Mr Armageddon scuttles for cover

MB recently fingered John Adams for getting hysterical about house prices and the economy:

Economist former government adviser John Adams — who once worked for Liberal senator Arthur Sinodinos — believes economic armageddon is coming.

Adams says Melbourne’s falling house prices are in a devastating slide that will go beyond Moody’s forecasts and could reach more than 40 per cent from peak to trough.

It now appears Mr Armageddon is scuttling for cover, or at least scuttling sideways, turning bigly bearish on China instead:

We had similar from Martin North over the weekend, who is also suddenly discussing terms of trade benefiting GDP:

A few points need to been born in mind when assessing these discussions:

• the lift in the terms of trade has been obvious for many months. Not sure why it’s suddenly so important to the good gents. As usual, I would take their interest as a contrarian sign that the ToT is about fall;
• yes, China exaggerates its numbers but that is not the point. If it has always exaggerated growth, by refusing to properly account for misallocated capital in write downs, then what matters to commodity demand is the second derivative of growth, the speed at which it either slows or speeds up, not the level of it;
• yes, China is obscenely indebted but because it owns the banks that does not really matter. It can simply order them to lend whenever it wants, regardless of deteriorating balance sheets. This can go on for a long time but eventually what kills the growth model is the economy itself as it sinks into an unproductive, indebted swamp, a la the structural Japanese slowdown, which is what is steadily approaching;
• rising terms of ToT do not impact Australian real GDP. It lifts nominal growth because it measures prices, but GDP is based upon volumes. ToT up or down impacts national income but even that story is now dated because so much mining is foreign owned, mining capacity is overbuilt and LNG is an income disaster that destroys income via rising energy prices. Thus, ToT impacts are largely about the Budget and mining segments of the share market not the real economy.

The perils of being a property analyst!