Great Back to Back Months - What's Next?

April is over and it was a great month for the S&P500 (the second in a row!) with the index closing up 9.4% after up 8.5% in March. This is the best two months streak since 1950. Since then we've had only three two months periods with the S&P up more than 15%. Here is a look at how the market fared after such episodes. (indexed to 100 just before the 2 months streak!)

Current Recession - The Toll on Jobs

H/T CrossingWallstreet for pointing out this nice animation.

Pakistan

Thanks to Brad de Long for highlighting this somewhat reassuring article on Pakistan. The author's conclusion: "The hype about Pakistan is very sinister and mysterious and makes no sense to someone who actually knows the country."

The article refers to that post from Harvard prof Stephan M. Walt which asks three questions about Pakistan: "1. First, why is there so much disagreement about Pakistan's prospects among knowledgeable experts? 2. Will India Help? 3. The Big Question: What is the best way to protect Pakistan's nuclear arsenal?"

Added note: good briefing in the economist "A real offensive, or a phoney war?"

"The Color of China"

A tad long but still a very insightful exchange on China's prospects between Minxin Pei and Jonathan Anderson in the March 09 issue of the National Interest.
Pei argues for looming stagnation citing a number of issues such as China's ageing population, the resulting decrease in savings, increasing social costs, rising environmental problems and inequality.
Anderson on the other hand has a more optimistic view. In his case for Beijing's exceptionalism he first sums up the country's achievement: "in strict macroeconomic terms, so far China is unambiguously the most successful emerging economy of the postwar era. And at the current pace of development, China’s “rise” is not some hazy prospect shimmering on the distant horizon, but a concrete reality only twenty years down the road." He notes that roughly a third of Chinese growth came from factor productivity and that the corporate sector (SOE or purely private) has shown increasing margins in the past 15 years. This bodes well for savings and investments going forward. He explains that there is not much "state" left in SOEs as many sectors are truly competitive in spite of state ownerhips (many automakers, airlines, utilities, telcos etc.). Overall SOEs which still represent ca 25% of GDP are as exposed to market forces as kleiretsu in Japan and chaebol in Korea were if not more. Hence worries about missallocation of capital by an inefficient State are overstated. As for ageing Anderson notes that China has 73m underemployed people in the countryside which will help alleviate the issue.
His conclusion: "The bottom line is that China has seen considerable structural and largely market-driven changes that are already fundamentally altering the rural income balance, and should go a long way toward addressing the economic problems leading to the recent unrest. This year and the next will be tough, to be sure, as weak export markets and, especially, falling construction demand take a toll on migrant employment—but as I argued above, these are cyclical issues that are unlikely to prevent a return to trend growth in the near future and over the long term."

IMF on Climate Change

Browsing through their website I found this chapter from last year's WEO. Added to the pile!

IMF - Global Financial Stability Report

New estimates of global credit losses: 4.1tn US$

See page 48ff of the pdf report.
"As a result of continued pressures in credit markets, global financial institutions and other holders could face larger potential writedowns, according to our estimates (Table 1.3). Looking at the range of assets originated in the United States over the same cumulative period (2007–10) as in prior GFSRs, expected writedowns have risen to some $2.7 trillion, up from the $2.2 trillion estimated at our interim update in January 2009, and from the $1.4 trillion estimated in October 2008. The rise represents the credit deterioration that the worsening economic cycle is creating (Figure 1.27). Considering a much wider set of outstanding loans and securities to include European-originated loans and related securities as well as Japanese-originated assets (totaling some $58 trillion compared to earlier estimates based on $27 trillion of U.S. originated loans and securities) provides a broader, albeit more uncertain, assessment of potential writedowns of some $4.1 trillion. While banks are expected to bear about two-thirds of the writedowns, other financial institutions including pension funds and insurance companies also have significant credit exposures. Among other market participants, hedge funds have suffered losses related to both mark-to-market declines and forced asset liquidations due to redemptions."

China: Electricity Consumption and GDP growth

Floyd Norris posts the China's year-over-year increases in its gross domestic product and electricity consumption for the first quarter of each year.

2002: Electricity up 9.4%, G.D.P. up 8%
2003: Electricity up 14.7%, G.D.P. up 10.3%
2004: Electricity up 16.7%, G.D.P. up 9.8%
2005: Electricity up 14.3%, G.D.P. up 9.9%
2006: Electricity up 13.4%, G.D.P. up 10.4%
2007: Electricity up 12.4%, G.D.P. up 11.7%
2008: Electricity up 16%, G.D.P. up 10.6%

China Q1'09 GDP was up 6.1% YoY while in the first two months of the year electricity consumption was down over 9% from last year.

This reminds me of this story of provinces overstating their GDP estimates.