Is the Chinese Economy Really Recovering?

By Wednesday, October 17, 2012

The Chinese economy was one of the main driving forces of the global economy after the financial crisis in the U.S. took a heavy toll. The Chinese economy and other emerging markets economies grew at an astonishing rate, and created demand around the world, while the U.S. economy continued to struggle.

Now, a few years forward, we are still seeing a struggling U.S. economy and, to top it off, there is extensive slowdown in emerging markets, especially in the Chinese economy.

The Chinese economy has seen its gross domestic product (GDP) grow significantly, but sadly, this year, according to estimates, it’s on track to only see growth of 7.7% and growth of 8.2% in 2013 (source: Market Watch, October 14, 2012)—worse than 2009, when the Chinese economy grew at a pace of 8.1% (source: National Bureau of Statistics of China, last accessed October 15, 2012).

With that said, recently there is a new wave of optimism created by the mainstream media and the financial gurus—they are now claiming that the Chinese economy is turning around. Their reasoning: according to customs administration, is that exports from the Chinese economy increased 9.9% in September compared to 2011. (Source: Bloomberg, October 14, 2012.) The Chinese economy is largely based on exports; if the exports increase, this means there is demand in the global economy.

This is definitely a good signal for the Chinese economy, but in the grand scheme of things, it doesn’t mean much. In periods of economic growth, what you want to see are consistent and less volatile results. In August, exports rose only by 2.7% compared to last year (source: BBC News, September 10, 2012).

Exports numbers do suggest some demand from the global economy, but what you have to keep in mind is that the eurozone—the biggest trading partner with the Chinese economy—is still struggling.

From the perspective of the global economy, everything is still bad, as expected—we are edging closer to a global recession than a recovery. The International Monetary Fund (IMF) has already slashed its outlook for the global economy—don’t be surprised to see more cuts. The situation is still getting worse, and there is simply no light at the end of the tunnel.

Be very careful about the noise that is being generated by the mainstream media and the financial market gurus. There is no economic growth in the global economy. If the Chinese economy is any indicator, it is suggesting the opposite of what the pundits are saying: don’t buy into the hype, look at the facts.

Where the Market Stands; Where it’s Headed:

As expected, earnings reports from public companies for the third quarter of this year are coming out weak. As I write this column this morning, giant PepsiCo, Inc. (NYSE/PEP) just announced that its net income fell five percent in the third quarter. The only companies reporting better-than-expected earnings are the financial companies and banks (thank you, Federal Reserve).

I’m wary about the stock market…a stock market propped up now for three years by expanding money supply more than anything. While I see a little more room for the market to rise, we are very close to a top for the bear market rally that started in March of 2009.

What He Said:

“As a reader, you’re aware I’m not a Greenspan fan. In the years that lie ahead, I believe we (and our children) may pay dearly for the debt bubble Greenspan created during his tenure as head of the U.S. Federal Reserve.” Michael Lombardi in Profit Confidential, March 20, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.


About the Author | Browse Michael Lombardi's Articles

Michael Lombardi founded investor research firm Lombardi Publishing Corporation in 1986. Michael is also the founder of the popular daily e-letter, Profit Confidential, where readers get the benefit of Michael’s years of experience with the stock market, real estate, economic forecasting, precious metals, and various businesses. Michael believes in successful stock picking as an important wealth accumulation tool. Michael has authored more than thousands of articles on investment and money management and is the author of several successful investing publications,... Read Full Bio »

Aug. 31, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter) $1014.15
Trailing 12-month Price/earnings multiple (Most Recent Quarter)

17.44

Dow Jones Industrial Average Dividend Yield 2.71%
10-year U.S. Treasury Yield 2.14%

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.

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