Not Getting Better
In late July last year, not long before the stock market delivered a major “warning shot” with its sharp decline in August, we wrote about the transportation sector in Transportation Sector in Trouble – What are the Implications?. As we noted at the time, the sector seemed to send a potential “economic red alert”.
The famous ghost fleet near Singapore
Photo credit: Richard Jones / Sinopix
What was at the time a long-lasting divergence between the Dow Jones Industrial and Transportation Averages, has in the meantime turned into a complete rout of transportation stocks. At the moment the Transportation Average is rebounding from severe oversold conditions, but the fact remains that this former upside leader has become a downside leader.
In recent days we have come across a few other data points and charts in this context, some of which we show below. Yesterday Zerohedge reported on a sharp decline in orders for trucks, which jibes with what we are seeing elsewhere.
The charts below are a bit of an eclectic collection, but they are all making the same point: global trade continues to be in trouble. First two charts from China, the first one of which we have already shown in a recent Bill Bonner missive, namely the Shanghai containerized freight index (a price index).
The next chart shows the China railway freight index. Apparently China’s national railway company is set to reports its first ever operating loss this year, as railway cargo volumes have collapsed 11.9% year-on-year in 2015 to a new five year low. In Q4 2015 the decline accelerated to 13.4% y/y.
China’s railway freight index – at a five year low.
In the US, transportation-related data obviously don’t look quite as dire as of yet, but the trends are clearly nothing to write home about. Late last year the y/y change in truck tonnage finally turned negative after slowing down all year long from a late 2014 peak:
The CAS freight index of shipments has showed negative growth for quite a while already – and although the pace of the decline has slowed a bit lately, the y/y change rate remains in negative territory. A brief period of positive readings in 2014 has been replaced by another bout of weakness throughout last year:
Note that for the first time in the “recovery”, the CAS freight index has failed to deliver even a single positive growth reading in 2015.
An Incredible Collapse
However, the by far most stunning data points continue to be delivered by the Baltic Dry Index (BDI), which has been utterly annihilated. This index shows the cost of dry bulk shipping and once reached the lofty level of 11,793 points in 2008 – in concert with the peak in oil prices. Today it stands at a mere 303 points (not a typo), down 97.5% (!).
Alang – where ships go to die
Photo via smpworld.com
One has to keep in mind that the BDI not only reflects the decline in trade and the weakness in commodity prices and shipments, but also an oversupply of ships. As so often happens, a great many ships were ordered right at the peak of the cycle. In short, the BDI indirectly tells us that apart from the shippers themselves, the ship-building industry is in major trouble as well. This in turn redounds on all those supplying the shipyards, such as steel producers, which in turn is bad news for iron ore producers, and so forth.
The spectacular collapse in the BDI – the RSI recently fell to just 5.16 points, which is pretty unique. The index should soon bounce again, but the fact that it has declined so dramatically certainly gives one pause – click to enlarge.
In hindsight it is clear that the “potential” economic red alert has turned into an actual red alert. Global trade remains under pressure. As Charles Dow famously reasoned, when production and transportation of goods begin to diverge, as has been evident in the growing gap between the Dow Industrial and Transportation Averages since the end of 2014, the economy as a whole will soon be in trouble.
By now most of these data points and indexes are so extremely stretched to the downside that some sort of relief bounce seem likely in several of them – as noted above, a strong rebound in transportation stocks has in fact recently begun. However, we doubt that the larger trend is going to reverse just yet. That will likely take a lot more time.
Charts by: StockCharts, Shanghai Shipping Exchange, wallstreet.cn.com / National Bureau of Statistics, St. Louis Federal Reserve Research
It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- Gold Price Skyrockets in India after Currency Ban – Part III
When Money Dies In part-I of the dispatch we talked about what happened during the first two days after Indian Prime Minister, Narendra Modi banned Rs 500 and Rs 1000 banknotes, comprising of 88% of the monetary value of cash in circulation. In part-II, we talked about the scenes, chaos, desperation, and massive loss of productive capacity that this ban had led to over the next few days. Indian prime minister Narendra Modi – another finger-wagger, as can be seen in this...
- Gold Price Skyrockets in India after Currency Ban – Part IV
A Market Gripped by Fear The Indian Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes would no longer be legal tender. Linked are Part-I, Part-II and Part-III updates on the rapidly encroaching police state. The economic and social mess that Modi has created is unprecedented. It will go down in history as an epitome of naivety and arrogance due to Modi’s self-centered desire to increase tax-collection at any cost. Indian jewelry...
- A Note on Gold and India – What is Driving the Gold Price?
Hidden Motives It is well-known that India's government wants to coerce its population into “modernizing” its financial behavior and abandoning its traditions. The recent ban on large-denomination banknotes was not only meant to fight corruption. Obviously, this very bad Indian has way too much cash. Just look at him, he looks suspicious! Photo via thenewsminute.com In fact, as our friend Jayant Bhandari has pointed out, fresh avenues for corruption ...
- Gold Price Skyrockets in India after Currency Ban – Part V
A Brief Recap India's Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes will no longer be legal tender. Linked are Part-I, Part-II, Part-III, and Part-IV, which provide updates on the rapidly encroaching police state Expect a continuation of new social engineering notifications, each sabotaging wealth-creation, confiscating people’s wealth, and tyrannizing those who refuse to be a part of the herd, in the process destroying the very backbone of the...
- Attaining Self-Destruct Velocity
Bad Monday Some Monday mornings are better than others. Others are worse than some. For one Amazon employee, this past Monday morning was particularly bad. No doubt, the poor fellow would have been better off he’d called in sick to work. Such a simple decision would have saved him from extreme agony. But, unfortunately, he showed up at Amazon’s Seattle headquarters and put on a public and painful display of madness. Good-bye cruel world! On this our planet,...
- India's Currency Debacle – An Interview with Jayant Bhandari
A Major Crisis Last week Jayant Bhandari related the story of the overnight ban of certain banknotes in India under cover of “stamping out corruption” (see Gold Price Skyrockets In India after Currency Ban Part 1 and Part 2 for the details). Banned 500 rupee banknotes The problem is inter alia that the sudden ban of these banknotes has hit the Indian economy quite hard, given that 97% of all transactions in the country are cash-based. Not only that, it has...
- Will the Swamp Swallow Trump?
Permanently Skewed TRUMP HOTEL, New York – Trump’s rambling army – professionals, amateurs, camp followers, and profiteers – is marching south, down the I-95 corridor. There, on the banks of the Potomac, it will fight its next big battle. Lieutenants in Trump's army: Bannon, Flynn & Sessions Photo credit: Drew Angerer / AFP Here at the Diary, we do not like to get involved in politics. But this is a special time in the history of our planet – a...
- All Aboard! Trump’s Express Train to the Future
Free Money! BALTIMORE – Last week, the Dow punched up above 19,000 – a new all-time record. And on Monday, the Dow, the S&P 500, the Nasdaq, and the small-cap Russell 2000 each hit new all-time highs. The last time that happened was on the last day of December 1999. Ironically, two events that were almost universally expected to trigger large stock market declines were followed by quite rapid and strong gains. Would the market have fallen if Hillary Clinton had won...
- There Are Two Types of Credit — One of Them Leads to Booms and Busts
Stumped by the Bust In the slump of a cycle, businesses that were thriving begin to experience difficulties or go under. They do so not because of firm-specific entrepreneurial errors but rather in tandem with whole sectors of the economy. People who were wealthy yesterday have become poor today. Factories that were busy yesterday are shut down today, and workers are out of jobs. What has caused the bust? The modern-day economic orthodoxy continues to be unable to provide...
- Gold Bull Market Remains Intact – Long Term Fundamentals Outweigh Short Term Market Gyrations
A Strong First Half of the Year, Followed by Another Retreat In early 2016 gold had a big bull run. The precious metal rose close to 25% this year, pushed higher in a summer rally that peaked on July 10th. Gold experienced a bumpy ride over the remainder of the summer though, as investors became increasingly concerned about a potential rate hike by the Federal Reserve. Uncertainty returned to gold market and has intensified further since then. Initially, gold rallied sharply...
- Too Early for “Inflation Bets”?
The Trump Trade After 35 years of waiting... so many false signals... so often deceived... so often disappointed... bond bears gathered on rooftops as though awaiting the Second Coming. Many times, investors have said to themselves, “This is it! This is the end of the Great Bull Market in Bonds!” The long bond's long cycle – red rectangles indicate when the post 1980 bull market was held to be “over” or “over for sure” or “100% over”, etc. We have...
- Putting an End to the Regulatory Industry
Gross Regulatory Overburden Corporate life in America these days is fraught with tedium. First the MBAs imposed their silly six sigma processes and reduced workers to mere widgets. Then the regulators went through and squashed out any fun that remained. Gone are the days when shrewd eccentrics could get rich using techno-babble to hawk the Turbo Encabulator. Alas, there are rules and regulations stymieing all creativity. In fact, as a matter of law, such restrictions are shoved...