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Uncertainty

Let’s revisit the chart from Friday’s T-Report where we examine stocks, bonds, and oil.

Oil Didn’t Buy into the Bounce

At the start of the week, stocks retraced all of their coronavirus losses, but treasuries only retraced a portion and commodities in general (oil specifically), barely budged.

With high levels of uncertainty and stocks near all time highs, the risk/reward seems skewed in favor of being prudent. There is nothing to stop stocks from making new, even greater highs but as the official death toll of the coronavirus surpasses SARS and much of China is in lockdown while the virus continues to spread globally, it is difficult to be risk-on at the moment.

On a subjective basis, it seems like Wall Street was fixated on coronavirus long before it gained mainstream attention, which might mean we haven’t started to see retail’s reaction to increasing media coverage of coronavirus.

Garbage In, Garbage Out – The Problem with Existing Data

Garbage In, Garbage Out (or GIGO) is an important concept that warns against taking too seriously the results of any calculation or thesis based on low quality data.

As of Sunday morning, the Johns Hopkins dashboard that I’ve been using states that there have been 37,592 confirmed cases with 814 deaths and 2,920 recoveries.

It is tempting to use this data as being highly accurate. 37,592 confirmed cases seems pretty accurate, as opposed to giving a range of 35,000 to 40,000 but do they really have such precise information? I suspect that the “precision” of the counts implies a much higher degree of certainty around the numbers than there actually is. Rather than trying to work with the data today, I’ll highlight what I think the biggest risks are to using this data.

…click on the above link to read the rest of the article…

What a Relief that the U.S. and Global Economies Are Booming

September 13, 2019

What a Relief that the U.S. and Global Economies Are Booming

Doing more of what’s failed for ten years will finally fail spectacularly..It was a huge relief to see the charts of the Baltic Dry Index (BDI) and the U.S. retail sector ETF (RTH): both have soared to the moon, signaling that both the U.S. and global economies are booming: the BDI is widely regarded as a proxy for global shipping, which is a proxy for global trade and economic activity.

Amazon is 18% of the RTH basket of retail stocks, but the rest are conventional bricks and mortar chains with online sales: Walmart, Home Depot, Lowes, Costco, CVS, etc.The American consumer must be ready, willing and able to spend freely since the retail sector is hitting new heights.

OK, now let’s change channels from soaring market valuations to the real-world economy. What planet are buyers of BDI and RTH on? Maybe the shipping and retail sectors are incredibly robust on Sirius B, but here on Planet Earth the global economy is weakening, trade is stagnating, shipping is in recession, and retail sales and profits are stagnating.

Lumping all American households in one basket gives a false signal of financial health. If we look at averages, debt levels are reasonable, incomes are notching higher and so expectations of rising household debt and spending are reasonable.

But this radically distorts reality: only the top 10% are creditworthy and have rising incomes; the bottom 90% are over-indebted, poor credit risks and their income is stagnant and/or precarious.

The top 10% of households–a mere 12 million households–are also precarious, as much of their wealth and income is based on insanely overvalued asset bubbles in stocks, bonds and real estate. The wealth effect fuels their free-spending ways (recall that the top 10% collect roughly half of all income and account for almost half of all consumer spending).

…click on the above link to read the rest of the article…

Why S&P Bulls Should Worry As The Baltic Dry Collapse Nears Worst On Record

February 13, 2019

Why S&P Bulls Should Worry As The Baltic Dry Collapse Nears Worst On Record

As we noted recently, despite global stock markets soaring, global freight indices have been more-than-seasonally weak so far in 2019 with the Baltic Dry Index in particular crashing.

The Baltic Dry Index represents the cost of renting an ocean-going container ship to move goods from, say, Chinese factories to the Port of Los Angeles. The more stuff being made and sold, the higher the demand for such ships, and thus the higher the price to rent one. And vice versa.

This is definitely one of the vice versa times. After rising to robust levels in mid-2018 the Baltic Dry Index has since collapsed…

This is just shy of the worst start to a year on record (since at least 1984)…

As The Wall Street Journal recenjtly noted, Free-Falling Freight Rates Spell Trouble For Shipping

Dry bulk shipowners face a long period of uncertainty as spot prices collapse and China shipments shrink.
A slowing global economy, coupled with weak demand from China over the Lunar New Year and from Brazil after Vale SA’s iron ore disaster, is dragging shipping rates to near record lows, and few in the industry expect things to improve any time soon.
Brokers in Singapore and London said capesize vessels, the largest ships that move bulk commodities like iron ore, coal and aluminum, were chartered in the spot market for as low as $8,200 a day on Thursday, a $500 decline from Wednesday. Break-even costs for carriers can be as high as $15,000 a day, and daily rates in the capesize market hovered above $20,000 last year.
“Everyone is looking for a catalyst to push the market up, but it’s not there,” said a Singapore broker.
The Baltic Dry Index, which tracks the cost of moving bulk commodities and is considered a leading indicator of global trade, is down more than 50% since the start of the year.

…click on the above link to read the rest of the article…

Global Economy Flashes Red As China Shipping Rates Collapse

January 17, 2019

Global Economy Flashes Red As China Shipping Rates Collapse

A dramatic and sudden slowdown in the rate at which numerous commodities are being shipped to China suggests slowing demand for raw materials in the world’s second-largest economy, and signals a wider economic slowdown globally looms.

“Recent shipping data has turned negative with charter rates across all sectors notably weaker compared to late November levels,” Morgan Stanley analysts Fotis Giannakoulis, Qianlei Fan, and Max Yaras wrote.

“While such moves are common, the synchronized decline may be a warning for Chinese commodity demand.”

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Morgan Stanley continues:

During the last six weeks almost all shipping sectors have seen charter rates move lower, raising concerns about the health of underlying demand.

The Baltic Dry Index is down 17% since mid-December (Exhibit 6) with all vessel types earning lower rates compared to a year ago despite the sharp drop in dry bulk supply growth.

Meanwhile, data from China Customs show that iron ore imports shrunk by 3.2% in the last three months through November (Exhibit 7), while steel margins have recently turned negative.

On the crude side, VLCC rates to Asia have also seen a notable decline, falling from $60 in November down to $30k currently (Exhibit 8) with crude flows to China showing signs of decelerating momentum. According to ClipperData, in 2018 crude flows to China remained strong, growing by 7.6%, but below the 10.1% growth rate seen in 2017. Over the last four weeks data shows further declines, although this is mostly attributed to the slowdown in supply due to the OPEC+ cuts, as well as delays at Chinese ports.

…click on the above link to read the rest of the article…

Global Supply Chains Paralyzed After World’s 7th Largest Container Shipper Files Bankruptcy, Assets Frozen

August 31, 2016

Global Supply Chains Paralyzed After World’s 7th Largest Container Shipper Files Bankruptcy, Assets Frozen

After years of relentless decline in the Baltic Dry index…

… today the largest casualty finally emerged on Wednesday when South Korea’s Hanjin Shipping, the country’s largest shipping firm and the world’s seventh-biggest container carrier, filed for court receivership after losing the support of its banks, leaving its assets frozen as ports from China to Spain denied access to its vessels.

For those unfamiliar with the company, here is a brief overview from its website:

Hanjin Shipping is Korea’s largest and one of the world’s top ten container carriers that operates some 70 liner and tramper services around the globe transporting over 100 million tons of cargo annually. Its fleet consists of some 150 containerships and bulk carriers.

With 4 regional headquarters in the U.S., Europe, Asia and South East & West Asia, approximately 5,000 global staffs as well as container terminals in world’s major ports contribute to Hanjin Shipping’s world-class logistics network around the world.

As Reuters reports, banks led by state-run Korea Development Bank withdrew backing for the world’s seventh-largest container carrier on Tuesday, saying a funding plan by its parent group was inadequate to tackle debt that stood at 5.6 trillion won ($5 billion) at the end of 2015.

Suk Tai-soo, president and chief executive officer of Hanjin Shipping Co, arrives
at a court in Seoul, South Korea, August 31, 2016.

South Korea’s biggest shipping firm, announced the filing for receivership and a request to the court to freeze its assets, which the Seoul Central District Court planned to grant, a judge told Reuters.

As part of the company’s insolvency process, the court will now decide whether Hanjin Shipping should remain as a going concern or be dissolved, a process that usually takes one or two months but is expected to be accelerated in Hanjin’s case, the judge said.

…click on the above link to read the rest of the article…

Do Any of the Current Rallies Pass “The Sniff Test”? No.

March 10, 2016

Do Any of the Current Rallies Pass “The Sniff Test”? No.

But you can’t tame the monster of speculative, legalized looting and financialization.

Everything from iron ore to copper to the Baltic Dry Index to stocks to bat guano is rallying. The problem is not a single rally passes “the sniff test:” is the rally the result of changing fundamentals, or is it merely short-covering and/or speculative hot money leaping from one rally to the next?

Every one of these rallies is bogus, a travesty of a mockery of a sham of price discovery, supposedly the core function of markets. What shift in fundamentals drove this rally? Higher profits? No, profits are declining, especially once the phony adjustments are stripped away. Is the global economy strengthening? Don’t make us laugh!

As Chris Martenson and many others have noted, “price discovery” is a joke now, as markets are either propped up by central bank “we got your back” guarantees or outright asset purchases, or driven up and down by speculative hot money flows.

Even the recent (and overdue) run-up in gold has a speculative-fever feel. Whatever the market, the game is the same: traders goose the markets higher with futures purchases, pile on with buying that attracts latecomers, who are then sold the rally at the top and left holding the bag when the rally inevitably deflates, once the speculative hot money exits.

This is not capitalism, or a functioning market: this is the end-game of legalized looting and financialization. What’s the value of real estate? If interest rates are pushed negative, then that gooses housing demand, as the cost of interest on a mortgage declines to near-zero in real terms.

What would the value be at 5% mortgage rates? What would the interest rate be in a truly private mortgage market, one that wasn’t dominated by government agencies and central banks? Nobody knows.

…click on the above link to read the rest of the article…

The End of Globalization?

March 8, 2016

The End of Globalization?

BRUSSELS – China has just announced that last year, for the first time since it began opening up its economy to the world at the end of the 1970s, exports declined on an annual basis. And that is not all; in value terms, global trade declined in 2015. The obvious question is why.

While global trade also fell in 2009, the explanation was obvious: The world was experiencing a sharp contraction in GDP at the time. Last year, however, the world economy grew by a respectable 3%. Moreover, trade barriers have not risen significantly anywhere, and transport costs are falling, owing to the sharp decline in oil prices.

Tellingly, the so-called Baltic Dry Index, which measures the cost of chartering the large ships that carry most long-distance trade, has fallen to an all-time low. This indicates that markets do not expect a recovery, meaning that the data from 2015 could herald a new age of slowing trade. The obvious conclusion is that the once-irresistible forces of globalization are losing steam.

The situation in China is telling. In recent decades, as it became the world’s leading trading economy, China transformed the global trading system. Now the value of both imports and exports have fallen, though the former have declined more, owing to the collapse of global commodity prices.

In fact, commodity prices are the key to understanding trade trends over the last few decades. When they were high, they drove increased trade – to the point that the share of trade to GDP rose – fueling hype about the inevitable progress of globalization. But in 2012, commodity prices began to fall, soon bringing trade down with them.

…click on the above link to read the rest of the article…

“It Hasn’t Been This Bad Since The Viking Age”: Dry Bulk CEO Warns Of Bankruptcy Tsunami, Counterparty Risk

March 4, 2016

“It Hasn’t Been This Bad Since The Viking Age”: Dry Bulk CEO Warns Of Bankruptcy Tsunami, Counterparty Risk

In the past three months we have repeatedly shown that, despite the recent modest rebound off the all time lows, the bottom is about to fall out of the dry bulk shipping market in articles such as these:

Overnight, the CEO of Dry bulk shipper Golden Ocean Group, Herman Billung spoke before an industry conference in Oslo, and made it clear that our worst-case expectations may prove to be optimistic.

Photo: Golden Ocean Group

He said that Dry Bulk shippers should expect little respite for another two years, adding that an enormous oversupply of vessels isn’t sustainable: “It’s a fair assumption to make that only half of the orderbook in 2016 will be delivered.”

He warned that “in the coming months there will be a lot of bankruptcies, counterparty risk will be on everybody’s lips.”

Useful tip: any time a CEO is warning about counterparty risk, it’s probably a good idea to listen.

Just to emphasize his point to the local audience he said that “The market has never been this bad before in modern history. We haven’t seen a market this bad since the Viking age. This is not sustainable for anybody and will lead to dramatic changes.”

Yes, it’s that bad.

…click on the above link to read the rest of the article…

World Trade Collapses Most Since Crisis

February 26, 2016

World Trade Collapses Most Since Crisis

One question now dominates the global macro discussion: has subdued global growth and trade become the norm in the post-crisis world?

That is, have lackluster growth and trade become structural and endemic rather than transient and cyclical?

Those are the burning questions that keep central bankers (not to mention sellside economists) up at night and they are front and center at the G-20 in Shanghai.

Warning signs abound. The Baltic Dry is in a veritable free fall. Germany’s manufacturing juggernaut is showing signs of faltering. The BRICS have ceased to be a reliable driver of global growth. US freight volumes are falling for the first time in years. And the list goes on.

“We have seen this burst of globalization, and now we’re at a point of consolidation, maybe retrenchment,” WTO chief economist Robert Koopman said last autumn. “It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should.”

As we noted earlier this month, to the extent Maersk is a bellwether, things are looking pretty grim. Maersk Line – the company’s golden goose and the world’s largest container operator – racked up $182 million in red ink last quarter and the outlook for 2016 isn’t pretty either. The company now sees demand for seaborne container transportation rising a meager 1-3% for the year.

On Thursday we got the latest evidence that the wheels are falling off. According to new data from the Netherlands Bureau of Economic Policy Analysis’s World Trade Monitor, global trade (defined as the value of goods that crossed international borders) plunged nearly 14% in 2015.

That’s the first contraction since 2009.

“The new data released on Thursday represent the first snapshot of global trade for 2015,” FT notes. “But the figures also come amid growing concerns that 2016 is already shaping up to be more fraught with dangers for the global economy than previously expected.”

…click on the above link to read the rest of the article…

Ifo WorldEconomic Climate Index: 1Q 2016

February 15, 2016

Ifo WorldEconomic Climate Index: 1Q 2016

Global growth leading indicators are screaming it, Baltic Dry Index is screaming it, PMIs are screaming it, BRICS are living it, and now Ifo surveys are showing it: global economy is heading into a storm.

The latest warning is from the Ifo World Economic Climate Index.

Per Ifo release: “The Ifo Index for the world economy dropped from 89.6 points to 87.8 points this quarter, drifting further from its long-term average (96.1 points). While assessments of the current economic situation brightened marginally, expectations were less positive than last quarter. The sharp decline in oil prices seems to be having no overall positive economic impact. Growth in the world economy continues to lack impetus.”

In numbers, thus:

Headline World Economic Climate Index is now averaging 88.7 over the two quarters through 1Q 2016, which is statistically below 97.7 average for the 2 quarters through 3Q 2015 and 93.2 average for 4 quarters through 1Q 2016. Current 2 quarters average is way lower than 8 quarters average of 98.4. Historical average is 94.9, but when one considers only periods of robust economic growth, the index average is 98.9. Again, current 2 quarters average is significantly below that.
Present Situation sub-index 2 quarters average is at 87.0, which is woefully lower than 2 quarters average through 3Q 2015 at 91.6 and is well below 96.0 average for the historical series covering periods of robust economic expansions.
Expectations for the next 6 months sub-index is at 90.4 on the 2 quarters average basis, down from 103.5 2 quarters average through 3Q 2015 and below historical (expansion periods only) average of 101.5.

Geographically, per Ifo release: “The economic climate deteriorated in all regions, except in Oceania, Asia and Latin America. In Oceania the climate index stabilised at a low level, and in Asia and Latin America it edged upwards. The indicator is now below its long-term average in all regions, with the exception of Europe.

…click on the above link to read the rest of the article…

World’s Biggest Containership “Hard Aground” As Baltic Dry Crashes Below 300 For First Time Ever

February 4, 2016

World’s Biggest Containership “Hard Aground” As Baltic Dry Crashes Below 300 For First Time Ever

Before this year the lowest level The Baltic Dry Index had reached was 556 in August of 1986 and the highest was in June 2008 at a stunning 11,612. Today saw the freight index hit a new milestone however, crashing through the 300 barrier for the first time ever – at 298, this is almost 50% below the previous record low.

Commodities obviously are saying something very different from “the market”…

And as Dana Lyons notes, of course much of the input into the BDI comes from the price of raw materials. Considering the deflationary spiral in commodities, the drop in the BDI to all-time lows shouldn’t be a shock.

However, the depths that the index is now plumbing is quite alarming and suggests trouble in the global trade picture.

It would also suggest perhaps that the deflationary pressure is not just a supply issue. Consider every prior drop in the Baltic Dry Index down to the 500-600 level. Each time, the index immediately jumped as if latent demand was just waiting for those lower prices. That development has not yet occurred this time around, even as prices are reaching 45% below the previous record low.

The Baltic Dry Index has become a trendy thing to mention in recent years when discussing global market and economic conditions. The truth is, nobody really ever knows for sure what the broader message is behind the index’s behavior.That said, this recent plunge is making it quite difficult to conceive that it means anything positive in terms of the global economy and deflationary pressures.

And finally it’s not just commodities and the Baltic Dry that stalled, as gCaptain reports, one of the world’s biggest containerships is hard aground in Germany’s Elbe River leading to the port of Hamburg.

…click on the above link to read the rest of the article…

Economic Activity Is Slowing Down Much Faster Than The Experts Anticipated

January 26, 2016

Economic Activity Is Slowing Down Much Faster Than The Experts Anticipated

We have not seen global economic activity fall off this rapidly since the great recession of 2008. Manufacturing activity is imploding all over the planet, global trade is slowing down at a pace that is extremely alarming, and the Baltic Dry Index just hit another brand new all-time record low. If the “real economy” consists of people making, selling and shipping stuff, then it is in incredibly bad shape. Here in the United States, the dismal economic numbers continue to stun all of the experts. For example, on Monday we learned that the Texas general business activity index just hit a six year low…

Economic activity in Texas keeps getting worse.

The general business activity index out Monday from the Dallas Federal Reserve for January was -34.6, a six-year low and much worse than economists had expected.

The forecast for the monthly index was -14, following a December reading of -21.6 (revised from -20.1) that was also worse than expected.

One could perhaps argue that this is to be expected in Texas because of the collapse in the price of oil.

But what about the very unusual things that we are seeing in other areas of the country? In Erwin, Tennessee, a rail terminal that had been continuously operating for 135 years was just permanently shut down, and hundreds of workers now find themselves without a job…

The last coal train to leave Erwin rolled slowly out of town just after at 3 p.m. Thursday, less than eight hours after CSX Transportation employees heard the news that rocked all of Unicoi County.

“Its a hard pill to swallow,” county Mayor Greg Lynch said. “Of course, we heard rumors that something was coming down. But never in my wildest dreams did I imagine they would just shut down and leave town.”

…click on the above link to read the rest of the article…

What If The Imploding Baltic Dry Index Does Reflect Global Trade After All

January 19, 2016

What If The Imploding Baltic Dry Index Does Reflect Global Trade After All

Earlier today, the Baltic Dry Index hit a new all time low.

This is not new: we have been tracking the collapse of the Baltic Dry – aside for the occasional dead cat bounce – to all time lows, a proxy of global shipping and thus trade, for the past 7 years.

To be sure, for staunch goalseeking Keynesian the collapse in Baltic Dry rates had little to do with actual demand for this services, and everything to do with the alleged supply of drybulk shipping, which was the stated reason for the collapse in costs.

In other words, “trade was fine.”

Well, maybe not as the following chart from Capital Economics shows:

Correlation may not be causation, but it sure is troubling. Which begs the question: as the baltic dry index continues to plumb new record lows, how long until central banks realize that for all their omnipotence and all their attempts to restore growth, inflation and the “wealth effect” they never mastered the only thing worth printing in a globalized world: printing trade?

Lowest Ever: The Baltic Dry Index Plunges To 394 As Global Trade Grinds To A Standstill

January 15, 2016

Lowest Ever: The Baltic Dry Index Plunges To 394 As Global Trade Grinds To A Standstill

For the first time ever, the Baltic Dry Index has fallen under 400. As I write this article, it is sitting at 394. To be honest, I never even imagined that it could go this low. Back in early August, the Baltic Dry Index was sitting at 1,222, and since then it has been on a steady decline. Of course the Baltic Dry Index crashed hard just before the great stock market crash of 2008 too, but at this point it is already lower than it was during that entire crisis. This is just more evidence that global trade is grinding to a halt and that 2016 is going to be a “cataclysmic year” for the global economy.

If you are not familiar with the Baltic Dry Index, here is a helpful definition from Wikipedia…

The Baltic Dry Index (BDI) is an economic indicator issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides “an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain.”

The BDI is one of the key indicators that experts look at when they are trying to determine where the global economy is heading. And right now, it is telling us that we are heading into a major worldwide economic downturn.

Some people try to dismiss the recent drop in the Baltic Dry Index by claiming that shipping rates are down because there is simply too much capacity out there these days. And I don’t dispute that. Without a doubt, too many vessels were built during the “boom years”, and now shipbuilders are paying the price.

…click on the above link to read the rest of the article…

Food and Medicine Will Soon Be Unobtainable

January 14, 2016

Food and Medicine Will Soon Be Unobtainable

If product is not moving, then how will you get your food, medicine and other essential supplies? Famed economists, John Williams, from Shadow Stats and Joseph Meyer, Straight Money Analysis, will tell you that the Baltic Dry Index is the best indicator of the economic health of the economy.

The BDI Is At a Record Low

Unfortunately, the BDI, has just dropped another 3.1% to a new record low of 402. To anyone who knows anything about economics, it is clear that the end of this financial era is quickly coming to an end.

The MSM Conspires to Keep the Truth From the People

The Main Stream Media is totally ignoring the precipitous and unprecedented drop in the BDI. However, the impending financial crisis is not going unnoticed by those who manage the shipping industry. They recognize this as the total disaster that it is. For example, total orders at the shipyards in China, have dropped off by a nearly 60% in the first 11 months of last year according to Bloomberg.

Why Is the Record Drop In the BDI a Problem?

In President Obama’s “last” State of the Union Address last night, did he fail to mention that he will not be leaving office anytime soon? Sorry Hillary. The coming catastrophe will soon allow Obama to stay on as President in order to manage the present crisis and to, of course, “save the American people”.

America is the land of the 3000 mile salad. Virtually everything we consume, wear and use is shipped thousands of miles. The BDI measures the volume of shipments on a global scale. If the volume of shipment was any lower, nothing would be shipped. Could you write the ending to this? Can you even imagine mass starvation and civil unrest of unprecedented proportions?

This Perfect Storm Could Cause You to Starve to Death

…click on the above link to read the rest of the article…

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