Submitted by William Bonner, Chairman – Bonner & Partners
“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.
“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.
A 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.
Shanghai steel rebar futures, weekly in RMB – click to enlarge. Continue reading