market downslide ended 13 August 2010, many Asian corporates were on a quiet burst of hunting spree. Except Japan and China, most Asian stock markets performed generally better over the last 12 months despite bouts of weak intervals underlining stronger regional corporate fundamentals.

Li Ka-shing, Hutchison Whampoa Ltd bid for Telecommunications International Ltd, Electricité de France’s UK electricity-distribution networks for about $US5bn., Thai coal giant Banpu A$2.06 bln bid Australia’s Centennial Coal, Thai Union Frozen’s 568 million Pounds purchase of John West., India’s Mahindra & Mahindra bidding for South Korea’s cash-strapped Ssangyong Motor, Japan’s Kirin Holdings bought a stake in Singapore F & N Ltd, Malaysian sovereign-wealth fund Khazanah Holdings acquisition drive for Singapore health-care group Parkway Holdings, Singapore-listed Wilmar International’s $US1.5bn bid aimed for Sucrogen, Australia’s CSR’s sugar business and Bharti Airtel’s $US9bn acquisition of most of the African assets of Kuwait’s Mobile Telecommunications were emerging bright spots of confidence.

http://www.theaustralian.com.au/business/news/currencies-drive-asian-ma-rebound/story-e6frg90x-1225906441185

Cash-rich Asian business leveraging on stronger exchange rates and lack of competitive bidding spurred M & A activities. In all, Asian-Pacific companies have made $US132.7 billion of offers for companies outside their home country this year, compared with $US142.7bn – almost the same level in the same period of pre-crisis 2008 and that is already more than double last year’s recession-hit pace. But on a global basis, Asian M & A is proportionally small, barely 14% of global M & A activity. Up till late June 2010, global M&A this year was worth just under $976 billion, according to Thomson Reuters data, the worst level in 6 years.

http://www.reuters.com/article/idUSTRE65O0JL20100625

They show how little weight the so-called “bustling” Asian corporate activity as a leverage strength and possible lifting factor of global economic recovery upturn. The traffic of investment and GDP growth still flows essentially from “fork-spoon & knife” economies into “chopsticks” and “hand” economies. With few exceptions of Germany, Canada, Australia and Brazil, most of the “fork, spoon & knife” economies are weak.

WHILE MONEY SEEMS TO BE IN ACTIVE REVIVAL IN ASIA, MOST OF THE ACQUSITIONS ARE OUTSIDE current “high-growth” CHOPSTICK ECONOMIES AND FOCUSSED ON BASIC INDUSTRIES SUCH AS UTILTIES, FOOD AND RESOURCES SECTORS. Businessmen with long shrewd accumulated experiences do NOT seems to be overly positive of Asian economies and they all going into basics. This author reads their mind are of some shared conclusion, perhaps, that the tech-driven growth in the decade just past, is at least some time long distance away to merit a close look.

US economy – structurally deficient 2nd Qtr growth and sickly forward

Flash estimate of US 2nd Qtr GDP growth is hardly durable “growth”. Looking back in hindsight now, capital spending on computers and software were the only “bright” spot of technological upgrade replacement – one off cycle underway. A modest 1.6% rise in US consumer spending input sucked in a lot of foreign imports gave false illusion of manufacturing-led recovery instead of “involuntary” restocking of shelves as retail sales slowed. The US consumer- as highlighted in my preceding write-up was the missing “chicken” looking for the “egg” of recovery in the revival economic equation. Wal-Mart’s recent results painfully demonstrated these. Last quarter inventory rise was faster than sales.

http://www.marketwatch.com/story/wal-mart-customers-in-for-rude-awakening-2010-08-17

In store deep discounting at Wal-Mart’s “roll-backs” attracted new customers but as soon as it reverted back to its “everyday low prices”, customers fled to its competitor, Target Inc for better deals. It was like opening a new restaurant drawing crowds at the beginning but the business does NOT know how many “satisfied” customers will come back. American consumers are living from pay-check to pay-check. Both Home Depot and Lowes Cos are forecasting lower sales growth for 2010 and earnings growth will have to come from holding down expenses.

http://noir.bloomberg.com/apps/news?pid=20601103&sid=aTK4GhGx9NN8

Cisco, a technology bellwether seen as a proxy for broad corporate spending, reported revenue that fell short of forecasts and offered a gloomy sales outlook. Cisco's report is "throwing a large question mark across the issue of acceleration of technological capital goods spending," said Stephen Lieber, chief investment officer at Alpine Dynamic Balance Fund.

http://www.marketwatch.com/story/us-stocks-slump-as-growth-worries-intensify-2010-08-12

Dell 2nd Qtrly results reported strong continuing corporate replacement cycle sales but flat consumer demand for PCs. In the Far East, market conditions deteriorated rapidly of late. “PC orders falling off the cliff in Taiwan,” JP Morgan analyst Christopher Danely. Another independent source noted that the sharp deterioration in PC order trends continuing into August, after a below expectation July month.

http://www.kreative-technology.co.uk/whats-in-the-news/19-kreative-technology-hardware-news/6997-is-pc-market-falling-off-a-cliff

Not surprisingly. US industrial output fall 0.5% in June could only afford a 1.1% compensating gain in July, due mainly to autos. Auto sales will not be good as stock prices fell in August. US leading economic index fell 0.3% in June and grew 0.5% in May.

July also saw only a slight gain in economic leading indicator of 0.1% – hardly encouraging of trend and more like a pause in a stalled economy than cheering uptick forward.

http://www.marketwatch.com/story/leading-indicators-point-to-slowing-economy-2010-08-19

The Institute for Supply Management index fell to 55.5% in July from 56.2% in June showing conditions for the nation's manufacturers slowed for the third straight month.

http://www.marketwatch.com/story/july-ism-factory-index-slows-to-lowest-2010-level-2010-08-02

This came after shipment of and unfilled orders of manufactured goods declined for two consecutive months AND inventories of manufactured durable goods rose again in June, up six consecutive months

http://seekingalpha.com/article/217588-june-durable-goods-tipping-point-for-the-tech-sector

It would be interesting to see what the durable goods order for July 2010 will be like.

Four banks failures were reported on 19 August 2010, bringing the year total of 114, reminding that the banking woes in US is NOT yet over.

http://www.marketwatch.com/story/three-bank-failures-bring-2010-total-to-113-2010-08-20?dist=bigcharts

Adding to this gloom is the sale of pre-owned U.S. homes tumbled 27.2% in July, the biggest one-month drop ever — largely because of the phase-out of a federal tax credit. The National Association of Realtors said inventory of unsold homes jumps to 11-year high.

http://www.marketwatch.com/story/existing-home-sales-plunge-272-in-july-2010-08-24-101400

This downbeat housing report compounds stock markets fear over last week’s unexpected surge in unemployment claims exceeding 500,000 (the highest since last November) and the Philly Fed's business activity negative August 7.7 index from positive 5.1 in July. All European and American markets tumbled tonight and US Treasury bond yields fell 91 basis point to 2.51%. This time it is two true negatives – no more Mau Ku Lau Su. Both equity and bond “confirming” negative economic outlook ahead.

US Treasury Department showed that net foreign purchases of US long-term assets still increasing at a much subdued rate in May and June, they are much lower than the same in March and April this year. Foreign investors were, however, net sellers of U.S. equities for the second straight month and look set to continue.

http://www.marketwatch.com/story/foreign-buying-of-us-debt-up-in-june-treasury-2010-08-16

US stalled manufacturing is adding to employment woes eroding consumer confidence and housing prices. Falling home prices -- coupled with the drops in stock prices -- will trigger a new tumble in household wealth, gnawing away consumer spending hurting corporate profits and discouraging capital investments. A vicious circle of downward economic spiral has now been re-established.

This author believes that the US is now right at the door of the “autumn” of a double dip and only one more shock downbeat “news” to tip it over into a recession, taking the rest of the world with it.

Anyone disagreeing?

Zhen He

24 August 2010.