Falling Off A Cliff
by Rory, The Daily Coin It appears that, once again, we find ourselves in a situation where the mainstream media is in pure spin mode and pumping lie after lie about how well the economy is doing. Since the beginning of this year I have been paying close attention to two strong indicators of just how well our global economy is doing. Time for another blue pill. Earlier today I was speaking with Dave and we were discussing our upcoming interview with Wolf Richter. (to be recorded and released in the early part of July) and we fell into a conversation about the “ties-that-bind”. It has been shown time and again that actions always have a reaction. This is a simple law of nature. If you are looking at the Baltic Dry Index, which is one of my favorite charts, as it can not be rigged due to the fact it is based on what people get paid. Most people don’t like getting their pay jacked-around, so, in my opinion, this is a pretty “clean” set of numbers. One of charts that Mr. Richter likes to look at is the Shanghai Containerized Freight Index. Once again, this has a direct impact on an individuals livelihood, so the odds of it being rigged are greatly diminished. Example of a cargo ship that would be counted in the BDI Quick explanation for those that are new: Baltic Dry Index (BDI) is the cost to lease a container ship that specifically carries raw materials (sand, iron ore, silver ore and the like). Items you would make another “finished” product that would then be sold at wholesale or retail markets. The more demand for these ships, thus creating tighter supply, the price goes up. The exact opposite happens when the supplies are good and the demand is low–the price goes down. You have to keep in mind these ships are not leased for a day or two; a lot of the contracts are for six to eight months or more. Example of a containerized ship as measured by SCFI: Shanghai Containerized Freight Index (SCFI) is a measure of the number of ships that sail around the world delivering the “finished” products to the wholesale and retail market places. The two largest markets for containerized shipments, which gives us a great read on what is happening globally, is the EuroZone and the United States. If these two vast markets are doing well, there is a greater demand for containerized ships. As you can see these two ships are quite different with completely different functions. When you cross reference the two different charts that measure the traffic associated with moving products around the world you can get a pretty good read as to what is happening, especially in the longer term view. Raw materials (BDI) have to be processed and made into another material to create a finished product. This could take a few hours, a few days or few weeks depending on what is being processed and for what purpose. So, a look at the BDI chart paints a picture for the next several months not just what is happening today and tomorrow. You can get a sense of what is happening on the “channel stuffing” of the global economy based on this information. The containerized ships (SCFI), which haul the actual finished products, is a great measure of what is going to happen in the upcoming few months. This also paints, in my opinion, a realistic view of “channel stuffing”. As the shipments pick up or decline you can get a measure of how full the shelves will be during the next “sales” cycle. If shipments are declining, as they are currently, this is an indication of a slumping economy. Dare I say, an economy falling off a cliff is what is seen from where I sit. Let’s take a look at the two charts and see what they are telling us at this time. First the Baltic Dry Index (BDI) This next chart shows the all time low, attained in February 2015, since the inception of the BDI: This is the most recent SFCI chart showing that, once again, ships are not hauling finished products to market: If you compare the three you see there is little movement in the way of raw materials that are needed to make “stuff” and there is not a lot of finished “stuff” being shipped out. This also indicates either the shelves are completely full or there is no need to order more of anything. I am of the belief this paints one of the truest pictures of what is happening with our globally economy. As stated, the EuroZone and the United States are the two largest markets for Chinese finished goods. If there is no need for more goods coming from the worlds manufacturer, being China, something is out balance with all other indicators that are discussed on the mainstream media. How can unemployment shrink if there is nothing to stock? How can people generate an income if there are no jobs? How can the housing market be “recovering” if there are no jobs and there is no income? I’m a simple man, with a simple mind. If you are processing raw materials to manufacture finished products and you are not shipping out finished products that equals “look out below”.