Ouch! It's a Hard Landing

By ALAN ABELSON, Barron's

Spring seems to have come a little early this year, and we're pleased, of course, to greet it warmly. Still: What happened to winter? In these parts, anyway, it made a brief and frosty appearance way back in October and then…vanished! More, we suspect, the result of meteorological mischief than mishap. It must be that whoever is in charge of the weather up there is bored to tears, hungry for diversion and intent on turning the world upside down.

We're not complaining, understand; for who can argue that this pockmarked planet with its bloody bouts of suppression and mayhem couldn't use a bit of straightening out?

For openers, we'd urge those devilish deities to engage in a little spring cleaning of the Middle East, concentrating on Iran and Syria. We're not suggesting biblical plagues or anything of that nature. Just a judicious culling of the ne'er-do-wells that have a foot on the necks of the populace. Not only would that miraculously relieve the oppressed natives, but, equally important, it would also sharply cut the price of a gallon of gasoline.

And the fix-it impulse might well be extended to Europe, subject, as it is, to recurring economic hemorrhaging inflicted largely by the populace's imprudence and aggravated by the stubborn insistence of the powers that be that austerity is a credible tourniquet.

As it happens, moreover, from all indications, China, which has become the biggest shopper for everything ever known to acquisitive man, has begun to show unmistakable signs of economic fatigue. Here, those prankish heavenly beings apparently have already started messing with the command economy.

For example, the China Banking Regulatory Commission owned up to the fact that the country's banks had underestimated the risk of some 20% of their outstanding loans—a cool $286 billion worth—to local governments. Reclassifying such loans, moreover, will take more than a stroke of the pen. The sinning banks may have to kick in a heap of yuan to build up their kitties against loan losses and scare up more collateral. The worry is that, if the local governments come up shy and banks fail to be repaid, Beijing will have to engineer its third bank bailout in not quite two decades.

China's trade numbers have turned disappointing as the dread combo of deleveraging in Europe and the U.S. and the deepening recession on the Continent are taking a toll. Increasingly, too, it strikes us that it's no longer a question of whether the Chinese economy will have a hard or soft landing, but how hard a landing.

Indeed, a fortnight ago, according to a report by Bloomberg News, at a conference in Singapore, JPMorgan Chase's chief Asian and emerging-market strategist, Adrian Mowat, declared that—no ifs, ands, or buts—"China is in a hard landing." He proceeded to reel off the negatives: "Car sales are down, cement production is down, steel production is down, construction stocks are down. It's not a debate anymore, it's a fact."

Mowat went on to stress that "One should be concerned about what's happening in the China property market. People are too complacent that the government can turn what's going on in this market."

It all sounds very much like the bursting of the bubble here, when only a lonely few thought it was for real. Mowat said that a pickup in property demand seems unlikely, and he can't find "any evidence of a policy move that will cause the economy to reaccelerate."

We've saved the best for last. Undeniably, as our quirky stock market gives evidence, our own proud nation is by no means immune to those offshore troubles enumerated above or the whimsy of the gods. Indeed, it may be that, as Messrs. Obama, Romney and Santorum agree, the U.S. is exceptional for all its spasms of fiscal imprudence.

While the rest of humanity struggles to regain its economic balance, we manage to amble along keeping our economy in a recovery mode, nipping away at unemployment and actually adding jobs. We may not be out of the woods yet, but at least we're not lost deep inside them.

And now comes Goldman Sachs, heralding the outlook for equities, calling it as good as it has been in a generation. That was the gist of a 40-page report, which at first sight seems like you would need a generation to digest it. It's called "The Long Good Buy," and, while it's nicely put together and even mostly comprehensible, a quick but attentive leaf-through left us unpersuaded.

In short, we hadn't even a flicker of interest in rushing out to buy a stock. But then, hey, what's the hurry, we've got a generation to think it over.