Three green shoots of recovery: Gottliebsen

Given the trillions of the dollars that global governments are spending to stimulate their economies, it should be no surprise that a series of recovery indicators are emerging around the globe.

However, three fascinating indicators caught my eye over the weekend which are a signal of events to come – and here I am not including the economic improvement in the US (helped by a lower greenback), plus the encouraging signs in India, Germany and the UK.

The first item that caught my eye was a dramatic statement from Alcoa on what it believed was about to happen in aluminium, which has been a laggard in global metals partly because the Chinese do not appear to have been stockpiling the metal on a large scale.

Alcoa chief executive Klaus Kleinfeld revealed that his distributors were showing renewed buying interest after themselves seeing signs that demand will revive. The distributors are concerned that they won’t be able to supply increased orders because they previously ran their aluminium stocks close to zero. The depressed aluminium price rose after the statement.

Secondly, a group of Chinese computer and home appliance manufacturers arrived in Taiwan over the weekend intending to buy billions of dollars worth of goods and components from Taiwan.

China is rewarding the loyalty of Taiwanese President Ma Ying-jeou and providing a further pointer to a lot more activity by China in the region. Australia is a beneficiary of this spread of Chinese money. We have already seen China moving into our mining companies and they will extend their buying of property.

Some 46 Chinese companies that have won contracts to supply Chinese farmers and city dwellers with computers and home appliances (in a state-subsidised project) are ordering US$8 billion in computer chips and other components from Taiwan. This is good news for Taiwan – its economy contracted by 10.2% in the first quarter. China has also pledged help with lower investment and travel barriers.

Thirdly, General Motors has called a press conference for tomorrow morning AEST time which indicates it expects an ordered bankruptcy deal.

Over the weekend the United Auto Workers union ratified a new cost-cutting labour agreement; Canadian auto parts group Magna International Inc reached an agreement in principle to rescue GM’s European operation Opel; and advisors to GM bondholders representing US$27 billion in the automaker’s debt urged investors to support a debt swap negotiated with the White House over the past week.

While it is true this development will bring pain for many, it marks the beginning of the rebuilding of a huge player in the US economy.

As we have set out many times, much of the stimulus spending in the West is based on borrowed money. Already bond interest rates are on the rise in the US and Australia. That represents the next hurdle for the rescue effort, but for the moment everyone is enjoying the so called “green shoots”.


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