“Massive Deterioration” – Worse Than 2008

BALTMORE – “Stocks still not finding bottom” warned a headline at Investor’s Business Daily. On Thursday, the Dow ended down 255 points – or 1.6%. The index is down by almost 9% since the start of the year.

“These developments, if they prove persistent, could weigh on the outlook for economic activity…” proffered a nervous-looking Janet Yellen in her testimony on Capitol Hill. She was signaling to investors.

 

Yellen_cartoon_02.27.2015Smoke signals…

 

“Don’t worry about us,” she may as well have said. “If we can get away with a big U-turn, we’re not going to raise rates anymore.”

On Tuesday, Maersk Group, the world’s largest container shipping company, said it was suffering a “massive deterioration” in its business.

“It is worse than 2008,” its CEO, Nils Andersen, told the Financial Times. But this is not even near the bottom for the world economy. Hedge fund manager Kyle Bass warns that the other shoe is a big one… and it hasn’t dropped yet.

 

The MV Maersk Mc-Kinney Moller, the world's biggest container ship, arrives at the harbour of Rotterdam August 16, 2013. The 55,000 tonne ship, named after the son of the founder of the oil and shipping group A.P. Moller-Maersk, has a length of 400 meters and cost $185 million. A.P. Moller-Maersk raised its annual profit forecast for the business on Friday, helped by tighter cost controls and lower fuel prices. Maersk shares jumped 6 percent to their highest in 1-1/2 years as investors welcomed a near-doubling of second-quarter earnings at container arm Maersk Line, which generates nearly half of group revenue and is helping counter weakness in the company's oil business. REUTERS/Michael Kooren (NETHERLANDS - Tags: MARITIME TRANSPORT BUSINESS) - RTX12NIUA Maersk container ship…the line is feeling the pinch – the Baltic Dry Index has collapsed to just 291 points (from approx. 11,800 at the 2008 peak) and container shipping rates have declined sharply as well.

Photo credit: Michael Kooren / Reuters

 

China’s economy is heavily dependent on capital investment. It puts its money into building factories, highways, offices, apartment blocks, railroads, ports, and airports. What do all these projects require? Rebar!

Concrete is reinforced with steel bars. As the pace of building slows, the price of rebar goes down. In 2008, a ton of rebar cost about 5,500 renminbi ($836). Now, it costs barely 2,000 renminbi ($304) – the lowest price in at least 15 years.

 

Steel rebar futures, weeklyShanghai steel rebar futures, weekly in RMB – click to enlarge.

 

Compared to the size of its economy, China has two to three times the debt the U.S. had in 2008 – a total of $34 trillion, said Bass. As the Chinese economy slows, more steel mills, real estate developers, and manufacturers can’t pay their debts.

Total losses from debt defaults could be four times U.S. losses in the 2008 crisis. And that is just the beginning. Next week, we’ll explain why… and why Trump and Sanders are getting so much of the millennial vote. In the meantime, here’s an essay from the archives…

 

Convenient Beliefs

[Ed. note: Originally published August 2, 2005]

People come to believe whatever they need to believe when they need to believe it. Recent studies of voting patterns confirm the obvious. Zombies vote for higher taxes. Cronies vote for lower taxes. All believe they are voting for matters of principle.

Alan Greenspan believed strongly in gold – until he became a central banker.  Then he believed he could do a better job than gold. Or at least he pretended to.  It was a job requirement.  A priest who didn’t believe in the resurrection would be useless. So would a plumber who didn’t believe in using a wrench.

 

GreenspanThings Alan Greenspan said before he became master of the fiat mint…

 

$19 Trillion and Counting…

In public life, people generally believe the dominant myth of the system in which they live. We are all democrats in the U.S. We believe in electing our leaders.  But there is no particular reason why this method should be superior to choosing our leaders by lottery or hand-to-hand combat.

Throughout most of history, people believed in other systems.  If we lived in a kingdom, we would probably believe strongly in monarchy. If we had a dictator, we’d probably have his name on our bumpers. And if we lived in a theocracy, we would kneel for prayer at the appointed hour.

 

egg_man-cAs libertarian philosopher Stefan Molineux argues, there has always been only one purpose to having rulers, whether they are elected or not: the (tax)-farming of other humans.

 

Are we so much smarter now?  Maybe not.  Circumstances change. Ideas change with them.  The U.S. became an empire without anyone noticing. But now, Americans believe in empire… So much so that they are willing to spend trillions of dollars to maintain it.

The national debt of the U.S. is $19 trillion. At least $5 trillion of that can be traced to the costs of empire.  We have military bases all over the world. We believe we must meet challenges in Iraq, Syria, North Korea – all around the periphery of the empire.

We may just as well leave the poor Iraqis, Syrians, and North Koreans to take care of their own problems… But the thought wouldn’t be compatible with the imperial purple.  An empire acts like an empire.

 

Parasites of the Affluent Class

 And a rich person acts like a rich person. He cannot get richer and richer forever. So he must find ways to get rid of his money. Trees do not grow to the sky. There is no yin without a yang… no day without night… no boom without bust.

Everything regresses to the mean – including the wealth of an individual or a group. Even our own lives regress. No one was ever born who was not destined to die. The mean is the grave – for which we are all bound.

When a man gets a certain amount of money, he takes up the beliefs of a man who needs to spend it. He believes he needs a bigger house. He believes that more expensive wine is better than the cheap stuff. He may even take a course on wine… and bore his friends and neighbors with his sophisticated palette.

 

the-most-expensive-wines-in-the-worldFrom “tastes like vinegar past its due date”: beverages designed to liberate the wealthy of some of their loot.

Image credit: Wine Folly

 

He believes a Mercedes-Maybach is superior to a Chevy. He believes he needs a mistress. Or a yacht. Wealth brings duties, as well as advantages. When a man makes some money, he finds himself the subject of attention of what Gloom, Boom & Doom Report publisher Marc Faber calls “the immediate parasites of the affluent class.”

As Faber puts it, these are the “real estate agents, stockbrokers, financial planners, investment bankers, fund managers… economists, derivative traders, salesmen of high-end cars, pleasure boats, and private jets, art dealers, diamond merchants, mistresses, second, third and fourth trophy wives, spoiled children, estate and tax planners, and lawyers.”

Then there are the “secondary parasites.”  Faber again… “They include life coaches, cosmetic surgeons, personal trainers, dog walkers and pet sitters, personal assistants, beauty consultants, massage therapists, and wedding planners.”

 

Too Many Zombies

A rich man’s duty is to believe these people give him some advantage. But all these things come at a price. They are handicaps.  When he is engaged in a quarrelsome divorce, a rich man has less time to devote to his business.

He forgets to study his sales figures when he is at wine school. And much of his fortune could be easily separated from him by clever financial planners. He gives himself these handicaps until he is able to get his wealth down to more reasonable levels – closer to the mean, that is.

If he dies before his work is done – while he still has some change in his pockets – he can be sure that the next generation will finish what he began. In a few years, the family will have average wealth rather than extraordinary wealth.

So, too, does a rich society need to give itself handicaps – so that its wealth and power can come back to a meaner level.  The U.S. surpassed Britain as the world’s leading economy in the 1890s when Queen Victoria was on the throne and Benjamin Harrison was American president.

 

the-three-branches-of-government-greed-cronyism-and-propagandaBilly’s offers a theory of government

Cartoon by Stan Fill

 

America’s lead gained over the next five decades – greatly aided by two devastating European wars… one of which it helped prolong and make far more disastrous for Europe than it otherwise would have been.

But along with its wealth, America’s handicaps increased. It now spends about as much on its military as the rest of the world combined.  After 9/11, it might have put a few more cops on the case… instead, it launched a “War on Terror” – another costly, distracting handicap.

Over the years, the U.S. has also increased its expensive social welfare programs, and the economic freedom that made its economy the leader of the world has given way to a rigged and heavily regulated economy.

GM – once the largest and most profitable business in the world – now has the handicap of having to spend thousands of dollars in health and retirement costs for every car it builds. Its competitors in China have almost none. Eventually, convenient beliefs become inconvenient. Handicaps take too much time and too much money.

Too many zombies. Too many cronies. Too many pointless wars and futile government spending programs. Too many hobbies. Too many trophy wives. Then the rich man, GM, and the empire – all take up more modest roles and more modest beliefs.

 

Chart by: BarChart.com

 

Chart and image captions by PT

 

The above article originally appeared as “Worse than 2008” at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 

 
 

Emigrate While You Can... Learn More

 
 

 
 

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

   
 

One Response to “Convenient Beliefs”

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Gold – An Overview of Macroeconomic Price Drivers
      Fundamental Analysis of Gold As we often point out in these pages, even though gold is currently not the generally used medium of exchange, its monetary characteristics continue to be the main basis for its valuation. Thus, analysis of the gold market requires a different approach from that employed in the analysis of industrial commodities (or more generally, goods that are primarily bought and sold for their use value). Gold's extremely high stock-to-flow ratio and the main source of...
  • India – Is Kashmir Gone?
      Everything Gets Worse  (Part XII) -  Pakistan vs. India After 70 years of so-called independence, one has to be a professional victim not to look within oneself for the reasons for starvation, unnatural deaths, utter backwardness, drudgery, disease, and misery in India. Intellectual capital accumulated in the West over the last 2,500 years — available for free in real-time via the internet — can be downloaded by a passionate learner. In the age of modern technology, another mostly...
  • Cracks in Ponzi-Finance Land
      Retail Debt Debacles The retail sector has replaced the oil sector in a sense, and not in a good way. It is the sector that is most likely to see a large surge in bankruptcies this year. Junk bonds issued by retailers are performing dismally, and within the group the bonds of companies that were subject to leveraged buyouts by private equity firms seem to be doing the worst (a function of their outsized debt loads). Here is a chart showing the y-t-d performance of a number of these...
  • Pulling Levers to Steer the Machine
      Ticks on a Dog A brief comment on Fed chief Janet Yellen’s revealing speech at the University of Michigan. Bloomberg:   “Before, we had to press down on the gas pedal trying to give the economy all of the oomph that we possibly could,” Yellen said Monday in Ann Arbor, Michigan. The Fed is now trying to “give it some gas, but not so much that we’re pushing down hard on the accelerator.” […] “The appropriate stance of policy now is closer to, let me call it...
  • French Election – Bad Dream Intrusion
      The “Nightmare Option” The French presidential election was temporarily relegated to the back-pages following the US strike on Syria, but a few days ago, the Economist Magazine returned to the topic, noting that a potential “nightmare option” has suddenly come into view. In recent months certainty had increased that once the election moved into its second round, it would be plain sailing for whichever establishment candidate Ms. Le Pen was going to face. That certainty has been...
  • Mea Culpa – Precious Metals Supply and Demand
      Input Data Errors Dear Readers, I owe you an apology. I made a mistake. I am writing this letter in the first person, because I made the mistake. Let me explain what happened.   The wrong stuff went into the funnel in the upper left-hand corner...   I wrote software to calculate the gold basis and co-basis (and of course silver too). The app does not just calculate the near contract. It calculates the basis for many contracts out in the distance, so I can see the...
  • The Cost of a Trump Presidency
      Opportunity Cost Rears its Head Last Thursday’s wanton attack on a Syrian air field by the US and its bellicose actions toward North Korea have brought the real cost of candidate Trump’s landslide victory last November to the forefront.   It didn't take long for Donald Trump to drop his non-interventionist mask. The decision was likely driven by Machiavellian considerations with respect to domestic conditions, but that doesn't make it any better.   Unlike...
  • Heavily Armed Swamp Critters
      Worst Mistake GUALFIN, ARGENTINA – By our calculation, it took just 76 days for President Trump to get on board with the Clinton-Bush-Obama agenda. Now there can be no doubt where he’s headed. He’s gone Full Empire. Not that it was unexpected. But the speed with which the president abandoned his supporters and went over to the Deep State is breathtaking.     Once there was only a Trump fragrance called Empire... now he has gone full empire himself   Among the noise...
  • Hell To Pay
      Behind the Curve Economic nonsense comes a dime a dozen.  For example, Federal Reserve Chair Janet Yellen “think(s) we have a healthy economy now.”  She even told the University of Michigan’s Ford School of Public Policy so earlier this week.  Does she know what she’s talking about?   Somehow, this cartoon never gets old...   If you go by a partial subset of the ‘official’ government statistics, perhaps, it appears she does.  The unemployment...
  • Central Banks Have a $13 Trillion Problem
      Paycheck to Paycheck GUALFIN, ARGENTINA – The Dow was down 118 points on Wednesday. It should have been down a lot more. Of course, markets know more than we do. And maybe this market knows something that makes sense of these high prices. What we see are reasons to sell, not reasons to buy.   DJIA daily (incl. Thursday)... it was just taking a rest - click to enlarge.   Nearly half of all American families live “paycheck to paycheck,” say researchers. Without...
  • French Selection Ritual, Round Two
      Slightly Premature Victory Laps The nightmare of nightmares of the globalist elites and France's political establishment has been avoided: as the polls had indicated, Emmanuel Macron and Marine Le Pen are moving on to the run-off election; Jean-Luc Mélenchon's late surge in popularity did not suffice to make him a contender – it did however push the established Socialist Party deeper into the dustbin of history. That was very Trotskyist of him (we can already picture a future Weekly...
  • Trump Is An Insider Now
      Conspiracy of the Few GUALFIN, ARGENTINA – “U.S. stocks fall on Trump talk…” began a headline at Bloomberg. Or it may be Trump action. We had already counted six major campaign promises – including no O’care repeal and no “America First” foreign policy – already buried (some for the better).   A bunch of campaign promises get the MOAB treatment...  A great many  theories have been proposed to explain Trump's recent series of u-turns: 1. he is in thrall to...

Support Acting Man

Austrian Theory and Investment

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

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]

 

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

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com