Eight Steps To Realising This Will Be Worse Than Lehman Bros

By John Richardson

WE are going through a process of realisation at the moment. It is not a linear process   – i.e. not all people will be at the same stage.

Equally, chemicals and other company executives will move backwards and forwards between different stages in the eight-step process.

We can only hope that the majority of CEOS and politicians get to number eight as quickly as possible and so realise that events in China will have greater global impact than the collapse of Lehman Bros in 2008. China’s economic rebalancing is a far bigger deal for the global economy than the US sub-prime crisis.

Only when people have reached stage eight in our process can they start realistic planning for the future.

Here are our eight steps:

1. People start to notice demand is down but attribute it to a modest slowdown.
2. They see a longer slowdown – and assume new stimulus.
3. Then, as the slowdown carries on, they assume production cutbacks.
4. Then they think it is all cyclical.
5. Then they realise supply is increasing back in the West due to disorderly arrivals of raw materials from China.
6. Then they start to recognise that all this is connected and has the same cause – the withdrawal of credit in China.
7. They will still prefer not to put two and two together and to link the perceived demand to the collateral trade.
8. Only at the very end will they very reluctantly recognise that they invested in new capacities on the basis of totally false assumptions about the pace of growth and real demand.