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”.

 

ghost fleetThe 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.

 

1-TRAN      After topping in late 2014, the Dow Transportation Average has suffered a sharp decline – click to enlarge.

 

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).

 

2-containerized freight indexChina containerized freight index has been in a relentless downtrend last year. Lately it has been moving sideways at a low level – click to enlarge.

 

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.

 

3-railway freight index chinaChina’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:

 

4-Truck tonnageUS truck tonnage, y/y growth rate – after a peak in late 2014, the annual rate of change has steadily slowed and finally turned negative in late 2015 – click to enlarge.

 

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:

 

5-CAS Freight IndexCAS Freight Index, shipments – y/y rate of change. Weak throughout last year – click to enlarge.

 

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% (!).

 

distrAlang – 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.

 

6-BDIThe 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.

 

Conclusion

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

 

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • India: Cash is Back
      But the Crisis has Deepened and has Become More Entrenched (Part XIV)   Nobody for President On 17th July 2017, India will elect a new President through a vote of the elected representatives. The two real choices are between Ram Nath Kovind and Meira Kumar. Afraid of looking completely ignorant, I asked a few people who Kovind is. No-one knew of him and people only vaguely remembered Ms. Kumar.   Adults and juveniles have been arrested in different parts of India for...
  • The Golden Age Has Just Begun
      Some Things Actually Go Up Before and During the Fall... In recent issues of Seasonal Insights I have discussed two asset classes that tend to suffer  performance problems in most years until the autumn, namely stocks and bitcoin. I thought you might for a change want to hear of an asset that will be in a seasonal uptrend over coming months.   Many things, including bitcoin, stocks and leaves tend to fall in the aptly named fall... but some things actually start to...
  • Work is for Idiots
      Disproportionate Rewards The International Monetary Fund reported an unpleasant outlook for the U.S. economy on Wednesday.  The IMF, as part of its annual review, believes the U.S. economic model isn’t working as well as it could to generate shared income growth.   Supping with the IMF (we recommend trying to avoid invitations to structurally adjusted suppers if possible. Their air of finality is reportedly unbearable). [PT]   On the same day, in an unrelated...
  • A Look at the Gold and Silver Price Drop of 3 July, 2017
      Mystery Nosedive The price of gold dropped from $1,241 as of Friday’s close to $1,219 on the close Monday, or -1.8%. The price of silver fell from $16.58 to $16.11, or -2.9%. It is being called a gold and silver “smash” (implication being that one party or a conspiracy is doing the smashing).   The flight of the gold rocket, different phases [PT]   Our goal is to help you develop a clear understanding. The move was no mystery. Monetary Metals makes an intensive...
  • Tales from the FOMC Underground
      A Great Big Dud Many of today’s economic troubles are due to a fantastic guess.  That the wealth effect of inflated asset prices would stimulate demand in the economy. The premise, as we understand it, was that as stock portfolios bubbled up investors would feel better about their lot in life.  Some of them would feel so doggone good they’d go out and buy 72-inch flat screen televisions and brand-new electric cars with computerized dashboards on credit.   The Wilshire...
  • Adventures in Quantitative Tightening
      Flowing Toward the Great Depression All remaining doubts concerning the place the U.S. economy and its tangled web of international credits and debts is headed were clarified this week. On Monday, Mark Yusko, CIO of Morgan Creek Capital Management, told CNBC that:   “…we’re flowing toward the path of 1928-29 when Hoover was president. Now Trump is president. Both were presidents with no experience who come in with a Congress that is all Republican, lots of big promises,...
  • How Dumb Is the Fed?
      Bent and Distorted POITOU, FRANCE – This morning, we are wondering: How dumb is the Fed? The question was prompted by this comment by former Fed insider Chris Whalen at The Institutional Risk Analyst blog.   They're not the best map readers, that much is known for certain. [PT]   [O]ur message to the folks in Jackson Hole this week [at the annual central banker meeting there] is that the end of the Fed’s reckless experiment in social engineering via QE and...
  • The Money Velocity Myth
      Popular Imagery of Money on the Move For most financial commentators an important factor that either reinforces or weakens the effect of changes in the money supply on economic activity and prices is the “velocity of money”.   An image from an article on the intertubes that “explains” the velocity of money (one of the articles we came across started out as follows: “The economy runs smoothly only when there is enough money in circulation. How much is enough?” ...
  • Gold and Silver Capitulation – Precious Metals Supply & Demand Report
      Last Week in Precious Metals: Peak Hype, Stocks vs. Flows and Capitulation The big news this week was the flash crash in silver late on 6 July.  We will shortly publish a separate forensic analysis of this, as there is a lot to see and say.   Silver - 1,000 troy ounce good delivery bars, approved by the COMEX. Whatever you do, do not let one of these things land your feet. For readers used to the metric system: these bars weigh approximately between 28 to 33 kilograms...
  • No “Trump Bump” for the Economy
      Crackpot Schemes POITOU, FRANCE – “Nothing really changes.” Sitting next to us at breakfast, a companion was reading an article written by the No. 2 man in France, Édouard Philippe, in Le Monde. The headline promised to tell us how the country was going to “deblock” itself.  But upon inspection, the proposals were the same old claptrap about favoring “green” energy... changing the tax code to reward one group and punish another...  and spending more money on various...
  • What Really Happened When Gold Crashed, Monday June 26?
      The Earth is Still Round Let’s establish three facts up front. One, the volume of contracts traded was not “millions” (as at least one conspiracy theorist is claiming). During the 1-minute window when the price of gold dropped from $1,254.10 to a low of $1,236.50 and recovered to $1,247, 18,031 August gold contracts traded. There was negligible volume in the October and December contracts. Two, the Earth is round. This did not occur while “everyone” was sleeping (as at least...
  • Putting the Latest Silver Crash Under a Lens
      An Unenthusiastic Market On Thursday, July 6, in the late afternoon (as reckoned in Arizona), the price of silver crashed. The move was very brief, but very intense. The price hit a low under $14.40 before recovering to around $15.80 which is about 20 cents lower than where it started.   1 kilogram cast silver bars from an Austrian refinery. These are available in 250 g, 500 g and 1 kg sizes and look really neat. We use the 250 g ones as paperweights, so this is an...

Support Acting Man

j9TJzzN

Austrian Theory and Investment

Own physical gold and silver outside a bank

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com

savant