Where Positive Spin Meets Negative Reality - Rodney Johnson / HSDent

Is it just me, or does it seem that every time a piece of data comes out, no matter what it is, there is huge media hype to make it appear like a positive?  This morning we are greeted with the news that China’s economy grew at its slowest pace since Q2 2009.  Now, a growth rate of 8.9% in the 4th quarter of 2011 is not exactly falling into a death spiral, but it is a marked slowdown for the hottest economy on the planet.  When this news was announced did the markets go into freefall?  Did the markets take a turn lower?  No!  In fact, the Chinese stock market shot up by over 3% and other markets, especially those that supply China like Australia, moved up dramatically.  The reason?  Why, intervention must be near, of course!

In the world of media-spun economics, where good is good and bad is good, the news of a Chinese slowdown is a welcome sign because it implies that the Chinese government will intervene in the markets, easing monetary policy and thereby providing a boost.  The best way to play the anticipated boost is by purchasing “risk” assets before it happens, so the result is the run up in equities.  There’s only one problem – China’s economy is slowing down.

The reality is that the fast-growing Chinese economy really is slowing down.  Property values are falling, real estate sales, which fund local government coffers, are falling, and debt woes in provincial governments and cities are starting to mount.  This does not mean that China has to suffer a hard landing.  What it means is that right now the only thing known for sure is that the path currently leads lower, not higher.  Those who are jumping in to play the “obvious” outcome of government intervention and a certain rebound are playing the game of catching a falling knife.  It’s a good way to lose a little blood.