If this is a recovery...

If this is a "recovery", then I need to take high school english again. Recovery from an injury means regaining health and mobility. I see little health in the following stats considering the massive stimulus it took us to get there.

First of all, how do job loss trends like this...

...translate into increasing home prices?

It must be this...

...since I don't see a rebound in Buffet's favorit metric...



...or here in US daily oil consumption (even though the reported numbers are only until July)...


Bottom line. All I see is a little prop up, not recovery. Remember, my previous blog mentioned that we are now at the peak effect of the stimulus and that it will wear off from here. At least the headlines have toned down from the cheery "That was easy!" messages of two months ago. Let's see if they turn into "This is kinda hard?" in March when the Treasury stops buying agency debt.

Stimulus Watch: I hope the Aussies are saving their pennies

Is Australia about to take shot on the chin? Currently the country is navigating the global downturn with exports of raw commodities to China. Is that about to turn?



Australia, which has benefited greatly from China's increased manufacturing consumption of iron ore. China has gone from consuming less than 20% of Australia's iron ore in 2000 to over 80% in 2008. (1) China has even continued to increase their copper imports during the downturn leading to a scenario where their economy exports less but still increases consumption. For Australia, this situations encourages projections based on artificial demand. For China, this indicates uncorrected inefficiencies in their domestic economies that have been papered over by stimulus plan.


There is evidence that the Chinese binge buying has abated...


"In recent months Chinese demand for iron ore -- the primary material in the manufacture of steel -- has dominated freight market activity while also adding to swings on the main index.Port congestion in China as well as off Australia's coast had previously tied up a large number of Capesize vessels, typically hauling 150,000 tonne cargoes such as iron ore and coal. But queues off China have eased.Brokers said reduced iron ore import activity in China in recent weeks was taking its toll." (2)


Considering the torrid pace of the last six months, this could be a breather or utter exhaustion. We will have to wait and look for more evidence before determining how to address the situation.


(1) "Australia finds fortunes ever more tied to China" Reuters, Aug 19, 2009, by Wayne Cole

(2) "Baltic index drifts lower, cargo enquiry light" Reuters, Sept 16, 2009

This really scares me

Just one year out from a major financial disaster, some of the most leveraged banks that recently lost billions of shareholder value are now looking to expand their trading operations again. What did we learn from the deleveraging debacle? Nothing.

Apparently even more banks than Goldman Sachs and Morgan Stanley want to get into commodities speculation. Soc Gen and Bank of America hardly seem like the type, but the opportunity to squeeze retail investors out of their nickels may be too great. In case, traders know that the place to make big money is where the volatility is. So I guess if you are down tens of billions of dollars you will be tempted to enter a market a lot of zig and zag.

Aug 31 Update: It looks like Citigroup does not want to be left out and is diving in head first too.