Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Is the Chinese Economy Really Recovering?

Wednesday, October 17th, 2012
By for Profit Confidential

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.

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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.

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Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles