From his morning note today, UBS floor guy suggests turning your gaze from Europe to China, where red flags pop up everywhere.
China – While most markets and market pundits are focused on Europe and its sovereign debt crises, some things in China bear more scrutiny.
The power shortages are beginning to pinch and pinch badly in some regions. The planned brownouts by the government are prompting many factories to supplement with diesel generators to avoid outright shutdowns for one or two days a week. That may increase the global demand for diesel.
Andy Lees, who watches China carefully from his perch in London, notes several other signs of strain. One example is that fixed asset investment in real estate has risen 35% in the first four months of this year but property sales are very weak. Hey, didn’t we see this movie somewhere else recently? How do you say “flip this house” in Mandarin?
Andy also sees great strain on China’s resources. Here’s a bit from a recent report:
Top soil is collapsing to dangerous levels and its fertility is being destroyed by acidification. Water is being consumed way beyond sustainable levels, aquifers are being exhausted and the stated policy of no water reaching the sea is getting nearer to reality as China’s latest 5 year plan aims to capture 95% of potential hydro capacity. Finally, and most importantly, China is exhausting its own fuel supplies extremely rapidly. Despite now accounting for 17% of world fuel production it is having to turn to imports to meet 12%, a number that is growing rapidly every year, and its needs and its energy intensity of GDP has increased in all but 1 of the last 10 years.
If you have access to the full piece, it is, as usual, well worth a read and rather eye-opening.
We haven’t seen the full report, but we’d love to. Sent it along to jweisenth[email protected].
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