The story of the past 5 years has been how global economic growth moved from a dependency on the West's housing boom to a dependency on China's housing boom. Today's only problem is that history suggests such booms are unlikely to have a happy ending.
But who hasn't indulged in a little wishful thinking, from time to time?
And wouldn't it have been nice if the US housing boom could have continued forever? After all, as we noted in chapter 2 of Boom, Gloom and the New Normal, the US Federal Reserve estimated it allowed homeowners to withdraw $564bn/year between 2001-5, as the value of housing was doubling from $10tn to nearly $20tn. This provided a powerful boost to demand for autos and other chemical industry products.
Equally, wouldn't it be nice if China's housing boom could now continue forever? As the IMF note, housing's share of GDP rose from 2% in 1997 to 7% in 2009. It then jumped to nearly 10% last year, under the influence of China's massive stimulus programme. By comparison, it was just 6% in the US at the height of the sub-prime boom in 2005.
Polyethylene (PE) markets, like those for PTA, are trying hard to alert us to the potential problems that now lie ahead in China.
Contrary to popular belief, PE demand is not growing at 1.5 or 2 times GDP, but has actually gone ex-growth. 96% of China's population earn less than $20/day, and rising inflation and oil prices reduce their ability to afford the discretionary items that drive chemical demand.
Equally, N American PE exports to China were down 61% versus 2010.
China's ruling communist party does not care that the US cost base is the 2nd cheapest in the world, due to shale gas. Instead, it knows it must maximise job creation to remain in power. It therefore continues to increase China's own production, up 7% over the period.
Nobody knows what will happen next in China. All we do know is that PE markets are warning us that the risks of a 'hard landing' are very much higher than any of us would like to contemplate.