Jigsaw Puzzle

1. When trying to decide a good time to start buying stocks again, it is useful to think of it as one big jigsaw puzzle. As each piece falls into place, the picture becomes clearer and clearer.

2. When all the pieces are finally together, then the time should be just about right. Of course, the market may discount ahead of actual economic conditions and come off the bottom before the whole picture emerges, but I'm always told it's better to be a bit late after a major bottom than being way too early, before the actual bottom.

3. Everyone knows the US and European economies will be screwed big-time this round. However, there was still uncertainty as to the extent that China and petrodollar rich countries like the UAE and Russia would be affected. Some harboured hopes that these places would not be too badly hit fundamentally and would be able to lead a quick recovery out of the woods (together with others like India and Brazil).

4. Well, we know now that Russia is also screwed, with its foreign reserves depleting fast in its attempts to defend the rouble and its highly inefficient, oligarch-dominated economy falling apart due to the steep plunge in energy and natural resource prices.

5. Meanwhile in Dubai, ships are forming lines on the horizon, laden with cement, sand, steel and other building materials that no one wants any more. Property prices have plunged 25-50% with further drops expected ahead. Many "investors" holding on to as many as 4 to 5 "investment" properties they thought could be flipped for a quick buck (a strategy which worked very well in the recent past) are now finding that all the suckers "out there" have suddenly upped and gone "donno where" without so much as a polite goodbye.

6. Meanwhile back in the US, I have been wondering for a while how come no debt-financed private equity deals linked to prominent names have fallen apart so far, due to the double whammy of almost non-existent credit markets (for refinancing and working capital) and the actual impact of an economic slowdown on operating cashflows. Many were financed based on "sunny skies" projections, with little leeway for underperformance and definitely none for a downturn of this magnitude. Well, this piece seems to be falling into place as well now, with the latest news about the legendary Sam Zell's Tribune and Cerberus Capital's GMAC disintegrating perhaps leading the way.

7. So what about China? Well, sorry folks... looks like China's heading down the same sorry alley as well, going by the article below.

9. So there we have it... all the little pieces are finally fitting in to form the overall horrifying picture and complete the global rout. As this happens, perhaps the markets will stop with the recent rallies (or some say, technical rebounds), accept that the whole global economy is really, irretrievably screwed and act accordingly. What would be good now would be one more nice drop below the October levels, for us patient fellas to finally get on board or up our ante. Just hope there'll be no more unanticipated pieces after that.

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China trade figures plunge in November

Exports shrink for the first time since 2001 and is down by 2.2% from a year earlier. Imports are down by 17.9%. The declines underscore the rapidly worsening conditions in China's economy.

By Don Lee 8:29 AM PST, December 10, 2008

Reporting from Shanghai -- China's trading activity collapsed last month, as exports shrank for the first time in more than seven years and imports plunged, the government reported today.The 2.2% year-over-year decline in November exports contrasted with a 19.2% increase in October, underscoring the rapidly deteriorating conditions in China's economy.

The falloff in exports was the first since June 2001 and worse than analysts had expected. It cast further doubts on whether China's economy could grow at a pace that would create enough jobs at home or provide a significant boost to a slumping global economy."It basically reflects what you're seeing on the ground -- factories are closing," said Andy Xie, an independent economist in Shanghai."It's very grim," he added. "You can bet the next few months are going to be worse."

The nation's imports sank 17.9% in November from a year earlier, something being painfully felt in places such as Australia, Chile and parts of the U.S. that supply copper and other raw materials to China, the world's manufacturing hub. The sharp drop in imports, partly reflecting the decline in commodity prices, boosted China's monthly trade surplus to about $40 billion, a record high. That could add to trade tensions between China and its major partners, the U.S. and Europe.

The latest report was hardly news to cheer about in Beijing.The plunge in imports indicates weakening domestic demand. And the sharp pullback in export orders from around the world has dealt a blow to China's industrial base and wiped out countless jobs, triggering labor unrest that poses a severe test to the Communist Party leadership."

On the one hand, government doesn't want exports to drop dramatically and hurt social stability," said Zhang Bin, a deputy director of international finance at the Institute of World Economics and Politics, a government think tank in Beijing. "

But on the other hand, it is necessary for China to have a structural adjustment and industry upgrade . . . to decrease some exports and transfer resources from the manufacturing industry to the service industry." Zhang says he thinks the central government's recently announced $586-billion economic stimulus package, consisting mainly of infrastructure projects, will be enough to sustain adequate growth.

The government, though, is expected to continue loosening lending policies and pushing through measures to bolster the sagging property market and help export businesses. November's trade report was released as top leaders in Beijing, concluding an annual economic planning meeting, pledged to maintain a "stable, healthy growth" next year by boosting domestic demand and restructuring the economy, according to the official New China News Agency.

But Chinese leaders are facing powerful global head winds. Chinese exports to the U.S. had been slipping for some months, but more recently, Europe, Japan and the Asia-Pacific region also have cut back on orders. Chinese-made steel products, electrical machinery, electronics and light manufacturing, such as apparel, all saw a sharp decline last month, analysts said. "Demand is simply disappearing," said Tao Wang, a UBS Securities economist in Beijing, in a research report.

Among the hardest hit has been China's shipbuilding industry, which has been reeling from cancellations. That in turn has spilled into many of the industry's suppliers, such as Dalian Lushun Xinfei Ship Machinery Co. in northeastern China. "Many of the small manufacturers in our area are half-dead," said Li Jiyou, the company's general manager. He said that his company would be lucky to break even this year, and that he feared what lay ahead.

"The aftershocks [of the global credit crisis] haven't yet spread completely to our industry. Next year is going to be a big challenge for us." In November, China's exports to the U.S. dropped 6.1% from a year earlier. With American consumers continuing to cut back in the face of severe job losses, the decline for many Chinese manufacturers is likely to accelerate. Los Angeles-based Wessco International is forecasting a 10% to 20% decline next year in the volume of toiletry kits, stationery, bags and other products that it makes largely in China for airlines, hotels and cruise lines, said Petros Sakkis, Wessco's manager based in Hangzhou.

Less than a year ago, American companies sourcing from China were fretting about an appreciating Chinese currency, soaring raw material costs and pressure from local governments that only seemed to want high-end manufacturing. But all that's eased since the global financial crisis took hold and spread to China." China needs us again," Sakkis said.

Article link: http://www.latimes.com/business/la-fi-china-trade11-2008dec11,0,2515641.story


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