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Copper, China And World Trade Are All Screaming That The Next Economic Crisis Is Here

Tyler Durden's picture




 

Submitted by Michael Snyder via The Economic Collapse blog,

If you are looking for a “canary in a coal mine” type of warning for the entire global economy, you have a whole bunch to pick from right now.  “Dr. Copper” just hit a six year low, Morgan Stanley is warning that this could be the worst oil price crash in 45 years, the Chinese economy is suddenly stalling out, and world trade is falling at the fastest pace that we have seen since the last financial crisis.  In order not to see all of the signs that are pointing toward a global economic slowdown, you would have to be willingly blind.  In recent months, I have been writing article after article detailing how the exact same patterns that happened just before the stock market crash of 2008 are playing out once again.  We are watching a slow-motion train wreck unfold right before our eyes, and things are only going to get worse from here.

Copper is referred to as “Dr. Copper” because it does such an excellent job of indicating where economic conditions are heading next.  We saw this in 2008, when the price of copper started crashing big time in the months leading up to the stock market implosion.

Well, now copper is crashing again.  Just check out this chart.  The price of copper plunged again on Wednesday, and it is now the lowest that it has been since the last financial crisis.  Unfortunately, the forecast for the months ahead is not good.  The following is what Goldman Sachs is saying about copper…

“Though we have been bearish on copper on a 12-mo forward basis for the past two and a half years, we have maintained a more bullish medium to long-term stance on the assumption of Chinese copper demand growth of 4% per annum and a major slowing in supply growth around 2017/2018 … we substantially lower our short, medium, and long-term copper price forecasts, on the back of lower Chinese copper demand growth forecasts (we have been highlighting that the risk has been skewed to the downside for some time), increased conviction in copper supply growth over the next three years, and increased conviction in the outlook for mining cost deflation in dollar terms.”

It's not just Copper though... Year-to-Date, commodities are ugly (except higher gas prices!!)

 

It is funny that Goldman mentioned China so prominently.  Even though China’s fake GDP figures say that everything is fine over there, other numbers are painting a very dismal picture.

For instance, Chinese electrical consumption in June grew at the slowest pace that we have seen in 30 years, and capital outflows from China have reached a level that is “frightening”

Robin Brooks at Goldman Sachs estimates that capital outflows topped $224bn in the second quarter, a level “beyond anything seen historically”.

 

The Chinese central bank (PBOC) is being forced to run down the country’s foreign reserves to defend the yuan. This intervention is becoming chronic. The volume is rising. Mr Brooks calculates that the authorities sold $48bn of bonds between March and June.

 

Charles Dumas at Lombard Street Research says capital outflows – when will we start calling it capital flight? – have reached $800bn over the past year. These are frighteningly large sums of money.

Just last month, the Chinese stock market started to crash, but the crash was interrupted when the Chinese government essentially declared a form of financial martial law.

And I don’t think that “financial martial law” is too strong of a term to use in this case.  Just consider the following excerpt from a recent article in the Telegraph

Half the shares traded in Shanghai and Shenzhen were suspended. New floats were halted. Some 300 corporate bosses were strong-armed into buying back their own shares. Police state tactics were used hunt down short sellers.

 

We know from a vivid account in Caixin magazine that China’s top brokers were shut in a room and ordered to hand over money for an orchestrated buying blitz. A target of 4,500 was set for the Shanghai Composite by Communist Party officials.

So a stock market crash was halted, but in doing so Chinese officials have essentially destroyed the second largest stock market in the world.  China’s financial markets have lost all legitimacy, and foreigners are going to be extremely hesitant to put any money into Chinese stocks from now on.

Meanwhile, there is no hiding the fact that trade activity in China and in most of the rest of the planet is slowing down.  In fact, world trade volume has now dropped by the most that we have seen since the last global recession.  The following comes from Zero Hedge

As goes the world, so goes America (according to 30 years of historical data), and so when world trade volumes drop over 2% (the biggest drop since 2009) in the last six months to the weakest since June 2014, the “US recession imminent” canary in the coalmine is drawing her last breath

 

World Trade Volume - Zero Hedge

 

As Wolf Street’s Wolf Richter adds, this isn’t stagnation or sluggish growth. This is the steepest and longest decline in world trade since the Financial Crisis. Unless a miracle happened in June, and miracles are becoming exceedingly scarce in this sector, world trade will have experienced its first back-to-back quarterly contraction since 2009.

As you probably noted in the chart above, a decline in world trade is almost always associated with a recession.

That was certainly the case back in 2008 and 2009.

Another similarity between the last crisis and what is happening now is a crash in the price of oil.

According to Business Insider, we have just officially entered a brand new bear market for oil…

Oil is officially in a bear market.

 

On Thursday, West Texas Intermediate crude oil futures fell more than 1% to settle near $48.55 per barrel in New York.

 

A bear market is roughly defined as a 20% drop from highs. Crude has now fallen by about 20% in the last six weeks.

So what does all of this mean?

All of these signs are indicating that another great economic crisis is here, and that a global financial implosion is just around the corner.

At this point, even many of the “bulls” are sounding the alarm.  For example, just consider what Henry Blodget of Business Insider is saying…

As regular readers know, for the past ~21 months I have been worrying out loud about US stock prices. Specifically, I have suggested that a decline of 30% to 50% would not be a surprise.

 

I haven’t predicted a crash. But I have said clearly that I think stocks will deliver returns that are way below average for the next seven to 10 years. And I certainly won’t be surprised to see stocks crash. So don’t say no one warned you!

For those that don’t know, Henry Blodget is definitely not a bear.  In fact, he is one of Wall Street’s biggest cheerleaders.

So for Blodget to suggest that we could see the stock market drop by half is a really big deal.

The closer that we get to this next crisis, the clearer that everything is becoming.

 

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Fri, 07/24/2015 - 14:21 | 6349934 Dr. Engali
Dr. Engali's picture

What makes you think the crisis of the 2000 collapse ever left? We have been in crisis mode since the internet bubble 1.0 popped.

 

Edit: Oil is in a bear market because it collapsed 20% in the past six weeks? Oil has been in a bear market since it collapsed over $100 per barrel from 2008 and never returned to those highs. These writers are retarded.

Fri, 07/24/2015 - 14:25 | 6349965 PartysOver
PartysOver's picture

The worse it gets the more greedy eyed I get.  PPT will step in soon, probably Monday when BATS declares "Self Help".  At which point, for reasons beyond me, suddenly China will not matter.

EDIT:  ES will attempt to bottom 2066 - 2073.  If not then I will be looking 2045 -2050 area.  And yes I will go full BTFDiptard.

Fri, 07/24/2015 - 15:30 | 6350285 Boris Alatovkrap
Boris Alatovkrap's picture

Boris is scream! Soon extraction cost is exceed sell price of high grade copper ore. Boris is just hire 50 new employee, miner and stripper. What is Boris to do with 100 pair of rubber boot on order!?

Fri, 07/24/2015 - 17:54 | 6350835 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

might I suggest you sell them to the army as Galosh-nikovs.

cheers Boris :)

Sat, 07/25/2015 - 00:35 | 6351882 Boris Alatovkrap
Boris Alatovkrap's picture

You are very smart funny make word play! Boris is laugh so hard is expel vodka through nasal cavity!

Fri, 07/24/2015 - 15:04 | 6350174 KnuckleDragger-X
KnuckleDragger-X's picture

Look at the economic trend line after 1929 bottomed out and the trend line since our last 'surprise' and you'll notice that we're actually in a worse depression over the same time period. They are hiding the obvious and no matter what the FED and other CB's do, it's going to get worse because we're all Keynesians now.......

Fri, 07/24/2015 - 18:50 | 6351031 sun tzu
sun tzu's picture

The only reason oil ever got close to $100 was easy credit and funny money. Commodities spiked in 2008 because money a leaving the RE markets and had nowhere else to go. People were expecting the Fed to print in 2007-2008  and when they didn't, oil collapsed. The Fed printed a yearl later in 2009 with QE1 and continued through QE3, which led oil back up to $100. When QE ended, oil returned to where it belonged.  

 

Fri, 07/24/2015 - 14:20 | 6349949 Chalan
Chalan's picture

By the time politician try to implement higher capital gains taxes and taxes on stocks sells, the markets will be in full panic selling mode, like Gold and Oil related sectors are now, that will force politicians to back off.

Looks like Obama will be leaving a crashing market but doubled the debt as his clear legacy.

Hedge accordingly

Fri, 07/24/2015 - 14:22 | 6349963 i_call_you_my_base
i_call_you_my_base's picture

Interestingly, if that happens, the Bush and Obama presidencies will have charted virtually the exact same economic course with nearly the exact same timing.

Fri, 07/24/2015 - 14:25 | 6349981 roadhazard
roadhazard's picture

Brothers from different mothers.

Fri, 07/24/2015 - 14:45 | 6350089 toady
toady's picture

Look back farther.... all the presidents from Reagan till now follow the same pattern. The last two are almost exactly the same, sure, but the pattern fits going back even further. If you wedge Nixon/ Ford/ Carter together it fits the pattern.

Double the deficit, crash at the end. Then everything is all hopey- changy, sunrise in America, etc...

Fri, 07/24/2015 - 14:20 | 6349954 freewolf7
freewolf7's picture

Whenever I read too many zh articles, I fix a drink and put on CNBC.

Fri, 07/24/2015 - 14:22 | 6349961 Normalcy Bias
Normalcy Bias's picture

Blasphemy! The Messiah is leading us all to the Promised Land!

I know it's true because they say so every day on the TV news!

Fri, 07/24/2015 - 14:26 | 6349982 Dr. Engali
Dr. Engali's picture

We're all going to Kenya? Or is he bringing Kenya to us?

Fri, 07/24/2015 - 14:22 | 6349962 Kaiser Sousa
Kaiser Sousa's picture

its all bad...

and if u have a fucking clue u know its true - girl....

Milli Vanilli

Fri, 07/24/2015 - 14:25 | 6349980 wmbz
wmbz's picture

Well it looks like it may be time for the great Amerikan consumer to step up to the plate, and go on a shopping spree!

Buying up cheap plastic crap from China with money they don't have, on their plastic cards!

The consumers will never let you down, they'll just rent another storage space to house their garbage. Or toss it in a land fill.

Fri, 07/24/2015 - 14:27 | 6349990 madcows
madcows's picture

Sorry.  It was me.  I stopped contributing to my 401k.  I know.  It was the only volume in the entire system.  It's my fault.  But, I needed the cash to fix the roof.  Maybe the FED can step in to replace my $200 per month contribution.  I hear they've got a printing press.  Boy.  I sure would like one of those.  Roofer says it's gonna cost about $10 large.

Fri, 07/24/2015 - 14:29 | 6350007 wwxx
wwxx's picture

I suppose there is going to be a huge number of 401K's that will 'let it ride' just as they did in 2007~8.  Take the penalty hit now & clear what you can.

 

Oh yeah and don't wait for congress to make a law that waives such a penalty, or at least they didn't last time they got wiped out.

 

wwxx

Fri, 07/24/2015 - 14:40 | 6350061 Winston Churchill
Winston Churchill's picture

Another 401 k bloodbath is exactly what they want.

The sheep will be herded into 'safe' USTs, for their own good  of course.

It was always the Fedres exit plan IMO.

Fri, 07/24/2015 - 14:29 | 6350008 PoliceThePolice
PoliceThePolice's picture

The economy is perfectly fine! Just the other day I saw a guy trying to buy tobacco with his food stamp card all while showing off his new Apple watch. How could the economy be crashing if he can afford an Apple watch?

In a just world, I could have smashed his fucking head in right where he stood. 

Fri, 07/24/2015 - 14:30 | 6350010 Bush Baby
Bush Baby's picture

Hey China - see how it's done? - We tax the shit out of short sellers, no need to lock em up

Fri, 07/24/2015 - 14:33 | 6350025 thunderchief
thunderchief's picture

It's on, like..?

Fri, 07/24/2015 - 14:36 | 6350042 i_call_you_my_base
i_call_you_my_base's picture

Janet's thong?

Fri, 07/24/2015 - 14:45 | 6350088 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Oh Jesus

Fri, 07/24/2015 - 14:48 | 6350108 monad
monad's picture

Trump - Copper 2016

Fri, 07/24/2015 - 14:54 | 6350134 inflatio_in_aeternum
inflatio_in_aeternum's picture

I like lower commodity prices. Buy low and Sell high is always the name of the game. If commodity price is low, in what ever industry, that means I can now start to invest in that industry because in turn prices are lower. Equipment is cheaper, labour is cheaper, etc.... Buy low and Sell high. Then, because of the long cycle of development of commodity industries, when the prices are rising I have already established my place in the market and then can reap the benefit of the rising price.

Fri, 07/24/2015 - 14:55 | 6350135 inflatio_in_aeternum
inflatio_in_aeternum's picture

*

Fri, 07/24/2015 - 15:51 | 6350354 thunderchief
thunderchief's picture

And where is Pot on that gragh?

Smokin weed has to be be comin down too..

Fri, 07/24/2015 - 17:49 | 6350804 Dead Canary
Dead Canary's picture

"All right, Mr. DeMille, I'm ready for my close-up."

Fri, 07/24/2015 - 20:05 | 6351228 honestann
honestann's picture

This article is pretty much how I see things now.

Next?  Crash.  Bail-in all private financial assets.

Well, except for physical assets you hold yourself (and hid).

Fri, 07/24/2015 - 22:10 | 6351589 Government need...
Government needs you to pay taxes's picture

This would be too transparent a ".gov fucked up" moment.  No, they'll steer toward freezing all markets, followed by mandatory, retroactively triggered 'capital gains tax' (no need to sell a security), followed by a "1-time" wealth tax, as needed.

Sat, 07/25/2015 - 00:35 | 6351879 honestann
honestann's picture

They might come up with some different (unexpected) way to accomplish the same thing, but in the end, it will simply be theft.

I've also been saying, IF the USSA can get other major fictitious nations to agree and coordinate, we could see something like a simultaneous 10x devaluation in the dollar and other currencies.

This would reduce debt by 10x "just like that"... while it also reduced the value of checking and savings accounts by 10x.  This would not phase the rich, since most of their assets are in physical assets or stocks (which would simply be repriced 10x higher like a stock split).  But it would DESTROY the most honest, ethical, prudent, productive, benevolent folks by stealing 90% of their savings.

Or they'll come up with an even more corrupt idea.

But it seems likely they'll adopt something like the bail-in scam which events over the past couple years imply people will tolerate without hanging the banksters and politicians.

Sat, 07/25/2015 - 15:35 | 6353539 tyrone
tyrone's picture

A few years ago, Jim Rogers moved to China with his family and all his toys.  

Hey Jim!  how's that working out for ya?

Sun, 07/26/2015 - 18:56 | 6356951 inorganic
inorganic's picture

You totally don't understand Jim Rogers or the "international man" or "expat" mindsets.

 

First, I believe Jim moved to Singapore (though I'm not entirely sure, and maybe he has more than one base of operations and living).

In any case, it is working out great for Jim and his family.

However, my real point is this.

The key concept is MOBILITY.

Whenever somewhere else is better for them... they'll move.

Simple as that.

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