Baltic Dry

Although it may be unrealistically optimistic, I believe my paraphrase of a Churchill quote:

“Central Bankers will eventually do the right thing and return to a gold standard after they have exhausted all other alternatives.”

With more than 60 percent of all Americans are living paycheck to paycheck, and a whopping 24 percent of the country has more credit card debt than emergency savings, when the coming economic crisis strikes, more than half the country is going to be financially wiped out within weeks. If you are trusting in the government to save you when things fall apart, you will be severely disappointed.

The unintended consequences of a money-printed, credit-fueled, mal-investment-boom in commodities (prices - as opposed to physical demand per se) and the downstream signals that sent to any and all industries are starting to bite. The Baltic Dry Index has plunged once again to new record lows and the collapse of the non-financialized 'clean' indicator of the imbalances between global trade demand and freight transport supply has the real-world effects are starting to be felt, as Reuters reports the third dry-bulk shipper this month has filed for bankruptcy... in what shippers call "the worst market conditions since the '80s."

We would do well to consider the possibility of war strategies when it comes to the global stockpiling of petroleum reserves. In the years leading up to the German invasion of Poland, the world witnessed dramatic decreases in the price of oil as well as massive increases in petroleum inventories, especially as the Texas fields began to produce. These shifts in the global oil markets ran parallel to the deflation which had begun in October, 1929, and as such, we can see the same pattern repeating today as oil prices collapse, inventories are growing, and world wide deflation is deepening.

The signals are clear: the world has already entered a downturn in economic activity. Therefore we can expect accelerated money-printing and the imposition of more negative interest rates in a forlorn attempt to avert economic reality.

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.

For the 56th day of the last 58, The Baltic Dry Index dropped. At 509, this is now down over 65% from the dead cat bounce highs in November 2014 and - yet again - a new all-time record low for the cost of shipping freight. It is no surprise then that, as Lloydlist reports, bulker newbuilding orders slumped in January. When the Baltic Dry tumbled in 2012, the glut of ships then caused a 49% plunge in orders for shipbuilding - as JPMorgan said at the time, "you just have too many yards and too few orders," and given the artificial signals provided by credit-inflated commodities since, we can only imagine the overhang now.

You know things are bad in the ship-building business when... amid considerably larger than expected losses, China's COSCO announced that it has dis-assembled 8 vessels in January alone (including 3 bulk carriers) and will be decommissioning and disposing of them as it awaits a "more conducive" environment. It appears that is not coming anytime soon, as The Baltic Dry Index just hit 522 - a new all-time low (down a stunning 53 of the last 55 days).

Few people understand the global economy and its (mis)management better than David Stockman -- former director of the OMB under President Reagan - and he is now loudly warning that events have entered the crack-up phase, which he predicts will be defined by four key developments. As the crack-up phase gains momentum, he predicts an increasing number of "financial breaks" that will add to the unpredictability and instability of the environment for investors. Even 'dancing close to the door' sounds excessively risky at this point.

The stock market continues to flirt with new record highs, but the signs that we could be on the precipice of the next major financial crisis continue to mount.  There are multiple warning signs that have popped up repeatedly just prior to previous financial crashes, and many of those same warning signs are now appearing once again.

"Some Shipping Folks Are Sinking..." South Korea’s Hyundai Heavy Industries, the world’s largest shipbuilder, has reported operating loss of KRW 3.25 trillion in 2014, or about USD $2.96 billion. The operating loss in 2014 is compared to a profit of KRW 802 billion in 2013. At 530, The Baltic Dry Index is at fresh record-erer lows...

The dominoes are beginning to fall. The initial spark in 2008 has triggered a series of unyielding responses by those in power, but further emergencies and unintended consequences juxtapose, connect and accelerate a chain reaction that will become uncontainable once a tipping point is reached. The fabric of society is tearing at points of extreme vulnerability, with depression, violence and war on the foreseeable horizon. Mr. President, the shadow of crisis has not passed. The looming shadow of crisis grows ever larger and darker by the day as this Crisis enters the most dangerous phase, where the existing social order will be swept away in a torrent of carnage and ferocious struggle. We are not a chosen people. We are not immune from dire outcomes.

"It's like a tax-cut for the world's freight shippers..." oh wait...

Are we on the verge of a major worldwide economic downturn? Well, if recent warnings from prominent bankers all over the world are to be believed, that may be precisely what we are facing in the months ahead.