It’s not even 5 AM ET, and we already have a phrase of the day.It’s from SocGen’s uber-bear Albert Edwards, who leads off his latest note with:
Western commentators continue to wallow in their asses’ milk filled bath of complacency on China.
We had to look it up, but apparently in the ancient days, people used to bathe in donkey milk (asses milk) for health or cosmetic reasons.
So what’s got Albert Edwards so worked up?
Pretty much everything.
- He points out that China has run its first quarterly current account deficit since 1988, and that that is a game changer.
- He says Australia is a “CDO-squared” because it’s so levered to China, and because the banking system is so dependent on external investment.
- He says Germany is the ultimate currency manipulator because its chief export markets (the European periphery) can’t possibly devalue their own currencies against it.
On the Chinese current account deficit, he posts this chart from Also Sprach Analyst showing the big outflow of financial assets.
Photo: SocGen, Also Sprach Analyst
And then finally he hits on politics:
But as well as the economic uncertainty, recent political jitters in the wake of the arrest of Bo Xilai and the recent concerns of the whereabouts of president-in-waiting Xi Jinping will have added to domestic jitters and capital flight.
Ambrose Evans-Pritchard in the UKs Daily Telegraph is worth a read. He says he had not realised quite how serious the situation has become until listening to China expert Cheng Li at the Ambrosetti forum of the world policy elites. “Nor had anybody else in the room at Villa d’Este. There were audible gasps. The rifts within the upper echelons of Chinese Communist Party are worse than they were during the build-up to Tiananmen Square, he said, and risks spiralling into “revolution”. Dr Cheng — a Shanghai native — is research director of the Brookings Institution in Washington and a director of the National Committee on US-China Relations. He argues that China’s economic hard-landing is intertwined with a leadership crisis as the 10-year power hand-over approaches this autumn. The two are feeding on each other. “You cannot forecast the Chinese economy unless you have a sophisticated view of the political landscape and the current succession crisis,” he said.
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