Photo: Stuck in Customs on flickr
The new year hasn’t changed the outlook of SocGen’s famous bear Albert Edwards.In a new profile up at The Guardian, Edwards takes aim at China, where he predicts a collapse that will take down markets around the world.
To him the country is a “freak economy” with a ridiculously high and persistent investment-to-GDP ration, and he fears that everyone is just taking Chinese growth for granted in forecasting strong demand helping the rest of the world’s economies.
This part is interesting, though mainly anecdotally:
For statistical support, he points to the OECD’s leading indicator of economic activity, which measures factors such as electricity production, freight activity and money supply. In China, it is slowing rapidly, even though commodity prices are as elevated as they were in early 2008 (prices then plunged). Something has to give – and probably sooner than most people assume. The degree of “push-back” from clients to his view on China reminds him of the resistance to his bearish calls on the dotcom and east Asian bubbles.
As for the point about OECD leading indicators, Edwards has been on this kick for a while. Here he was in the spring pointing to them, and calling for an imminent rolling over of the economy.
Beyond that, the Guardian article would have you believe that Edwards has mostly been right over the years, but mainly he’s been bearish on everything, and crises do happen from time to time.
That being said, the presumption that Chinese growth will keep commodities strong, and even provide a lift to various exporters does seem to be conventional wisdom at this point. It seems undoubtedly wise to think about ramifications of a serious slowdown.
And beyond that, the government of China is tightening, and the latest Chinese PMI did come in soft, so thinking about a negative surprise from Chinese growth makes a lot of sense.