Thursday 15 March 2012

The media's talking heads; a hard-landing and the US dollar

Economists define a hard landing as the resultant economic recession a country endures from overtly aggressive macroeconomic policy, usually against inflation. Fairly straightforward then. Get to hell out of the market...Right? Wrong.

So what is a recession really? It's defined, inter alia, to be.. a fall in GDP growth, a rise in unemployment and a drop in household income; exactly the scenario China finds itself in today. JP Morgan concludes, rather gravely, that China is, de facto, in a hard landing..... 'It's not a debate, it's a fact', JPM tell us. Predictably Bloomberg cites the notable credentials of the JPM analyst holding resolutely firm in his conclusions. It's obviously, an unequivocal confirmation of the prognosis. China is, undeniably, in a hard landing. For the bulls invested in the global equity markets the empirical evidence justifies, perhaps, the rising gnaw of panic in your pockets.. 

Herein lies the investment rub. Read in micro isolation, JPM's 'hard landing' theory, would collapse commodities... Asian and 'primary-resource' equity markets would tumble, cash holdings would rise and the US $, would soar into the stratosphere. Don't forget the US $ is still the globe's most liquid currency and all that cash must find a home... 

Investors who operate within a microcosm usually find themselves out of context in, what has become, a global economic macrocosm. Don't forget, a decline in GDP growth from 10% to a forecast growth of 7.5% meets the definition of recession... Steel and cement sales would be commensurately lower too. If the US GDP is forecast at 2.2% this year, rising from 1.7% last time round then China's 7.5% is not too bad...






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