China’s Economic Growth is Actually Negative

In Sue Chang's MarketWatch article last week titled "China's economy may be in worse shape than people think," the author quotes analyst David Straszheim at Evercore ISI: “Our proprietary Synthetic Growth Index (SGI) fell 1.1% month-on-month in July, and was also down 1.1% year-on-year.” Chang reports that "the SGI is a weighted average of seven components including railway freight, airline passengers, and electricity consumption," which allows Evercore ISI to calculate a measure of China's GDP that is independent of the unreliable and self-serving Government GDP fantasy figures.

In other words, independent calculations suggest that China's GDP growth is actually negative, far less than the official perpetual 7% annual growth rate. Negative GDP growth is much more consistent with the recent unprecedented level of Chinese Government intervention, desperately designed to prop up China's massively overvalued stock "market." In addition, the recent free-fall in Global commodity prices is much easier to explain if we assume China's economy, the second largest in the world, is actually shrinking.

If that does not get your attention, review Steve Goldstein's MarketWatch article: Canada arguably in recession." Canada has experienced its second consecutive decline in quarterly GDP. If we dis-aggregate the countries in the EU, Canada and China are our number one and number two trading partners; one is already in a recession and the other is experiencing negative GDP growth.

The fundamental concerns outlined above are even more serious considering the technical equity sell signal I discussed in my recent post "Systematic Strategy Favors Cash Over Stocks." The most recent Trader Edge recession model forecast did not indicate an imminent US recession, but the lag of the recession model could increase if the next Global recession is led by China, Canada, and the EU.

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Brian Johnson

About Brian Johnson

I have been an investment professional for over 30 years. I worked as a fixed income portfolio manager, personally managing over $13 billion in assets for institutional clients. I was also the President of a financial consulting and software development firm, developing artificial intelligence based forecasting and risk management systems for institutional investment managers. I am now a full-time proprietary trader in options, futures, stocks, and ETFs using both algorithmic and discretionary trading strategies. In addition to my professional investment experience, I designed and taught courses in financial derivatives for both MBA and undergraduate business programs on a part-time basis for a number of years. I have also written four books on options and derivative strategies.

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