World Bank Wednesday – Another Trillion Isn’t Enough?

Courtesy of Phil’s Stock World

The World Bank cut it’s Global Growth Outlook – Again.

The Washington-based institution said the world economy this year will grow 2.5 percent, down from a June estimate of 3.6 percent (DOWN 25%). The World Bank sees the euro area contracting 0.3 percent in 2012 (RECESSION), compared with a previous estimate of 1.8 percent growth (DOWN 120%). The U.S. outlook was cut to an expansion of 2.2 percent from 2.9 percent (DOWN 24%). “Even achieving these much weaker outturns is very uncertain,” the World Bank said in its Global Economic Prospects report saying that a recession in the euro region threatens to exacerbate a slowdown in emerging markets such as India and Mexico.

Hello, McFly – Are you starting to put together the dots or shall we spend another day debating the merits of going long on oil and retail?

 “The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome.” The World Bank urged developing economies to “prepare for the worst” as it sees a continued risk for the European turmoil to turn into a global financial crisis reminiscent of 2008.

Euro-area industrial production declined for a third straight month in November, a report last week showed, adding to signs the economy failed to expand in the fourth quarter as leaders struggled to quell the region’s fiscal crisis. The revision is the largest since January 2009, when the World Bank cut its global estimate for that year by 2.1 percentage points.

Despite the significant measures that have been taken, the possibility of a further escalation of the crisis in Europe cannot be ruled out,” the World Bank said. “Some of the big developing countries that have been the motor of growth in the post 2008-2009 period now have slowed,” Andrew Burns, who heads the World Bank’s global macroeconomics team, told reporters on a conference call.

That prompted the IMF to IMMEDIATELY seek to boost its lending resources by another $1,000,000,000,000 this morning, in order to have the firepower to cope with any worsening of the EU debt crisis. The organization is pushing China, Brazil, Russia, India, Japan and oil-exporting nations to be the top contributors, although whether they’ll heed the call is another matter entirely.  This, I pointed out to Members (as we shorted the Futures this morning) is a Faustian Bargain, where the US and Europe agree to keep paying $100 for oil and continue buying overpriced imports in exchange for enough money to give us just one more quarter’s fix or, as Gator put it:

This is what the developed World has been reduced to – begging for cash to support our spending habits.  As Gator says “either way, I’m gonna get high” – so it’s just a matter of whether the Emerging markets want to lend us money so we can all pretend the Global Financial System is sound for another Quarter or two, or whether they are going to force us to print money to cover our debts – and drown them in a sea of Dollars and Euros – making it nearly impossible to charge enough for their goods to keep up with the collapsing currencies they get paid in.

Emerging markets, of course, have their own problems.  China’s December Home prices fell in 68 out of 70 cities measured, accelerating from 52 of 70 in November.  And, despite 3 months of declines in the Nation’s 4 largest cities (Shanghai, Beijing, Shenzhen and Guangzhou), The government said last month it won’t back away from curbs on the real-estate industry, with the financial center of Shanghai and the capital of Beijing among Chinese cities that have said they will continue to impose restrictions on home purchases this year.

Why not?  Because they have near riot conditions around the country and the DESIRES of the 65M people who live in those four cities are far outweighed by the NEEDS 1Bn people who DON’T live in major cities in China.  The workers in those cities, who make all your junk – have had 40% wage increases in the past two years and they still can’t afford to stay and work in the factories – that’s creating massive, nationwide inflation pressure that China simply can’t afford.

Speaking of inflation pressure, our Producer Price Index finished the year up 4.8%.  This may come as a bit of a shock to those of you who don’t think every word coming out of Ben Bernanke’s mouth is a lie.  It’s not just the Chinese people whose lifestyles are being destroyed by too easy monetary policy – the difference is their Government cares enough to do something about it.  Last year (when Bernanke said there was no inflation either) the PPI was up 3.8% so the no inflation this year is 26% higher than the no inflation last year!

We get CPI tomorrow and Industrial Production and Capacity Utilization later today.  Tomorrow we also have our own housing starts and the fabulous Philly Fed Report but it’s earnings we have our eye on this week and, generally, they SUCK!

Why is this not getting any press?  Last week I noted that almost half the companies were missing and yesterday – 5 out of 10 reporting companies missed.  How is the market up over 20% since last earnings on these reports?  It’s because INVESTORS are not playing this market – SPECULATORS are betting on the Fed, the IMF, the ECB, the BOJ, the SNB and the PBOC to flood the World with cash.  On that basis alone – they are overlooking overwhelming evidence that the Global Economy is still mired in Recession.

As a Fundamentalist, I have to play what’s real.  I have said all year, we would be gung-ho bearish if not for fear of the Fed meddling with the system.  In our short-term, aggressive, $25,000 Portfolio – we are very bearish and in our long-term, conservative Income Portfolio – we are well-hedged.  Despite the many assurances to the contrary by pretty much every guest on CNBC – I only hope that we are hedged enough.

Let’s be careful out there!

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