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Overcapacity / Oversupply Everywhere: Massive Deflation Ahead
Overcapacity / Oversupply Everywhere: Massive Deflation Ahead
The price of a great many assets will crash, out of proportion to the decline in demand.
Oil is the poster child of the forces driving massive deflation: overcapacity / oversupply and a collapse in demand. Overcapacity / oversupply and a collapse in demand are not limited to the crude oil market; rather, they are the dominant realities in the global economy.
Yes, there are shortages in a few high-demand areas such as PPE (personal protective equipment), but across the entire spectrum of global supply and demand, there is nothing but a vast sea of overcapacity / oversupply and a systemic decline in demand as far as the eye can see.
Here’s a partial list of commodities that are in Overcapacity / oversupply:
1. Overvalued assets
2. Overpriced income streams (as income craters, so will the asset generating the income)
3. Labor: low-skill everywhere, high-skill in sectors experiencing systemic collapse in demand
4. AirBnB and other vacation rental properties
5. Overpriced flats, condos and houses
6. Overpriced rental apartments
7. Overpriced commercial office space
8. Overpriced retail space
9. Overpriced used vehicles
10. Overpriced collectibles
I think you get the idea.
Should China restart its export factories, then almost everything being manufactured will immediately be in oversupply, as the global export sector was plagued with mass overcapacity long before the Covid-19 pandemic crushed demand.
Incomes will crater as revenues and profits crash, small businesses close their doors, never to re-open, local governments tighten spending, and whatever competition still exists will relentlessly push the price of labor, goods and services lower.
Globalization has generated hyper-specialization in local and regional economies, stripping them of resilience. Fully exposed to the demand flows of a globalized class of consumers with surplus discretionary income, regions specialized in tourism, manufacturing, commodity mining, etc.
…click on the above link to read the rest of the article…
“Zombie Ships” – Why Global Shipping Is Even Worse Than The Baltic Dry Suggests
“Zombie Ships” – Why Global Shipping Is Even Worse Than The Baltic Dry Suggests
It looks bad…
And it’s not just over-supply… (trade is slowing rapidly)…World trade volume rose by only 0.5% YoY in October and was up 2.4% YoY in the first 10 months of 2015, while world trade value in USdollar terms declined by 12.2% YoY in October and was down 11.8% YoY in the first 10 months of 2015.
But, as gCaptain details, reality is even worse for the world’s shipping industry:
Analysts agree there is no recovery in sight for the beleaguered containership charter market, which is facing its biggest crisis since the 2008 financial crash.
However, unlike that bleak period for shipping, which ultimately resulted in a strong recovery for charter rates, this time the fundamentals are quite different.
Overcapacity, stemming from the ordering strategy of carriers has been exacerbated by a growth slowdown in China and ultra-low oil prices. And according to the latest report from Alphaliner, with the possible exception of very small feeders, all containership sectors are struggling badly, with owners obliged to accept sub-economic charter rates and pay for positioning costs just to keep their ships busy.
The revenue earned in charter hire is seen by owners as a “contribution” to vessel overheads, but is often insufficient to cover mortgage payments on the ship.
Thus “zombie ships”, as they have become known in shipbroking circles, are masking the perilous state of container shipping.
…click on the above link to read the rest of the article…
The Great Fall Of China Started At Least 4 Years Ago
The Great Fall Of China Started At Least 4 Years Ago
Looking through a bunch of numbers and graphs dealing with China recently, it occurred to us that perhaps we, and most others with us, may need to recalibrate our focus on what to emphasize amongst everything we read and hear, if we’re looking to interpret what’s happening in and with the country’s economy.
It was only fair -perhaps even inevitable- that oil would be the first major commodity to dive off a cliff, because oil drives the entire global economy, both as a source of fuel -energy- and as raw material. Oil makes the world go round.
But still, the price of oil was merely a lagging indicator of underlying trends and events. Oil prices didn‘t start their plunge until sometime in 2014. On June 19, 2014, Brent was $115. Less than seven months later, on January 9, it was $50.
Severe as that was, China’s troubles started much earlier. Which lends credence to the idea that it was those troubles that brought down the price of oil in the first place, and people were slow to catch up. And it’s only now other commodities are plummeting that they, albeit very reluctantly, start to see a shimmer of ‘the light’.
Here are Brent oil prices (WTI follows the trend closely):
China Deflation Pressures Persist As Producer Prices Fall 44th Month
China’s consumer inflation waned in October while factory-gate deflation extended a record streak of negative readings [..] The producer-price index fell 5.9%, its 44th straight monthly decline. [..] Overseas shipments dropped 6.9% in October in dollar terms while weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8%, leaving a record trade surplus of $61.6 billion.
…click on the above link to read the rest of the article…
Overcapacity “will be even greater than in 2009.”
Overcapacity “will be even greater than in 2009.”
“I would be open to the possibility” of reducing the fed funds rate “even further” and go negative, explained Minneapolis Fed President Narayana Kocherlakota on Thursday. Some folks just don’t get it.
Here are the results of seven years of global QE and zero-interest-rate policies:
Global demand is going from sluggish to even more sluggish. Emerging market countries are leading the way, it is said, and China is sneezing. Brazil and Russia have caught pneumonia. Japan is feeling the hangover from Abenomics. Even if there is some growth in Europe, it’s small. And the US, “cleanest dirty shirt” as it’s now called, is getting bogged down.
And here’s what this is doing to the shipping industry, the thermometer of global economic growth.
On one side: lack of demand.
Due to the “recent slowdown in world trade” shipping consultancy Drewry on Thursday slashed its forecast for container shipping growth, in terms of volume, to 2.2% for 2015 and lowered its estimates for future years. BIMCO, the largest international shipping association representing shipowners, issued its own, even gloomier report also on Thursday:
On the US West Coast, it’s been slow all year, starting with the labor disputes that weren’t resolved until mid-March. Since then, year-on-year growth in the second quarter was almost on par with 2014. But for the first half year alone, inbound loaded volumes dropped by 2% according to BIMCO data.
On the Asia to Europe trades, volumes were down by 4.2% in the first half of the year as 7.4 million TEU (Twenty-foot container Equivalent Units) was transported. Northern European imports fell by 3.6%, while the East Med and Black Sea imports fell by 4.8%.
Intra-Asia shipments remain a stronghold with ongoing positive growth around 4-5%, but the increased uncertainty surrounding the economic development in China adds doubt as to whether such a strong growth rate can be sustained for the full year.
…click on the above link to read the rest of the article…
China and the Dragon Tail of Marx
China and the Dragon Tail of Marx
The dragon tail of Marx’s end-game of overcapacity and finance capital is about to shred China’s fantasy that the state can micro-manage both capitalism and financialization with no contradictions or consequences.
Longtime readers know my one expertise is annoying the entire ideological spectrum in 1,000 words or less. Today is one of those days, so strap on your blood pressure monitor and prepare for full-spectrum annoyance, regardless of your ideological leanings.
Marxism is typically considered discredited outside of a few protected fiefdoms of academia which tend to engage in obscure debates over the labor theory of value and other signifiers of membership in the inner circle of deep Marxist thinkers.
Outside these cloistered academic circles, Marxism is dismissed for two basic reasons:
1. the predicted final crisis and implosion of capitalism did not occur
2. the vaguely outlined post-capitalist incarnation of a stateless worker’s paradise not only failed to materialize, but was used to justify destructive, murderous totalitarian regimes.
But those egregious failures of Marxist theory should not blind us to the value of his critique of capitalism. After all, he was writing in the first stages of industrialization and global finance (late 19th century), and his failure to detail a scientific socialismbeyond capitalism can be chalked up to a mix of naive idealism and a paucity of theoretical models to build on.
…click on the above link to read the rest of the article…
China’s ‘Marshall Plan’ Will Not Solve Overcapacity in China’s Economy
China’s ‘Marshall Plan’ Will Not Solve Overcapacity in China’s Economy
The majority of industries in China face severe overcapacity, which seriously threatens the smooth functioning of China’s economy.
Despite China’s high hopes, “the road map for launching an Asian Investment Bank” remained only a plan at the APEC summit this year. In addition, the Mexican government decided to cancel a $3.7 billion Chinese bid for a hi-speed railway project. China’s “Marshall Plan”—to export its overcapacity—is thus off to a bad start, and Beijing will still need to find ways to deal with this “nuclear threat” to China’s economy.
Phasing out overcapacity would result in huge layoffs, which would destabilize society and contradict the government objective of stability maintenance.
Why China Wants to Implement a “Marshall Plan”
Most comments made in China regarding the country’s “Marshall Plan” focus on overseas investments. And while some mention the term “export capacity,” they deliberately omit the key modifier for the word capacity: over.
China seeks to establish an Asian Infrastructure Investment Bank (AIIB) and, with that bank as the core, to materialize its plan for a “one belt and one road,” i.e., a “Silk Road Economic Belt” and a “Maritime Silk Road of the 21st Century.” Through this “one belt and one road,” China would be able to export its unwanted excess capacity. Commentators have dubbed this “China’s Marshall Plan.”
…click on the above link to read the rest of the article…
