China grows GDP by $714 Billion

“So, if your base is more than double that of 2009, any growth rate now would represent double the growth from back then? Do you think that people get it? No, for the same reasons that people do not save and appreciate compounding interest, it is the same reason they refer to a “slowing China”. Slower growth rates yes, bigger base definitely. And as if you needed more context, 6.9 percent growth on 10.36 trillion Dollars is around 714 billion Dollars. Or, differently put, around one-third of the entire 2006 GDP. Now imagine that headline, China seen adding one-third of total 2006 GDP this year alone.”


To market to market to buy a fat pig. Sorry Province, I got that one wrong! Sorry, Cape Town, you are our guests this weekend. The Boks came through and I am pretty sure all of you were Scotland the Brave yesterday afternoon, cussing a local ref. I am guessing that Craig Joubert is to the Scots, what Bryce Lawrence is to us. And it takes a long time to get over it. Rugby over for a bit, it continues again this weekend, this is the real crunch time, a guaranteed Southern Hemisphere win, with our ten percent of the global population we are pretty good, right?

Markets now, China and their GDP read for the 3rd quarter will capture most of the imagination this morning. The Bloomberg headline reads: China’s GDP Growth Beats Forecasts as Stimulus Supports Spending. As everyone has been pointing out all along, the services sector is picking up the slack where the industrial sector slows.

Fixed asset formation is still growing at 10 percent plus (a little more than that), retail sales are now growing at a faster pace than the building. Which is what they need, which is what we all need, their economy to move to more consumption based. I see the naysayers saying things like “they can say whatever they want, it is China”. Really? Wrong, life for the average Chinese person is far better now than at any time in history, there may not be complete freedoms, yet more exist than at any other time in their history. Commodity prices have had a muted response this morning as a result of the “mix” of GDP. No hard landing? What now for the naysayers? They will still point and cherry pick negative data, in the same way everyone does in markets. You need that as a long term investor, buyers and sellers meeting in the middle with completely different opinions on exactly the same thing, to provide you with the liquidity that you need.

Having said that, this is the slowest annualised growth since 2009, back then the Chinese economy was not even five trillion Dollars in aggregate. Be careful of just reading the headline number and say, oh, China is slowing. Yes, perhaps in percentage growth terms, look at this bar graph courtesy of trading economics:

So, which one sounds more or less impressive of the two sentences? Chinese GDP growth slows to worst level since 2009. Or, Chinese GDP in aggregate in 2014 more than double that of 2009. So, if your base is more than double that of 2009, any growth rate now would represent double the growth from back then? Do you think that people get it? No, for the same reasons that people do not save and appreciate compounding interest, it is the same reason they refer to a “slowing China”. Slower growth rates yes, bigger base definitely. And as if you needed more context, 6.9 percent growth on 10.36 trillion Dollars is around 714 billion Dollars. Or, differently put, around one-third of the entire 2006 GDP. Now imagine that headline, China seen adding one-third of total 2006 GDP this year alone. Not likely to see that.

Over the seas and far away, in New York, New York Friday, stocks rose in the second half in response to perhaps better industrial earnings, both General Electric and Honeywell beating estimates and GE in particular leading the charge, up 3.39 percent by the end of trade, more on that tomorrow. The only stocks on the end of the losers were “materials”, the ones that we know as resources. The S&P 500 had ended up 0.46 percent, at 2033, the Dow Jones Industrial Average tacked on 74 points (and some small change) to end at 17215. The nerds of NASDAQ managed to add only one-third of a percent. Walmart is still under pressure, the stock traded at another fresh 52 week low, the broader market has outperformed the stock by over one quarter. Amazing. Amazon on the other hand is 88 percent higher over 12 months.


Linkfest, lap it up

A technology 30 years in the making, which sounds like many lifetimes in todays fast paced world – The Little Gear That Could Reshape the Jet Engine. This new jet engine will be quieter and more efficient.

Change is never pleasant especially if you are on the wrong end of it. In this case, taxi drivers are fighting for their way of life. It has now been shown though that the current taxi system globally is inefficient, so it is just a matter of time until it no longer exists – Uber wins London legal battle over taxi app

Having a relatively small population and the systems in place to make cashless payments makes it easier to move to a digital currency. The biggest obstacle is getting older generations to trust something that they cannot touch, where the article points out that there are still 7% of the elderly that only use cash – Sweden is on its way to becoming the first cashless society on Earth

When investing you are thinking long term, the problem with long term is you don’t know if your strategy is working until you have tested it over the long term and if it doesn’t work you have wasted many years of potential returns – How Long Can You Stick With Failing Factor Investing?


Home again, home again, jiggety-jog. US Futures are lower, Asian markets are lower on the session too, I guess the Chinese GDP read is lukewarm at some level, a number below 7 percent will be perceived as such. Even though as we showed you above, this is not really the case.


Sent to you by Sasha and Michael on behalf of team Vestact.

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