While y’all went on holiday, market analysts threw a tantrum , Emerging stock Markets tanked and the Developed Markets went red and green faster than a traffic light.
I love writing this stuff, it makes me feel grown up – like I had some job in the City playing with billions of other people’s money. Now I live in the City, I meet the grown up people who play with billions of other’s money – typically in the Cockpit (my local).
The people who decide whether a stock goes green (up) or red (down), drink the same beer and piss in the same urinals as I do and I can tell you, they have no insight into world affairs that you could not get from listening to Wake up to Money every morning.
Infact most of the people who drink in the Cockpit have no more idea about what is going on than the people behind the bar.
The City is following orders, the brokers and dealers execute the trades which are primarily driven by the algorithms determined by the models created by the analysts and fund managers. They are driven by fundamental research by economists who interpret the data released by the finance directors and (in the case of macro-economics) the Treasury departments of Governments.
In short, everyone is connected. When the wind blows through the cornfield, we see the waves not the wind. The waves tell us of the wind but by the time we’ve observed, that wind has moved on.
Making sense of the Great Fall of China
Making sense of the markets is much easier in the Cockpit after a pint of Timothy Taylors and a smile from Zoe (mine host).
Let’s take some slides created by Reuters and republished by Citywire (with some incomprehensible gibberish as commentary. You can see the Citywire stuff here.
(The captions are mine)
China has been borrowing to meet its growth targets (and is getting found out).
No-one believes the Chinese Government about their growth forecast.
The other Emerging Markets in the Far East get dragged down with China. (In the market’s opinion, they’re all as good (or as bad) as each other.
The market (orange line) reckons the Americans will put the squeeze on China, the Government (blue line) , still talk about giving more support. China is insisting it will grow fast (with American support), the market sees this a “double lie”.
The Markets have worked out that rather than building up savings (in overseas currencies, they’re now spending their savings. This makes them nervous.
For the high borrowers, the party’s over.
The markets are giving China and other Far East economies a red card. As they get frustrated with broken promises, they drive The Emerging Market (EM) stock markets lower.
By comparison , the Developed Markets (DM) look more reliable and are being treated better.
The language of the PUB (lic)
So in the language of the pub, which is mainly the language of football fans,
the Emerging Markets in the Far East (China principally) are currently serving a ban for a series of yellow card-able offences.
If Zoe (mine host) asked me to explain the Great Fall of China (and she might well do), that’s how I’d put it.
The great communicators of these things- the Micky Clarkes and Tom McPhails and Justin Urquhart- Stewarts and Ann Richards of this world, can translate these complicated charts into simple sentences that we all can understand – and do it off the cuff (as they think simple).
What happens in China now affects the likes of Zoe and her customers and not just because they are in the market. We are all directly impacted by stock-market valuations because we all have (or will have) savings linked to the market.
So it’s no use writing gobble-de-gook like this.
The Bank for International Settlements has been loudly warning from the side-lines about the fault lines which could become apparent as huge carry trade flows into EM markets sparked by ultra-low developed world borrowing costs begin to reverse. Easy financing terms have resulted in a major global explosion of debt and other claims on EM states, as well as stoking domestic credit booms.
When you could say this
They’ve boomed and now they’re bust!
If you want to read a sensible evaluation from a real economist (Roger Bootle) , you can do so thanks to the Daily Telegraph
The upshot is that, in my view, the world economy is not on the brink of a China-induced relapse. On the contrary, as lower commodity and oil prices work their way through the system, in the US and the UK at least, we will see consumer spending rising and the economic recovery strengthening.