Juggling Dynamite

Plastic bags take 10 to 20 years to decompose pic.twitter.com/gUdn355sTk

— Business Insider (@businessinsider) January 14, 2019

Further to my article last week Highly coupled global growth engines slowing all together, weaker economic data out of China and Europe this morning are roiling world markets.

Chinese trade slumped in December, sending regional stocks and the Australian dollar lower, as an unexpected fall in both exports and imports underlined the impact of the trade war and economic slowdown.

Exports in dollar terms fell 4.4 percent from a year earlier, while imports dropped 7.6 percent. Both were the worst result since 2016, and left a trade surplus of $57.1 billion.

Here is a direct video link.

The slowdown is becoming apparent in areas as diverse as iPhone sales and labor productivity. The economy may have barely grown in 2018 and is facing “long-term and very difficult times,” Xiang Songzuo, the former chief economist at Agricultural Bank of China Ltd., said in a speech in Beijing last month.

At the same time, Eurostat data just reported that factories across the eurozone suffered their biggest plunge in output in almost three years as European industrial production shank 1.7% in November–3.3% lower than in November 2017.  See Recession fears grow as Eurozone factories stumble and China exports fall.

This is not about trade tariffs which, so far, affect about 4% of global goods; this is about a global downturn in consumption as countries, companies and households struggle under the weight of record debt and shrinking cash flows.

As I have explained frequently, asset prices that went up on the same low rates, lax lending, speculation and foreign capital flows the past decade are now coming down together all around the world.  In the process, the assets, markets, cities and holders that rose the most, now have the most to lose–it’s pretty straight forward.

What makes this cycle likely to be more damaging than average, is the historically rare combination of real estate, corporate securities and many collectibles moving through synchronous decline all at once.

In addition, the world has never been more indebted and levered on falling asset prices.

The bonus will be clearance sales across the board for those with cash waiting to buy; the shock will be the loss of net worth by present holders.  Recall that Toronto and Vancouver areas came into this downturn as two of the top four most overvalued realty markets in the world.  That said, It’s not just Toronto and Vancouver:  a synchronized global slowdown is here:

What’s interesting is that the slowdown seems primarily to be affecting “world class” cities — those that attract large numbers of people and money from abroad, especially the wealthy…

In a report last year, the IMF noted that house price trends from Toronto to Sydney to London are becoming increasingly synchronized. The “global factor” now accounts for a third of the house-price change in a city like Vancouver, it estimated.