Word For Remainder of 2012: Confluence



I’m sure this article will be met with much derision.

Come back and score me in 6 months, and then again in 12.

Here’s the thesis:

  • Europe is fooked.  They not only haven’t resolved any of the debt overhang problems they can’t as there is no willingness to align government services with tax revenues.  That hissing you are hearing are weak spots opening up in the pressure vessel.  Or, as might be said, “She’s gonna blow!
  • Australia’s property and credit bubble is going to detonate.  Why?  Because….
  • China is NOT going to avoid a hard crash landing.  Sorry folks, it just isn’t going to happen.  I know, I know, PMI is back over 50.  Uh huh.  Remember that China’s definition of a “crash” is growth under about 7-8%.  I think we may actually see a zero, which would be terrifyingly bad, before the end of 2012.

So what does this mean?  It means that the global “decoupling” story is crap.  Look folks, Europe is cooked and they’re far more important than people believe they are.

I’m expecting the guffaws to commence imminently but the reality of the situation is this — Australia has a credit bubble problem that is enormous (look at house prices relative to incomes) and one thing we’ve learned through history is that when houses become highly levered in the general economy you are subject to murderously-bad economic outcomes when, not if, the credit expansion turns inward on you — and it always eventually does.

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