The Baltic Dry Shipping Index Just Collapsed To An All-Time Record Low

I was absolutely stunned to learn that the Baltic Dry Shipping Index had plummeted to a new all-time record low of 504 at one point on Thursday.

Not even during the darkest moments of the last financial crisis did the Baltic Dry Shipping Index drop this low.  Something doesn’t seem to be adding up, because the mainstream media keeps telling us that the global economy is doing just fine.  In fact, the Federal Reserve is so confident in our “economic recovery” that they are getting ready to raise interest rates.  Of course the truth is that there is no “economic recovery” on the horizon.  In fact, as I wrote about yesterday, there are signs all around us that are indicating that we are heading directly into another major economic crisis.  This staggering decline of the Baltic Dry Shipping Index is just another confirmation of what is directly ahead of us.

Overall, the Baltic Dry Index is down more than 60 percent over the past 12 months.  Global demand for shipping is absolutely collapsing, and yet very few “experts” seem alarmed by this.  If you are not familiar with the Baltic Dry Shipping Index, the following is a pretty good definition from Investopedia…

A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery (speed).

The Baltic Dry Index is a composite of three sub-indexes that measure different sizes of dry bulk carriers (merchant ships) – Capesize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index’s composite measurement.

It is also known as the “Dry Bulk Index”.

Much of the decline of the Baltic Dry Shipping Index is being blamed on China.  The following comes from a Bloomberg report that was posted on Thursday…

The cost of shipping commodities fell to a record, amid signs that Chinese demand growth for iron ore and coal is slowing, hurting the industry’s biggest source of cargoes.

The Baltic Dry Index, a measure of shipping rates for everything from coal to ore to grains, fell to 504 points on Thursday, the lowest data from the London-based Baltic Exchange going back to 1985.

So many of the exact same patterns that we witnessed back in 2008 are playing out once again in front of our very eyes.  Below, I have shared a chart that was posted by Zero Hedge, and it shows how the Baltic Dry Shipping Index absolutely collapsed in 2008 as we headed into a major financial crisis.  Well, now the Index is collapsing again, and it is already lower than it was at any point back in 2008…


The evidence continues to mount that we are steamrolling toward a deflationary economic slowdown that is worldwide in scope.

Just look at the price of U.S. oil.  It just keeps on falling, and as I write this article it is sitting at $40.40.

The price of oil collapsed just before the financial crisis of 2008, and the same pattern is happening again.

And look at what is happening to commodities. The Thomson Reuters/CoreCommodity CRB Commodity Index has plummeted to the lowest level that we have seen since the last recession. It is now down more than 30 percent over the past 12 months, and it continues to fall.
https://www.corecommodityllc.com/ChartImg.axd?i=charts_0/chart_0_1.png&g=d165c23...

So don’t be fooled by the temporary “stock market recovery” that we have witnessed.  The underlying economic fundamentals continue to decline.  We are entering a global deflationary recession, and the stock market will get the memo at some point just like we saw in 2008.

At this moment, global financial markets are teetering on the brink, and all it is going to take is some kind of major trigger event to send them tumbling over the edge.

It wouldn’t take much to push the financial world into full-blown panic mode.  A major regional war in the Middle East, a terror attack that kills thousands, or an earthquake or volcanic eruption that affects a large U.S. city are all potential examples of “black swan events” which could fit the bill.

The global financial system has never been more primed for another 2008-style crisis.  Thanks to the fragility of the system, it could literally happen any day now.

http://www.infiniteunknown.net/2015/11/19/the-baltic-dry-shipping-index-just-col...
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As I said some time ago, "the end result seems fairly clear, but the final timing is somewhat difficult, as it will probably be set in motion by an event or events that have not/can not been factored in".

US$index briefly traded above 100.00, a little earlier & is now trading just under around 99.991

When the US$ is up like this, it is one of the indicators that all is not well, with the Economy!
http://www.marketwatch.com/investing/index/dxy

Oil Will Come Under More Pressure As Supply Will Continue To Far Exceed Demand

Summary
Why oil supply will remain robust.
U.S. dollar, interest rates and oil.
Russia and OPEC not interested in production agreement - never have been.
Devastation will continue in 2016

All oil companies have been hoping estimates of higher demand heading into 2016 would be a game changer over the next year; resulting in higher oil prices without the need for production to be cut back. I see that as now being a scenario that has little, if any chance of how it plays out.

The idea is the price of oil in the range of $40 to $50 isn't sustainable, so there will have to be a change in production if the expected demand doesn't come about. I don't believe it's going to.

Generally, there was a growing consensus that demand was going to jump, driven by the low price of oil. That hasn't stopped high levels of production bringing more supply to the market, which makes the assumption of higher demand a mute point going forward.

Adding to the dismal narrative is the high probability there will be a hike in the interest rate by the Federal Reserve, which will push oil down further.

On the production side, as I've mentioned a number of times, all the reports of Russia getting together with Saudi Arabia and OPEC to lower production in order to support the price of oil is illusory. Stories that Saudi Arabia is now open to moving forward with some type of agreement with other major producers is hype. The sooner investors understand that, the better.

Oil supply and Saudi Arabia
One interesting development in the decision by Saudi Arabia to aggressively attack its competitors with higher production levels, was it revealed to many investors and those watching the industry how vulnerable Saudi Arabia really is to the low price of oil and losing market share. It's now clear it probably only has a couple of years under the current market conditions before it would have to take drastic steps in order to support the price of oil.

I draw that conclusion from Saudi Arabia having at best five years of reserves left to fulfill its promises to its people. It will have to start seriously dealing with that reality before it has to continue drawing upon its reserves and increasing its debt via the bond market in order to meet budgetary demands.

Saudi Arabia is caught between its quest to maintain market share and not being able to spend as it has in the past because of the price of oil. Continuing to produce at current levels means it has to sacrifice reserves and weaken its credit position in order to operate as it has. Either that or it has to be willing to give up market share by lowering production. By doing that, it will also give up some influence and power it has had in the market.

It hasn't been able to crush the U.S. shale market or reduce Russian supply, which suggests the oil will continue to flow.

Russian oil
When measured by value, oil and natural gas account for about 50 percent of Russian export revenue. It has the third-largest oil reserves in the world, and is the top oil producer in the world as a standalone country.

The idea it's going to cut back on production to appease OPEC or Saudi Arabia is wishful thinking. It has no interest in doing so, and it won't. That's why it's not sending anyone of importance to the next OPEC meeting, even though it was invited.

Federal Reserve, interest rates and oil
Under the best-cast-scenario, oil supply would drop in 2016 while demand increased. Even if that were to happen to some degree, which I don't believe will be the case, the upcoming decision by the Federal Reserve to boost interest rates will result in the U.S. dollar getting stronger. That will drive the price of oil lower.

Add to that the high probability supply will remain at levels exceeding demand, oil could vastly underperform most predictions in 2016. Barring something unforeseen, such as geopolitical events, that is how I expect it to play out next year.

Conclusion
A lot of the outlook for oil and oil prices in 2016 has been based upon the assumption oil lower than $50 per barrel isn't sustainable. For that reason, expectations are some producer is going to blink and cave. I'm not sure any major producer is willing to do so.

In my view, Saudi Arabia has played its hand. All it can do is continue to produce at high levels in hopes of forcing a competitor to capitulate, or cut back on production itself, along with other OPEC members.

Now that supply is seen to be remaining at high levels, it's difficult to see what catalyst, outside of a decrease in production, could force oil reserves to be drawn down.

For those who believe there is going to be a rebalancing in 2016, they are going to be disappointed.

There's not enough pain yet in the market. It's coming, but it may not arrive until 2017, maybe even a little further out.

http://seekingalpha.com/article/3719026-oil-will-come-under-more-pressure-as-sup...
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So, what happens, WHEN DEMAND COLLAPSES, as I suspect it will over the period ahead, when the GFC revisits the Global Economy, possibly under the name o GFC2?

If Demand continues to head South, then any rebound in Price will not be likely, at least not for some time & not until Supply is confirmed as heading South!

perceptions_now wrote on Dec 4^th, 2015 at 12:21am:


As I suggested, "something is afoot"!
Dow finished DOWn 251 @ 17,479 - off 1.41%
DAX finished DOWn 401 @ 10,789 - off 3.58%

US$index went from 100 to 98 - off 2 full cents
OZ All Ords - currently Down 87 @ 5,190

Someone doesn't like, where WE are heading?

Japan's Back In A Recession: We're Next

Summary
Why Japan's economy crashed.
Why Japan's efforts to stimulate the economy are destined to fail.
What we can expect to see in their economic future.

As we forecast decades ago, Japan was the first developed country to go off the demographic cliff. Their massive baby boom and the real estate and stock bubbles that came with it, all burst.

Japan has already gone through what the rest of the developed world has since or will go through shortly… but nobody gets it. Japan didn't see it coming, and neither will Germany, Europe, or the U.S. ahead.

Never has an emerging country rose to wealth and developed country status as fast as Japan, in just three decades from the 1960s through the 1980s. And never has such a major economic and military power fallen so rapidly.

Japan's steep demographic slide was so strong that, even while the rest of the world saw the greatest global boom in history (as we also forecast), everything crashed.

Japanese stocks went down 60% in the early 1990s and real estate followed the same amount. Stocks eventually went down 80% in 2003, and real estate has never bounced - still down 60% today in residential, and 80% in commercial.

But Abe Shinzo, Japan's prime minister, and Haruhiko Kuroda, its central bank head, still think they can just stimulate their way out of the endless demographic landslide. They're convinced this is just a monetary problem of not enough inflation to get consumers to spend.

Hate to break it to them, but not only do aging consumers spend less and less, especially on real estate - they die.

In early 2013, this dynamic duo declared war on deflation (which is laughable) and aggressively increased QE, to more than double that of the Fed and the ECB at their peak rates. But then, they increased it another 60% in late 2014 to triple.

And sure, their stock market doubled - as pumping up stocks seems to be about the only thing QE's capable of - but their debt has risen to the highest in the world at 246% GDP, and 680% for total private and government!

Look at some stats since the tripling of QE in early 2013, compared to growth in private consumption and GDP.


The Bank of Japan's balance sheet has increased by 120%, which just blows my mind. No government has ever come close to these extremes. And yet, inflation has only risen 2% in this time frame of just over 2 years. How could this be with such massive money creation?

The answer is that they're fighting massive deflationary forces from aging and record debt levels. Private consumption from consumers has actually fallen 2%, or just less than 1% a year.

Economists blame this on the rise in sales taxes from 5% to 8% in early 2014 to help offset their huge government deficits and debt. That's when they upped QE another 60%. That didn't work either, as aging and demographics is the real problem.

Make no mistake: Japan's efforts have been an abysmal failure. They're mortgaging their future with QE and rising debt as their population and workforce ages predictably, even decades into the future. And it gets worse. After their millennials end their upswing from 2003 to 2020, their demographics worsen forever!

The final judgment is coming. Japan just entered an official recession with 0.8% declines in GDP in each of the last two quarters. The worst sector, business investment, is down 5% in Q3 and Q2.

We continue to not learn from Japan's lead. We're following them into a coma economy with similar policies of denial, instead of restructuring our debt and deleveraging it.

http://seekingalpha.com/article/3730126-japans-back-in-a-recession-were-next?ifp...
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So, who is next, when will be the turn of OZ & how deep will it go?
AND, WHAT WILL IT TAKE, FOR THE POLITICIANS & CB'S, IN OZ & ELSEWHERE, TO UNDERSTAND THAT THIS TIME IS DIFFERENT & FOR THEM TO START ACTING DIFFERENTLY???

Global Cooling: The World's Dangerously Slowing Economy In 4 Simple Charts

Summary
Despite the rhetoric, the world's economy is slowing dramatically.
This is particularly dangerous now with the disconnect in record high stock, bond, real estate markets.
Four simple charts tell the real story behind the slowing global economy.

Despite the political rhetoric of the economic experts and market media pundits, the world economy is slowing and likely to slow even more dramatically in the short months and years ahead.

The reason this is dangerous right now is that most financial markets across the developed economies of the world have yet to appropriately discount this significant market risk and economic reality.

With financial markets now entering the 8th year of our long running 5-7 year boom-to-bust market cycle, this can and will likely change at any moment.

The following 4 simple charts are all you need to see.
1. CRUDE OIL

Energy is the lifeblood of economic activity, and crude oil and fossil fuels still supply over 80% of the world's energy output. Despite 'peak oil' supply concerns and an increase in alternative energy production over the past decade, oil prices are now in record free-fall. Although crude oil supply has grown significantly, depressed oil prices may indicate that world demand for oil is slowing dramatically too - with oil prices off over 65% in 18 months.


2. COPPER

With copper's widespread use in many sectors of the global economy, the market price of copper often reflects on the overall health of the global economy. 'Dr. Copper', as noted above, has been in relative 'crash mode' since late in 2011, dropping nearly 55%.

3. INTEREST RATES


World interest rates and government bond yields are arguably the most important leading indicator to the world's economic prosperity. With the record low interest rates and the global 'cost-of-money' also in free-fall across the developed world, a deep economic deflation is now unfolding despite the global central banking rhetoric and spin.
Further evidence of a worldwide deflation is the European Financial Stability Facility (EFSF). The EFSF was created to safeguard financial stability in Europe by providing financial assistance to euro area member states. As you can see from the current negative bond yields above, European debt and the European economy is on life support too.

4. U.S. DOLLAR

Last but not least, the world's reserve currency and global de facto safe haven remains the US Dollar. As a rule, capital will seek out safe haven currencies and investments when concerns for the economy and markets turn precarious and troubling.
With this in mind, note the clear evidence of a significant ongoing flight-to-quality over the last 18 months with the massive international capital flight into the USA as illustrated in the rising US Dollar Index above. The US Dollar Index is up over 25% over this short period, with near 25% direct upside performance versus major core economy currencies including the EURO and Japanese YEN.

As the world continues to cool (economically), the world's central bankers outside of the US are aggressively cutting interest rates and devaluing their local currencies in an attempt to export their economies into prosperity. A new global currency war is well underway. As a result, we expect that the rising US Dollar still has a long way to go.

With real market prices reflecting the aggregate sum of all economic and investor input in real time, it is real market pricing that remains the most important and reliable market indicator of future economic activity.

Despite the constant rhetoric to the contrary, price never lies. Price matters.

The world economy is dangerously slowing. Invest accordingly.

http://seekingalpha.com/article/3745156-global-cooling-the-worlds-dangerously-slowing-economy-in-4-simple-chartsifp=0
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It should be noted that -
1) The Decline in Energy Prices is NOT restricted to just Oil, see Coal for starters!
2) The Decline in General Commodity Prices is NOT restricted to just Copper, see Iron Ore for starters!

It should also be noted that these Declines relate NOT to Supply, But to Demand Decline!
It should also be noted that, Demand Decline relates mainly to Demographics, which are set to continue for quite some time!
And, irrespective of what any Politician may say, Demand Decline will continue & Economic Growth will Decline!

A Sudden Deterioration Throughout Our Economy Points To A Recession

Summary
In just the past two months several key sectors of our economy have notably weakened. Many of these are considered leading indicators.
These sectors are trucking, high end retail, higher short term interest rates, manufacturing, drug companies, and junk bonds.

Additionally further deterioration in numerous other sectors, increasing foreign weakness, weak retail sales despite huge fuel savings, and the age of the expansion, point to heightened risk of a recession.

What has happened in the past two months? Well every high end retailer in the U.S. reported big misses and warned going forward. Trucking is the canary in the coal mine. The majority of U.S. trucking firms warned things are slowing. Commodities, not just oil, have continued to drop. Manufacturing turned negative. Drug companies are facing price pushback they never faced before. Subprime consumer loans are suddenly seeing increased delinquencies. Junk bonds are declining in price and facing liquidity pressure, short term interest rates increased, IPOs have dried up, and exports are accelerating their decline. These issues are mostly sudden and sobering. Further, a whole host of industries that were weak a year ago have gotten weaker.

The trucking industry is one of the best leading indicators of the economy, a canary in the coal mine. It is particularly useful as it is less affected by foreign economies than many other industries. In the third quarter, most trucking companies reported good results but many warned that demand was softening and analysts indicated there is pricing pressure.

Almost every higher end retailer surprised the stock market with weak earnings last quarter.

Some attributed the problems to a shift in consumer buying online, the warm weather, less foreigners buying in the U.S. due to the strong dollar, and to tired fashions. Weather was only a factor in one month of the last quarter. The strong dollar has been an issue all year, not just lately. Online sales have also been an issue for a while not just in the past few months. The suddenness and size of the misses indicates it is something more.


The Fed increased the Fed Funds rate for the first time in close to a decade on December 16, 2015 from a range of 0% to 0.25% to 0.25% to 0.50%. In my opinion, the Fed missed its window of opportunity to raise rates two years ago. Raising rates now is too late and adds salt to the wound.

On December 1, 2015 the Institute for Supply Management published its monthly Manufacturing Report for October. The latest headline PMI was 48.6 percent, a decrease of 1.5% from the previous month and below the Investing.com forecast of 50.5. A reading below 50 is a contraction.

Junk bonds have decreased in price and increased in yield in the past two months for several reasons. First of all, it appears increasingly likely that many of the bonds of overleveraged commodities and oil companies are going to default. For some like Arch Coal (NYSE:ACI) default is imminent. If oil prices stay where they are, a major portion of the crude oil production and oil service industry will default in 2016, due to negative cash flow, high leverage and little liquidity.

Weak Markets that have gotten Weaker Over the Past Year
The sectors shown below were in recession or struggling a year ago. Each has deteriorated since then. A brief discussion of each follows the list.

Steel
Aluminum
Copper
Coal
Gold
Oil
Oil Service
Agriculture
Mining Equipment
For Profit Colleges
Newspapers
Teen Apparel
Dry Bulk Shipping
Terrestrial Radio

Steel, aluminum and copper are all markets that traditionally have done well at this point in the economic cycle. For steel, the auto production and commercial construction markets are strong. This has been more than offset by foreign imports, particularly from China, and a strong dollar. China has the largest steel industry in the world and currently has significant overcapacity due to a slowdown in construction. Despite large overcapacity, the Chinese government is keeping factories open at a loss to preserve jobs.

Coal is the most depressed of the sectors listed above. What is happening in China is even a bigger factor. Due to unhealthy levels of pollution, the Chinese government is moving away from coal.

The current price of about $35 per WTI barrel is below breakeven for more producers in the U.S. than in most other countries around the world. This means the impact here will be greater, and production here is likely to fall more than in most other countries.