Prepare for a Hard Landing

Chinese Economy Already in ‘Hard Landing'

China’s economy is already in a so-called “hard landing,” according to Adrian Mowat, JPMorgan Chase & Co.’s chief Asian and emerging-market strategist.

“If you look at the Chinese data, you should stop debating about a hard landing,” Mowat, who is based in Hong Kong, said at a conference in Singapore yesterday.

 “China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.”
The Shanghai Composite Index fell 2.6 percent yesterday, the most since Nov. 30, after Premier Wen Jiabao said home prices are still far from reasonable levels. His comments fueled concerns the government will maintain restrictions on the property market for an extended period even as the curbs threaten to slow economic growth.

Wen announced at the beginning of a national lawmakers’congress on March 5 an economic growth target of 7.5 percent for this year, down from 8 percent over the past seven years.

Data last week showed China’s factory output in the first two months of the year rose the least since 2009, while retail sales increased less than economists predicted and inflation eased to the slowest pace in 20 months.

My view:

The slow down in the export driven Chinese manufacturing machine is becoming so obvious now that even JP Morgan analysts are mentioning the issue.

A couple of years ago, James Chanos brought the subject up of a hard landing in China being inevitable.

While I am reserving judgement on how literally to interpret Chanos' comment that China was "Dubai times 1000", it is my view that China likely has misallocation of capital on a scale exceeding by several fold that of the United States housing bubble of 2001 to 2006.

With Europe, China's largest customer slipping to wide spread recession and even a currency crisis, and the US, its second largest customer, still struggling to maintain a low level of growth, it is difficult to envision any other outcome.

At this point I have sold almost all my long positions.  I am sitting in cash and some volatility driven etfs as a source of protection against what I see as a substantial pullback, or even collapse in the markets within weeks.