Baltic Dry Index. 2127 -89
LIR Gold Target by 2019: $3,000.
Oh, well don't get technical at a time like this.
Cary Grant. His Girl Friday 1940
Another day, another drop in the Baltic Dry Index. The BDI is now down 50% since May 26th. A year ago today, the BDI stood at 3216, rebounding from its December 2008 post Lehman Bros. crash low of 663. In May 2008 it reached its all time high of 11,793. If the BDI range 3000 to 4000 can be thought of as normal to healthy for the global economy, a declining BDI probing 2000 is distinctly worrying. While the BDI also reflects new ships coming on-stream, and other purely shipping industry related influences, as a broad brush measure of the health of the global economy, our canary in the cage has fallen off its perch and is lying on its back gasping for air. With austerity the only game in town all across Europe, any lift to the conspicuous consumption global economy will have to come from Americans taking on even more debt to buy yet more trinkets from the Pearl River delta.
MERCHANT, n. One engaged in a commercial pursuit. A commercial pursuit is one in which the thing pursued is a dollar.
Ambrose Bierce.
Baltic Dry Index Extends Its Swoon
07/06/10 - 11:16 AM EDT By BBH FX Strategy
The Baltic Dry Index has fallen for the 28th consecutive session Tuesday, the longest decline in six years.
During this swoon the index has fallen 49% and the main driver seems to be concerns about the cooling of China's steel sector. Steel is the biggest user of iron ore. Iron ore and coking coal account for more than a third of the Baltic dry freight.
-----One hypothesis is that there is a really a third element here. collapse of the Baltic Dry Index corresponds to increased concern about the trajectory of world growth.
If the China news is on the money -- that it will be boosting infrastructure spending in the western provinces, the Baltic Dry Index may find some support. Another possibility is that as the European bank stress test results draw closer, it may overshadow the growth, or lack thereof, theme.
After 5 to 6 trillion dollars of global new stimulus money created out of thin air, the BDI seems to be signaling bad times are returning again. If so, “the next Lehman” is now rapidly becoming a reality, even if for now it’s true picture is completely hidden by the fraudulent accounting practice of mark to the fantasy model. However, just like Bear Stearns and eventually Lehman Bros, such firms eventually exhaust all their cash and marketable securities. If the BDI is accurately forecasting a global slump ahead, my guess is that “the next Lehman” is less than a year away.
Below, more bad news from the bond market, US bond action suggests deflation is about to become the order of the day. The Keynesians are in a deep panic desperately trying to spin up yet more deficit spending. I think we have already gone beyond the point where that will alter the eventual outcome. Stay long precious metals, “the next Lehman” will likely make the fiat money house of cards come crashing down.
"There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."
Ludwig von Mises
Warning Signs From the Bond Market
Red Flags for the Economy
By MIKE WHITNEY July 6, 2010
Bonds are signaling that the recovery is in trouble. The yield on the 10-year Treasury (2.97 percent) has fallen to levels not seen since the peak of the crisis while the yield on the two-year note has dropped to historic lows. This is a sign of extreme pessimism. Investors are scared and moving into liquid assets. Their confidence has begun to wane. Economist John Maynard Keynes examined the issue of confidence in his masterpiece "The General Theory of Employment, Interest and Money". He says:
"The state of long-term expectation, upon which our decisions are based, does not solely depend, therefore, on the most probable forecast we can make. It also depends on the confidence with which we make this forecast — on how highly we rate the likelihood of our best forecast turning out quite wrong....The state of confidence, as they term it, is a matter to which practical men always pay the closest and most anxious attention."
Volatility, high unemployment, and a collapsing housing market are eroding investor confidence and adding to the gloominess. Economists who make their projections on the data alone, should revisit Keynes. Confidence matters. Businesses and households have started to hoard and the cycle of deleveraging is still in its early stages. Obama's fiscal stimulus will run out just months after the Fed has ended its bond purchasing program. That's bound to shrink the money supply and lead to tighter credit. Soon, wages will contract and the CPI will turn from disinflation to outright deflation. Aggregate demand will weaken as households and consumers are forced to increase personal savings.
More.
http://www.counterpunch.org/whitney07062010.html
We end for today with China news. Yet another expert is warning of a property collapse. From east to west, the global economic picture is troubled, to say the least, another 1987 stock market crash is a real possibility later this year, although thanks to the idiocy of high frequency trading programs, another May 6th style “flash crash” is possible at any time. Stay long precious metals for the long haul. When the rush to get out of paper money begins, there is no way of knowing where the final price of precious metals ends up.
"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."
F.A. von Hayek
China's property market braced for 30pc drop
Standard Chartered has told clients to prepare for a fall in property prices of up to 30pc in Beijing, Shanghai, Shenzen, and other large cities in China as the delayed effects of monetary tightening begin to bite
By Ambrose Evans-Pritchard Published: 10:28PM BST 06 Jul 2010
Stephen Green, the bank's China economist, said a glut of newly built homes were hitting the market just as buyers are restrained by higher down-payments and curbs on speculation. "We believe developers will be forced to cut prices," he said.
Kenneth Rogoff, ex-chief economist for the IMF, told Bloomberg Television in Hong Kong that the denouement could prove abrupt after such a torrid boom. "You're starting to see that collapse in property and it's going to hit the banking system," he said.
The government is trying to deflate the housing market gently, mostly using tools known as "financial repression" rather than Western style rate rises. Xu Shaoshi, land minister, said sales are already dropping. "In another quarter's time or so, the property market will probably come to a full correction and prices will fall. It's hard to say to what extent they will fall," he said.
At the same time, China is shifting its foreign reserve strategy, rotating out of Europe and into Japanese government bonds (JGBs). Japan's finance ministry said China bought $6bn (£3.9bn) of bonds from January to April, a record pace of accumulation.
Analysts say Beijing is hunting for fresh places to park its reserves after losing confidence in eurozone debt. It already holds around 70pc in dollars, a level deemed too high by many in Beijing. China's move helps explain the fall in yields on 10-year JGBs to just 1.06 pc last week, and why the yen has appreciated to ¥87 to the dollar -- nearing levels last seen in 1995.
China views soaring house prices as a threat to social stability, since workers are shut out of the market. The price-to-earnings ratio is 13 in Beijing and Shanghai, four times Western levels.
Charles Dumas from Lombard Street Research said China's boom had been driven by its fiscal stimulus of 13pc of GDP, the largest ever by major country in such a short period. The boost was concentrated in 2009, with credit growth running at 25pc of GDP.
"The Chinese had nowhere to put their savings since real interest rates were negative and capital controls stopped them investing abroad, so they bought apartments," he said.
Wealthier families often hold three, four, or more properties as a hard asset to store wealth, leaving many vacant. This has disguised the scale of excess inventory. It is unclear what will happen if there is the same sort of investor flight seen already on the Shanghai bourse, which is down 55pc from its peak.
“The fate of the nation and the fate of the currency are one and the same."
Dr. Franz Pick
At the Comex silver depositories Tuesday, final figures were: Registered 51.88 Moz, Eligible 61.73 Moz, Total 113.61 Moz.
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Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
No crooks today, just David Stockman, President Reagan’s former budget director on the causes of the Great Depression, making for uncomfortable reading for the Greenspan-Bernanke gang at the Fed. The whole article is well worth reading.
“It’s a good idea to save your money. One day it might be worth something again.”
Mad Magazine.
Liquidate, liquidate, liquidate
Commentary: Some inconvenient facts about fiscal austerity
July 7, 2010, 12:47 a.m. EDT By David Stockman
GREENWICH, Conn. (MarketWatch) -- Daniel Patrick Moynihan once said that policy advocates are entitled to their own opinions, but not their own facts.
A possible corollary in the context of the present rip-roaring debate about the macroeconomic impact of our dawning age of fiscal consolidation and austerity is that Nobel Laureates, especially, aren't allowed to make up their own history.
So Professor Joseph Stiglitz please get out your copy of "Historical Statistics of the United States" and, after perusal of the GNP and government finance tables, consider retracting your preposterous statement on CNBC last week that federal spending cutbacks caused the Great Depression. Perhaps you might copy Professor Krugman while you're at it.
In 1929, the nation's GNP was $104 billion and by 1932 it had plunged to $59 billion. But there isn't a snowball's chance that changes in federal spending had anything to do with this huge 43% decline in national output. In the first place, federal spending in 1929 was just $3.1 billion, or a mere 3% of GNP. It took another 80 years to erect today's leviathan state at 26% of GDP.
----By contrast, the statistical source of the $45 billion decline of GNP during the descent into the Great Depression is readily evident, as is the likely train of causation. Between 1929 and 1932, private fixed investment plummeted by an astonishing 94% while durables consumption dropped by 61% and exports by 65%.
-----In dollar terms, the sum of these three components, which had been $33 billion in 1929, dwindled to only $7 billion by 1932. Now that's a depression-scale collapse. Furthermore, this means that nearly three-fifths of the decline in GNP over 1929-1932 was accounted for by private fixed investment, exports, and durables-consumption spending.
This isn't coincidental because these three components were the epicenter of the unsustainable 1920s boom that had been spawned by the Fed's easy-money policies. Exports collapsed in part because of foreign retaliation after the passage of Smoot-Hawley in June 1930, but mainly because America's original experiment in vendor finance of exports failed miserably after the 1929 stock market collapse. During the preceding Wall Street boom, massive issuance of foreign bonds by governments from Peru to Poland and Germany -- that era's equivalent of sub-prime borrowers -- had artificially financed a huge build-up in US exports to countries which otherwise couldn't pay their bills (like China's vendor-financed exports to the US and Europe in the present era). But when the underwriting boom on Wall Street abruptly ended in 1929 (and the price of most of the foreign bonds soon fell to cents on the dollar), export orders in Pittsburg, Detroit, and Kansas City dried up shortly thereafter. Thus, not for the first time did an outbreak of capital market speculation stimulated by central bank largess ultimately result in a devastating liquidation of jobs and production on Main Street.
-----In short, the Great Depression had nothing to do with fiscal policy mistakes because the "fisc" in question was self-evidently too small to make a difference. Instead, it was the product of a classic boom and bust cycle that originated in the inflationary finance policies of central banks -- first to fund the carnage of World War I with printing-press money and then to layer on the speculative merriment of the Roaring Twenties.
When viewed in this framework, it's also evident that nostrums about the Great Depression offered by the non-Keynesian catechisms are equally off the mark.
The monetarists, following the teachings of Uncle Milton (Friedman), say that the Fed caused the depression. And it did -- but by means of its inflationary monetary policies of 1917-1927, not on account of its stinginess in the provision of money after October 1929.
More.
http://www.marketwatch.com/story/some-inconvenient-facts-about-fiscal-austerity-2010-07-07
We do not err because truth is difficult to see. It is visible at a glance. We err because this is more comfortable.
Alexander Solzhenitsyn
The monthly Coppock Indicators finished June:
DJIA: +269 Down. NASDAQ: +460 Down. SP500: +290 Down.
The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. Given the weakening BDI, and the ECRI leading indicators signaling recession ahead, it is probably safer to assume that the great stock market bounce has ended and that we are entering a new bear market, or alternately, resuming the old one after a bear market rally.
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Sunspots – A 22 year colder world? (From 2004?)
Spotless Days July 06
Current Stretch:0 days
2010 total: 35 days (19%)
2009 total: 260 days (71%)
Since 2004: 803 days
Typical Solar Min: 485 days
The long minimum seems to have ended, or has it? Despite the record and near record heat waves sweeping the northern hemisphere, I’m beginning to think our new Dalton Minimum of arriving global cooling, might turn out in fact to be a much longer more severe Maunder Minimum. More in the next few days on the Sunspot page.
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