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The Burden of Denial
The Burden of Denial
It occurred to me the other day that quite a few of the odder features of contemporary American culture make perfect sense if you assume that everybody knows exactly what’s wrong and what’s coming as our society rushes, pedal to the metal, toward its face-first collision with the brick wall of the future. It’s not that they don’t get it; they get it all too clearly, and they just wish that those of us on the fringes would quit reminding them of the imminent impact, so they can spend whatever time they’ve got left in as close to a state of blissful indifference as they can possibly manage.
I grant that this realization probably had a lot to do with the context in which it came to me. I was sitting in a restaurant, as it happens, with a vanload of fellow Freemasons. We’d carpooled down to Baltimore, some of us to receive one of the higher degrees of Masonry and the rest to help with the ritual work, and we stopped for dinner on the way back home. I’ll spare you the name of the place we went; it was one of those currently fashionable beer-and-burger joints where the waitresses have all been outfitted with skirts almost long enough to cover their underwear, bare midriffs, and the sort of push-up bras that made them look uncomfortably like inflatable dolls—an impression that their too obviously scripted jiggle-and-smile routines did nothing to dispell.
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Dismal January Rolls On For Now Total Global Trade
Dismal January Rolls On For Now Total Global Trade
More bad news for the rest of the world, or at least the world’s economists, that has been anticipating the US economy as a means by which to expel negative economic forces. The idea of decoupling is not just something that suggests the US economy is moving contrary to all the rest, but also the sole source of hope for anything but a dramatic decline once again. Outside of the Establishment Survey and the unemployment rate, there has been nothing to suggest that any such divergence has existed. The most pertinent data, especially trade data, has been unambiguous in actually pegging the world’s declining fortunes to the lack of actual growth of the US economy.
While that was “good” enough to describe the rut that had befallen in 2012, most recent months, especially the dismal nature of January’s updates across a broad cross-section, increasingly suggest an end to even that nearly three-year furrow – but not in the direction that payrolls anticipate.
The latest trade data from the Census Bureau surpasses the ugliness we have come to expect of the elongated cycle. Both imports and exports fell year-over-year in January, as weakness, contraction even, is now universal in terms of US demand for foreign goods and foreign demand for US goods. Trade has ground to a startling halt.
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World’s Largest Container-Shipper Warns Global Trade Is Slowing Down
World’s Largest Container-Shipper Warns Global Trade Is Slowing Down
While it will hardly come as a surprise to many, especially those who have followed the historic collapse of the Baltic Dry index to levels which, all else equal, signify a global depression of epic proportions…
… and which led South Korea’s Hyundai Heavy Industries, the world’s largest shipbuilder, to report a $3 billion loss in 2014, the recent comments of the CEO of the world’s largest container-shipping group, Maersk Line, should put things into perspective, especially for those who say that the Baltic Dry is no longer indicative of anything but massively dry-bulk ship overbuilding and excess supply (some 8 years after the past cyclical peak).
Unfortunately, as Søren Skou, Maerk’s CEO, admitted when he warned that global trade growth could slow this year from recent 4% growth ratnes, as Chinese, Brazilian and Russian economies disappoint, the Baltic Dry is still not only relevant and accurate but telling the real story of global growth, or lack thereof.
As the FT reports, container demand rose by about 4% in both 2013 and 2014 and Maersk Line, the Danish group that ships about 15% of the world’s seaborne freight, expects it to increase 3 to 5% this year. Actually make it 3%. Or lower.
…click on the above link to read the rest of the article…
Global Cooling Alert: Brazil Headed For Worst Economy Since 1930-1931
Global Cooling Alert: Brazil Headed For Worst Economy Since 1930-1931
For all the debt crises, hyperinflation and boom-and-bust cycles Brazil’s economy has suffered in recent decades, the country hasn’t posted two consecutive years of contraction since the Great Depression.
But if 2014’s fourth quarter was as bad as many economists think and their expectations for this year hold true, Brazil will repeat that feat for the first time since 1930-31.
On Monday, economists polled weekly by Brazil’s central bank downgraded their consensus 2015 forecast to a 0.5% fall in gross domestic product.
And the central bank’s preliminary indicator this month revealed a 0.12% drop in economic activity in 2014, though the Brazilian Institute of Geography and Statistics won’t release official GDP figures for the year until next month.
Finance Minister Joaquim Levy recognized the possibility of a 2014 decline at an event in the New York last week. “We’ve been in a slow patch more recently and we all [feel] that growth has slowed down,” Mr. Levy said in a Feb. 18 presentation to the Americas Society/Council of the Americas. “Maybe last year it was even negative.”
Several factors are weighing on Brazil’s once-dynamic economy.
Growth in China, Brazil’s largest trading partner, has slowed, damaging demand for Brazilian iron ore, soybeans and other commodities and weakening the currency.
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If Oil Prices Are Surprising, Then That Can Only Mean Demand
If Oil Prices Are Surprising, Then That Can Only Mean Demand
Crude oil futures have been quite volatile of late, particularly in the front months where even the slightest changes in expectations of whatever factor (rig counts, CEO comments, etc.) send WTI surging or tumbling by turn. Despite that, however, the outer years on the curve have seen not just more stability but a steady downward pressure of late. I think a lot of that has to do with futures investors reconciling actual contango options with the idea that demand is far more of not just a problem, but a longer-term problem.
At the front end, rig counts have gained most attention but only as they relate to the surge in inventory. The US is overflowing with oil and production remains at a record high, but the two of those factors together don’t actually count as much in terms of price as is made out by most commentary. It is far too difficult for many to discount the entire economics professions’ complete dedication to the US “booming” economy in order to see a huge demand problem in oil prices; far easier to simply repeat the words “record supply” and leave it at that.
If you actually view the futures curve of late, the curves of recent days has crossed in the outer years. In other words, where prices have moved around at the shorter end, out at the long end the curve has shifted significantly downward regardless of short term pricing. That relates to both contango, as noted above, but also I believe growing recognition that supply is overwrought and demand is what may be impaired – perhaps more permanently than anyone thought possible only a few months ago.
…click on the above link to read the rest of the article…
It’s Official: Global Economy Back In Contraction For First Time Since 2012 According To Goldman
It’s Official: Global Economy Back In Contraction For First Time Since 2012 According To Goldman
After spending the past year deteriorating with each passing month, as global acceleration dipped decidedly in the negative camp, the only thing that kept the Goldman Global Leading Indicator “swirlogram” somewhat buoyant was that “Growth” measured in absolute terms had remained slightly positive. Not any more: according to Goldman’s latest global economic read, the world is now officially in contraction, following a sharp plunge in both acceleration and growth in February.
As the far simpler 2-D chart below shows, the Goldman GLI mometum indicator is now below 0 for the first time since 2012. It also shows what the momentum of the Global Leading Indicator looks like compared to Global industrial production, which is sure to follow below the X-axis in the coming weeks.
What is causing it? Pretty much everything except Initial Claims in the US (which are great for everyone, except the shale states – expect the weakness seen there to spread everywhere in the coming months).
…click on the above link to read the rest of the article…
Birth Pangs Of The Coming Great Depression
Birth Pangs Of The Coming Great Depression
The signs of the times are everywhere – all you have to do is open up your eyes and look at them. When a pregnant woman first goes into labor, the birth pangs are usually fairly moderate and are not that close together. But as the time for delivery approaches, they become much more frequent and much more intense. Economically, what we are experiencing right now are birth pangs of the coming Great Depression. As we get closer to the crisis that is looming on the horizon, they will become even more powerful. This week, we learned that the Baltic Dry Index has fallen to the lowest level that we have seen in 29 years. The Baltic Dry Index also crashed during the financial collapse of 2008, but right now it is already lower than it was at any point during the last financial crisis. In addition, “Dr. Copper” and other industrial commodities continue to plunge. This almost always happens before we enter an economic downturn. Meanwhile, as I mentioned the other day, orders for durable goods are declining. This is also a traditional indicator that a recession is approaching. The warning signs are there – we just have to be open to what they are telling us.
And of course there are so many more parallels between past economic downturns and what is happening right now.
For example, volatility has returned to the markets in a big way. On Tuesday the Dow was down about 300 points, on Wednesday it was down another couple hundred points, and then on Thursday it was up a couple hundred points.
This is precisely how markets behave just before they crash. When markets are calm, they tend to go up. When markets get really choppy and start behaving erratically, that tells us that a big move down is usually coming.
At the same time, almost every major global currency is imploding. For much more on this, see the amazing charts in this article.
In particular, I am greatly concerned about the collapse of the euro. The Swiss would not have decoupled their currency from the euro if it was healthy. And political events in Greece are certainly not going to help things either. Economic conditions across Europe just continue to get worse, and the future of the eurozone itself is very much in doubt at this point. And if the eurozone does break up, a European economic depression is almost virtually assured – at least in the short term.
And I haven’t even mentioned the oil crash yet.
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The One Way Forward
The One Way Forward
All things considered, 2015 just isn’t shaping up to be a good year for believers in business as usual. Since last week’s post here on The Archdruid Report, the anti-austerity party Syriza has swept the Greek elections, to the enthusiastic cheers of similar parties all over Europe and the discomfiture of the Brussels hierarchy. The latter have no one to blame for this turn of events but themselves; for more than a decade now, EU policies have effectively put sheltering banks and bondholders from the healthy discipline of the market ahead of all other considerations, including the economic survival of entire nations. It should be no surprise to anyone that this wasn’t an approach with a long shelf life.
Meanwhile, the fracking bust continues unabated. The number of drilling rigs at work in American oilfields continues to drop vertically from week to week, layoffs in the nation’s various oil patches are picking up speed, and the price of oil remains down at levels that make further fracking a welcome mat for the local bankruptcy judge. Those media pundits who are still talking the fracking industry’s book keep insisting that the dropping price of oil proves that they were right and those dratted heretics who talk of peak oil must be wrong, but somehow those pundits never get around to explaining why iron ore, copper, and most other major commodities are dropping in price even faster than crude oil, nor why demand for petroleum products here in the US has been declining steadily as well.
The fact of the matter is that an industrial economy built to run on cheap conventional oil can’t run on expensive oil for long without running itself into the ground. Since 2008, the world’s industrial nations have tried to make up the difference by flooding their economies with cheap credit, in the hope that this would somehow make up for the sharply increased amounts of real wealth that have had to be diverted from other purposes into the struggle to keep liquid fuels flowing at their peak levels. Now, though, the laws of economics have called their bluff; the wheels are coming off one national economy after another, and the price of oil (and all those other commodities) has dropped to levels that won’t cover the costs of fracked oil, tar sands, and the like, because all those frantic attempts to externalize the costs of energy production just meant that the whole global economy took the hit.
…click on the above link to read the rest of the article…
Oil, Power and Psychopaths – The Automatic Earth
Oil, Power and Psychopaths – The Automatic Earth.
Iran has a – very – long running dispute with the US about its nuclear technology. The US wants Assad (Bashar Al-Assad) out of Syria, while Iran and Russia support Assad (Russia’s sole proper base in the Middle East), who’s an Alawite (a Shi-ite branch), a people historically persecuted by Sunni’s. ISIS (or Daesh in the region) is Sunni. So are the Saudi’s. Iran is Shi’ite. Bahrain is ruled by Sunni but has a majority Shi’ite population. And I could go on for a while. A long while.
All this plays into the oil game, the falling oil prices. Blaming OPEC for the recent price fall is seeing the world from a child’s perspective. OPEC and its major voteholder, Saudi Arabia, are no more to blame for the plunge than the US, Russia or other non-OPEC producers. Everybody produces as if there’s no tomorrow, and the Saudi’s have merely concluded that their only choice is to do the same. It’s a race to the bottom.
The reason is the fast declining demand for oil; China is nowhere near as mighty as we seem to think, Europe is a basket case, emerging economies are being strangled as we speak by the surging dollar and the Fed taper, and we’re just getting started. It’s cute and all that nobody wonders how much virtual money has vanished into the great beyond as both oil itself and the companies that get it out of the earth have lost half of their ‘values’ in Q4 2014, let alone the countries that depend on oil for their very existence. But cute doesn’t cut it.
The Elephant Dragon In The Room: China’s Hard Landing, In 21 Charts | Zero Hedge
The Elephant Dragon In The Room: China’s Hard Landing, In 21 Charts | Zero Hedge.
Back in September, before the crude crash started in earnest driven far more by the relentless Chinese – and global – economic slowdown than anything OPEC may or may not have done (and whose output, as a reminder, hasn’t changed in years and actually declined, indicating the plunge is demand not supply driven) we showed, with the help of a few clear charts, that China is gripped by the worst commodity, and economic, crash in ages.
Today we update where China stands on its path to a very hard landing. As the charts below show, what has been so far a controlled descent is rapidly sliding out of control.
China’s NBS manufacturing PMI at 50.1 in December, down from 50.3 in November, the lowest in one and a half years.
Industrial production (IP) growth declined to 7.2% yoy in November from 7.7% yoy in October. Growth in power production decelerated to 0.6% yoy in November from 1.9% in October.
Occam’s Oil Razor: Oil Is Falling Hard Because World Demand Is Falling Hard | David Stockman’s Contra Corner
As my colleague Joe Calhoun continually reminds us, everything that happens has happened before. The ongoing “struggle” to define what is driving crude oil prices lower is perhaps another instance of a past “cycle” being reborn. With oil prices now heading much closer to the $40’s than the $60’s, consistent commentary is increasingly swept aside.
The move in crude these past six months is now nothing short of astounding. At about $52 current prices (which will probably move in either direction significantly by the time this is posted) the collapse from the recent peak now equals only past, significant global recessions under the oil regime that began in the mid-1980’s.
That comparison includes the 1997-98 Asian “flu” episode where the mainstream convention was also totally convinced of only massive oversupply defining price action. This was incorporated even into the International Energy Agency’s (IEA) estimates of oil inventories, as described shortly thereafter by certain incredulous oil observers:
Argentine Economy Contracts First Time Since 2012 After Default – Bloomberg
Argentine Economy Contracts First Time Since 2012 After Default – Bloomberg.
Argentina’s economy contracted more than forecast in the third quarter after the South American nation defaulted on its debt for the second time in 13 years, forcing the government to crimp imports amid a shortage of dollars.
Gross domestic product shrank 0.8 percent from the year-earlier period, the national statistics agency reported today. The median estimate of nine economists surveyed by Bloomberg was for a decline of 0.6 percent, after growth stalled in the previous three months.
South America’s second-largest economy contracted for the first time since the second quarter of 2012 on the heels of a default July 30 after a battle with creditors prompted a U.S. judge to block the distribution of its debt payments. Seeking to preserve international reserves that fell to an eight-year low in April, the government increased limits on imports, making it harder for manufacturing industry to obtain inputs.
Argentina posted a current account deficit of $736 million in the quarter compared with a shortfall of $1.7 billion in the same quarter a year earlier. The national statistics institute also reported today that economic activity rose 0.1 percent in October from the year earlier, while industrial production shrank 2.1 percent in November.
How increased inefficiency explains falling oil prices | Our Finite World
How increased inefficiency explains falling oil prices | Our Finite World.
Since about 2001, several sectors of the economy have become increasingly inefficient, in the sense that it takes more resources to produce a given output, such as 1000 barrels of oil. I believe that this growing inefficiency explains both slowing world economic growth and the sharp recent drop in prices of many commodities, including oil.
The mechanism at work is what I would call the crowding out effect. As more resources are required for the increasingly inefficient sectors of the economy, fewer resources are available to the rest of the economy. As a result, wages stagnate or decline. Central banks find it necessary lower interest rates, to keep the economy going.
Unfortunately, with stagnant or lower wages, consumers find that goods from the increasingly inefficiently sectors are increasingly unaffordable, especially if prices rise to cover the resource requirements of these inefficient sectors. For most periods in the past, commodities prices have stayed close to the cost of production (at least for the “marginal producer”). What we seem to be seeing recently is a drop in price to what consumers can afford for some of these increasingly unaffordable sectors. Unless this situation can be turned around quickly, the whole system risks collapse.
You Thought The Saudis Were Kidding? – The Automatic Earth
You Thought The Saudis Were Kidding? – The Automatic Earth.
There are many things I don’t understand these days, and some are undoubtedly due to the limits of my brain power. But at the same time some are not. I’m the kind of person who can no longer believe that anyone would get excited over a 5% American GDP growth number. Not even with any other details thrown in, just simply a print like that. It’s so completely out of left field and out of proportion that you would think by now at least a few more people understand what’s really going on.
And Tyler Durden breaks it down well enough in Here Is The Reason For The “Surge” In Q3 GDP (delayed health-care spending stats make up for 2/3 of the 5%), but still. I would have hoped that more Americans had clued in to the nonsense that has been behind such numbers for many years now. The US has been buying whatever growth politicians can squeeze out of the data and their manipulation, for many years. The entire world has.
The 5% stat is portrayed as being due to increased consumer spending. But most of that is health-care related. And economies don’t grow because people increase spending on not being sick and/or miserable. That’s just an accounting trick. The economy doesn’t get better if we all drive our cars into a tree, even if GDP numbers would say otherwise.
All the MSM headlines about consumer confidence and comfort and all that, it doesn’t square with the 43 million US citizens condemned to living on food stamps. I remember Halloween spending (I know, that’s Q4) was down an atrocious -11%, but the Q3 GDP print was +5%? Why would anyone volunteer to believe that? Do they all feel so bad any sliver of ‘good news’ helps? Are we really that desperate?
Saudi Arabia Says Hard for OPEC to Give Up Oil-Market Share – Bloomberg
Saudi Arabia Says Hard for OPEC to Give Up Oil-Market Share – Bloomberg.
Saudi Arabia and OPEC would find it “difficult, if not impossible” to give up market share by cutting crude production, the country’s oil minister said.
Global oil markets are experiencing “temporary” instability caused mainly by a slowdown in the world economy, Oil Minister Ali Al-Naimi said, according to comments published today by the Saudi Press Agency. He reiterated the country’s intention to maintain output amid plunging prices.
“In a situation like this, it is difficult, if not impossible, that the kingdom or OPEC would carry out any action that may result in a reduction of its share in market and an increase of others’ shares,” Naimi said, according to the state-run news agency. Saudi Arabia, the largest producer in OPEC, will stick to its oil policies, he said.
The Organization of Petroleum Exporting Countries decided Nov. 27 to keep its production target unchanged at 30 million barrels a day, ignoring calls from members including Venezuela to curb output to tackle a supply glut. Crude prices, which had already fallen 30 percent for the year by the November meeting, plunged after the decision, extending the drop to 43 percent.
