2009 q1 bottoming?

Deterioration of trade, US home prices, and loans continue but at slower paces giving much joy. With a brief upsurge in trade and even property, March seems to have been a good month for almost everyone. Through some re-valuing of assets (or in the case of Goldman Sachs, leaving a whole month off their statement) US banks have announced profits recently. However now more than 26 banks have been nationalized throughout the US this year alone. Also in the news is China's 6% GDP growth (however electricity use fell). India's 6% GDP forecast. The Brazilian stock index outpacing the 6 week rally in US stocks. Many pundits see hot money riding a shoring up of consumer sentiment, which inevitably will pull back.

The first glimmers of deflation are seen in Spain. China's prices have lost steam amidst ballooning overcapacity (factories under 50% utilization), and while still there are increases in costs of food and services in Beijing, the Consumer Price Index fell 1.6% and 1.2% in Feb and March. With governments around the world expanding money supply, the cast for inflation fears also seems justified. For the first three months of the year, commodities do seem to have leveled, oil tracking between $40-50 a barrel. But underlying price movement here is also a bit of a question. This is a question that should be answered when trade recovers, and at what level.

This stock market rally through 1Q09 seems well orchestrated with announcements just good enough to justify the day's rally. While America's bottoming may be happening, it is more difficult to believe the good news propagated that China's continued deterioration and open-handed money grab is going to undermine the banks within a few years, maybe not unlike what happened in the west after 2001. Other Chinese economists have begun to notice the incredible overcapacity in housing now in China.

A rare bright spot has been the Chinese Bank Regulatory Commission, which has spoken out on both this lax lending and on the need for derivatives to be guided by three principles: transparency, a lack of leverage, and be created in only ways that serve a need in the economy as a whole.