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STOCK MARKET WATCH -- Thursday, 7 May 2015
[font size=3]STOCK MARKET WATCH, Thursday, 7 May 2015[font color=black][/font]
SMW for 6 May 2015
AT THE CLOSING BELL ON 6 May 2015
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Dow Jones 17,841.98 -86.22 (-0.48%)
S&P 500 2,080.15 -9.31 (-0.45%)
Nasdaq 4,919.64 -19.68 (-0.40%)
[font color=red]10 Year 2.24% +0.06 (2.75%)
30 Year 2.99% +0.08 (2.75%) [font color=black]
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[font size=2]Market Conditions During Trading Hours[/font]
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(click on link for latest updates)
Market Updates
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[font size=2]Euro, Yen, Loonie, Silver and Gold[center]
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[font color=black][font size=2]Handy Links - Market Data and News:[/font][/font]
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Economic Calendar
Marketwatch Data
Bloomberg Economic News
Yahoo Finance
Google Finance
Bank Tracker
Credit Union Tracker
Daily Job Cuts
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[font color=black][font size=2]Handy Links - Economic Blogs:[/font][/font]
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The Big Picture
Financial Sense
Calculated Risk
Naked Capitalism
Credit Writedowns
Brad DeLong
Bonddad
Atrios
goldmansachs666
The Stand-Up Economist
The Automatic Earth
Wall Street on Parade
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[font color=black][font size=2]Handy Links - Essential Reading:[/font][/font]
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Matt Taibi: Secret and Lies of the Bailout
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[font color=black][font size=2]Handy Links - Government Issues:[/font][/font]
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LegitGov
Open Government
Earmark Database
USA spending.gov
[/center][font color=black][font size=2]Handy Links - Videos:[/font][/font]
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Charlie Rose talks with Roubini
Charlie Rose talks with Krugman
William Black: This Economic Disaster
Bill Moyers with Kevin Drum and David Corn
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[font color=red]Partial List of Financial Sector Officials Convicted since 1/20/09 [/font][font color=red]
2/2/12 David Higgs and Salmaan Siddiqui, Credit Suisse, plead guilty to conspiracy involving valuation of MBS
3/6/12 Allen Stanford, former Caribbean billionaire and general schmuck, convicted on 13 of 14 counts in $2.2B Ponzi scheme, faces 20+ years in prison
6/4/12 Matthew Kluger, lawyer, sentenced to 12 years in prison, along with co-conspirator stock trader Garrett Bauer (9 years) and co-conspirator Kenneth Robinson (not yet sentenced) for 17 year insider trading scheme.
6/14/12 Allen Stanford sentenced to 110 years without parole.
6/15/12 Rajat Gupta, former Goldman Sachs director, found guilty of insider trading. Could face a decade in prison when sentenced later this year.
6/22/12 Timothy S. Durham, 49, former CEO of Fair Financial Company, convicted of one count conspiracy to commit wire and securities fraud, 10 counts of wire fraud, and one count of securities fraud.
6/22/12 James F. Cochran, 56, former chairman of the board of Fair, convicted of one count of conspiracy to commit wire and securities fraud, one count of securities fraud, and six counts of wire fraud.
6/22/12 Rick D. Snow, 48, former CFO of Fair, convicted of one count of conspiracy to commit wire and securities fraud, one count of securities fraud, and three counts of wire fraud.
7/13/12 Russell Wassendorf Sr., CEO of collapsed brokerage firm Peregrine Financial Group Inc. arrested and charged with lying to regulators after admitting to authorities he embezzled "millions of dollars" and forged bank statements for "nearly twenty years."
8/22/12 Doug Whitman, Whitman Capital LLC hedge fund founder, convicted of insider trading following a trial in which he spent more than two days on the stand telling jurors he was innocent
10/26/12 UPDATE: Former Goldman Sachs director Rajat Gupta sentenced to two years in federal prison. He will, of course, appeal. . .
11/20/12 Hedge fund manager Matthew Martoma charged with insider trading at SAC Capital Advisors, and prosecutors are looking at Martoma's boss, Steven Cohen, for possible involvement.
02/14/13 Gilbert Lopez, former chief accounting officer of Stanford Financial Group, and former controller Mark Kuhrt sentenced to 20 yrs in prison for their roles in Allen Sanford's $7.2 billion Ponzi scheme.
03/29/13 Michael Sternberg, portfolio mgr at SAC Capital, arrested in NYC, charged with conspiracy and securities fraud. Pled not guilty and freed on $3m bail.
04/04/13 Matthew Marshall Taylor,fmr Goldman Sachs trader arrested, charged by CFTC w/defrauding his employer on $8BN futures bet "by intentionally concealing the true huge size, as well as the risk and potential profits or losses associated."
04/04/13 Matthew Taylor admits guilt, makes plea bargain. Sentencing set for 26 June; faces up to 20 years in prison but will likely only see 3-4 years. Says, "I am truly sorry."
04/11/13 Ex-KPMG LLP partner Scott London charged by federal prosecutors w/passing inside tips to a friend in exchange for cash, jewelry, and concert tickets; expected to plead guilty in May.
08/01/13 Fabrice Tourré convicted on six counts of security fraud, including "aiding and abetting" his former employer, Goldman Sachs
08/14/13 Javier Martin-Artajo and Julien Grout charged with wire fraud, falsifying records, and conspiracy in connection with JP Morgan's "London Whale" trade.
08/19/13 Phillip A. Falcone, manager of hedge fund Harbinger Capital Partners, agrees to admit to "wrongdoing" in market manipulation. Will banned from securities industry for 5 years and pay $18MM in disgorgement and fines.
09/16/13 Javier Martin-Artajo and Julien Grout officially indicted on charges associated with "London Whale" trade.
02/06/14 Matthew Martoma convicted of insider trading while at hedge fund SAC (Stephen A. Cohen) Capital Advisors. Expected sentence 7-10 years.
03/24/14 Annette Bongiorno, Bernard Madoff's secretary; Daniel Bonventre, director of operations for investments; JoAnn Crupi, an account manager; and Jerome O'Hara and George Perez, both computer programmers convicted of conspiracy to defraud clients, securities fraud, and falsifying the books and records.
05/19/14 Credit Suisse, which has an investment bank branch in NYC, agrees to plead guilty and pay appx. $2.6 billion penalties for helping wealthy Americans hide wealth and avoid taxes.
09/08/14 Matthew Martoma, convicted SAC trader, sentenced to 9 years in prison plus forfeiture of $9.3 million, including home and bank accounts
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[font size=3][font color=red]This thread contains opinions and observations. Individuals may post their experiences, inferences and opinions on this thread. However, it should not be construed as advice. It is unethical (and probably illegal) for financial recommendations to be given here.[/font][/font][/font color=red][font color=black]
22 replies
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= new reply since forum marked as read
http://www.bloomberg.com/news/articles/2015-05-06/after-seven-years-a-libor-rigging-case-heads-to-court-in-london
Tom Hayes, a scruffy, blond 35-year-old former trader who worked at banks including UBS Group AG and Citigroup Inc., has pleaded not guilty to eight counts of conspiracy to manipulate Libor over a four-year period from 2006 through September 2010. Photographer: Matthew Lloyd/Bloomberg
When Thomas Hayes walks into a London courtroom next week, he will be the first person to face trial for allegedly rigging the benchmark interest rates used to value $350 trillion of loans and securities.
It only took seven years to get here.
That’s how long regulators on three continents have been looking into allegations that traders at the world’s biggest banks were manipulating Libor, the London interbank offered rate. More than $9 billion in fines have been levied, including a $2.5 billion penalty for Deutsche Bank AG last month, without a single trader going before a judge.
A lot is riding on the case for the U.K.’s Serious Fraud Office, which has been criticized for waiting until public outcry over the scandal reached a fever pitch in 2012 before beginning criminal proceedings...
Tom Hayes, a scruffy, blond 35-year-old former trader who worked at banks including UBS Group AG and Citigroup Inc., has pleaded not guilty to eight counts of conspiracy to manipulate Libor over a four-year period from 2006 through September 2010. Photographer: Matthew Lloyd/Bloomberg
When Thomas Hayes walks into a London courtroom next week, he will be the first person to face trial for allegedly rigging the benchmark interest rates used to value $350 trillion of loans and securities.
It only took seven years to get here.
That’s how long regulators on three continents have been looking into allegations that traders at the world’s biggest banks were manipulating Libor, the London interbank offered rate. More than $9 billion in fines have been levied, including a $2.5 billion penalty for Deutsche Bank AG last month, without a single trader going before a judge.
A lot is riding on the case for the U.K.’s Serious Fraud Office, which has been criticized for waiting until public outcry over the scandal reached a fever pitch in 2012 before beginning criminal proceedings...
http://www.nakedcapitalism.com/2015/05/persecution-assassination-people-greece-performed-inmates-troika-direction-eurogroup.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29
In our coverage of the Greek government’s efforts to end austerity and negotiate a debt restructuring and a shift to pro-growth policies, we’ve stressed how unlikely the ruling coalition was to succeed. That meant it has been frustrating for readers to see the new government make unforced errors and reduce its already low odds of success. But even worse is the specter of Syriza now taking steps to wring money out of a long-sufffering population in order to make payments to creditors. As reader Ned Ludd wrote:
As we discussed yesterday, would the old mainstream coalition have dared to pilfer pension funds, local government deposits, and university surplus cash, particularly when the odds are high that the government will soon be forced to capitulate or default? Nevertheless, some readers have been unhappy that we have not been harsher critics of the creditors. It is a mystery to us why the Troika is willing to risk turning Greece into a failed state to a make a point about the cost of defying its authority. And we’ve chronicled over the years how austerity policies have failed. However, the Greek government has exposed how deeply wedded not only the Eurocrats, but also the governments that have been forced to wear the austerity hairshirt are to economic faith healing. The Latvian government actually believes its program is a success, when that “success” was achieved through a 14% decline in the population as the youngest and most energetic departed, leaving Latvia with an aging population. And as we and other commentators observed years ago, the contractionary policies inflicted on the periphery countries would eventually infect the core, and that is starting to occur as deflation takes hold in Europe.
A new paper by Dutch economist Servass Storm znd C.W.M. Naastepad, embedded at the end of this post, does a deft job of shredding the two key beliefs that underlie austerity policies: that government profligacy and insufficiently competitive labor markets caused the crisis, so the remedy is to crack down on government spending and wage rates. In contrast to most economic papers, this one is not just well documented but also well written. The authors give themselves license to decry these intellectually bankrupt policies. The abstract:
The raw numbers show how badly the orthodox policies have performed. European GDP has yet to reach its precrisis level, and the average unemployment level is 12%, and the social costs are high as well:
As Storm and Naastepad debunk what they depict as the central myths of the Eurozone crisis:
In our coverage of the Greek government’s efforts to end austerity and negotiate a debt restructuring and a shift to pro-growth policies, we’ve stressed how unlikely the ruling coalition was to succeed. That meant it has been frustrating for readers to see the new government make unforced errors and reduce its already low odds of success. But even worse is the specter of Syriza now taking steps to wring money out of a long-sufffering population in order to make payments to creditors. As reader Ned Ludd wrote:
I think the majority of Syriza was always amendable to being the new PASOK. The path to power, of course, required pretending that a Syriza-led government would be fundamentally different (and to the left of) PASOK.
Since the end goal was always a deal with the Troika, though, PASOK would have gotten a better deal than Varoufakis ever could. “If you can’t bite, better not show your teeth.” ~ Yiddish Proverb.
Since the end goal was always a deal with the Troika, though, PASOK would have gotten a better deal than Varoufakis ever could. “If you can’t bite, better not show your teeth.” ~ Yiddish Proverb.
As we discussed yesterday, would the old mainstream coalition have dared to pilfer pension funds, local government deposits, and university surplus cash, particularly when the odds are high that the government will soon be forced to capitulate or default? Nevertheless, some readers have been unhappy that we have not been harsher critics of the creditors. It is a mystery to us why the Troika is willing to risk turning Greece into a failed state to a make a point about the cost of defying its authority. And we’ve chronicled over the years how austerity policies have failed. However, the Greek government has exposed how deeply wedded not only the Eurocrats, but also the governments that have been forced to wear the austerity hairshirt are to economic faith healing. The Latvian government actually believes its program is a success, when that “success” was achieved through a 14% decline in the population as the youngest and most energetic departed, leaving Latvia with an aging population. And as we and other commentators observed years ago, the contractionary policies inflicted on the periphery countries would eventually infect the core, and that is starting to occur as deflation takes hold in Europe.
A new paper by Dutch economist Servass Storm znd C.W.M. Naastepad, embedded at the end of this post, does a deft job of shredding the two key beliefs that underlie austerity policies: that government profligacy and insufficiently competitive labor markets caused the crisis, so the remedy is to crack down on government spending and wage rates. In contrast to most economic papers, this one is not just well documented but also well written. The authors give themselves license to decry these intellectually bankrupt policies. The abstract:
The Eurozone crisis has been wrongly interpreted as either a crisis of fiscal profligacy or of deteriorating unit-labour cost competitiveness (caused by rigid labour markets), or a combination of both. Based on these diagnoses, crisis-countries have been treated with the bitter medicines of fiscal austerity, drastic wage reductions, and far-reaching labour market deregulation—all in the expectation that these would restore cost competitiveness and revive growth (through exports), while at the same time allowing for fiscal consolidation and private-sector debt deleveraging. The medicines did not work and almost killed the patients. The problem lies with the diagnoses: the real cause of the Eurozone crisis resides in unsustainable private sector debt leverage, which was aided and abetted by the liberalization of (integrating) European financial markets and a “global banking glut”.
The raw numbers show how badly the orthodox policies have performed. European GDP has yet to reach its precrisis level, and the average unemployment level is 12%, and the social costs are high as well:
The crisis is creating an even more polarized society in which the poorest have to fight for access to basic items such as critical medicines, have to queue up for the soup kitchens and are ever more often homeless. The crisis has turned the Southern Eurozone into a depressing world of closing of possibilities, hopes and dreams, a dark world of heightened inequalities, high unemployment, pay cuts, rising in-work poverty, and people going hungry, hunting for food through garbage cans—as there is no (longer a) welfare state to fall back upon.
As Storm and Naastepad debunk what they depict as the central myths of the Eurozone crisis:
- The first is that the meltdown was the direct result of the famed “profligacy” of nation-states, and was thus always a sovereign crisis. As Naked Capitalism readers know well, the sovereign debt crisis was the result of the banking system implosion. Governments were hit with a collapse in tax revenues as GDP fell and higher levels of spending as payments under social safety net programs like unemployment insurance rose. In addition, governments also bore the cost of bank bailouts, and in some countries, notably Ireland, they were particularly costly.
As the paper shows, government debt to GDP ratios in the eight years preceding the crisis actually fell by an average of 6%. And most of the periphery countries were among the ones who had improved debt to GDP ratios: Italy’s fell by 7%, Ireland’s by 8% and Spain’s by as much as 27%. Even supposed wastrel Greece saw its debt to GDP ratio rise by 4%, lower than the 5% increase posted by France and Germany. Greek debt traded at spreads as low as 30 basis points over Germany’s in 2007. The authors show that there was indeed a runup in debt before the crisis, namely, private debt and in particular, the debt of financial corporations:Growing private-sector debts dwarf the changes in sovereign debts—particularly so in the crisis countries. In Greece, household indebtedness rose by 32 percentage points, corporate indebtedness by 13 percentage points, and financial sector indebtedness by 41 percentage points—trivializing the 4-percentage point increase in public debt. Spain experienced a massive increase in the debts of non-financial corporations (of 78 percentage points during 2000-07), of banks (of 74 percentage points) as well as households (of 34 percentage points)—all participants in Spain’s massive property bubble—in a period when sovereign indebtedness was sharply reduced. Undeniably, the Eurozone crisis was triggered by a gigantic unsustainable increase in indebtedness—but why would one single out trifling increases in sovereign debts as the main factor, while neglecting the significant growth in private indebtedness?
For the statistically-minded, the paper has several analyses that lend further support for this argument. Storm and Naastepad point out that the IMF has ‘fessed up that fiscal multipliers are typically higher than one, meaning a cut in government spending results in an even greater fall in GDP, making the debt level even worse. The authors stress that the IMF estimates are conservative, so the damage of misguided austerity policies is likely to be greater than they indicate. - The second big myth is that inefficient labor markets (meaning too well paid and pampered workers) were another primary cause of the crisis. This belief is why European authorities become outraged at Greece’s plans to raise the minimum wage and strengthen labor bargaining rights.
Storm and Naastepad contend that orthodox thinkers naively equate low labor costs with greater competitiveness, when labor is only one factor in costs, and cost is far from the only aspect of competitiveness:
The problem with the “labour cost competitiveness” explanation is not that the data—as given in Figure 5—prove Mr. Bini Smaghi wrong, as there is no statistically significant correlation between pre-crisis increases in unit labour costs (ULC) and post-crisis growth performance for Europe and the Eurozone. The problem is a much deeper one as it concerns a leap of logic, a misleading use of the term “competitiveness” which philosophers would label equivocation, by which the—broad—concept of “competitiveness” is reduced, with remarkable sleight of hand, to competitiveness in terms of only relative unit-labour costs (or RULC). This is no trivial issue, as, firstly, it is no secret that economics lacks an agreed definition and measure of “international competitiveness” (Wyplosz 2013; Storm and Naastepad 2015a), and, secondly, often-used competitiveness indicators, such as RULC and/or current account imbalances, are known to be weak predictors of future export and import performance….. Instead, we (and others) find that
1. most goods & services imported into the Eurozone are “non-competing” imports used as intermediate inputs in manufacturing or for consumption—hence imports depend almost completely on domestic income (see also Bussière et al. 2011).
2. export performance by Eurozone members is overwhelmingly determined by world income growth (see also European Commission 2010; Danninger and Joutz 2007; Schröder 2015). Countries (such as Germany) exporting to fast-growing markets (such as China) experienced rapid export growth, whereas countries (such as Greece, Italy and Portugal) catering to slowly-growing markets had much lower export growth (ECB 2009).
3. Eurozone current account imbalances are not statistically significantly affected by changes in RULC (see also Gaulier and Vicard 2012; Diaz Sanchez and Varoudakis 2013; Gabrisch and Staehr 2014).
Wage costs don’t matter that much, in other words…However, all this does not mean that “competitiveness” is unimportant. It is non-price or technological competitiveness which matters—not price or cost competitiveness
The misguided fixation on labor costs (which are visible and easy to measure, while an assessment of technological competitiveness isn’t readily relegated to a spreadsheet) leads to bad policy:Cutting wages (internal devaluation) and deregulating labour markets undermines a country’s competitiveness and stall export growth; combined with fiscal austerity this policy cocktail is lethal.
Here are some of the negative competitive consequences of pushing to reduce wage rates and lower labor bargaining power:Moreover, in more flexible labour markets, firms will invest less in workers’ firm-specific human capital and this hurts productivity as well (Lee and McCann 2011; Kleinknecht et al. 2013). Labour market deregulation may affect productivity through its impact on worker motivation and effort, as it erodes social capital and trust in the labour relation (Storm and Naastepad 2012). Likewise, lower wages and more flexible labour slow down the process of capital deepening, enable inefficient firms to stay in the market and discourage structural change. Finally, lower wage and demand growth reduce the pace at which older vintages of capital stock are being scrapped and new equipment, embodying the latest more productive technologies, is being installed. Taken together, lower wage growth gets reflected in lower labour productivity growth and weaker export performance (for reviews of the evidence, see Storm and Naastepad 2012; Kleinknecht, Naastepad, Storm & Vergeer 2013).
Post-crisis policies have strengthened Germany’s position relative to the periphery; the authors treat that as a terrible mistake; one has to wonder whether it is actually a feature:This brings us to the real problem of the Eurozone: the widening differentials in labour productivity and technological capabilities between members of the Eurozone. Productive asymmetries have increased within the Eurozone after monetary union. In the pre-crisis years, Germany managed to strengthen its production structure, but the Eurozone periphery lost ground—both their manufacturing activities and export bases became relatively more narrow and technologically stagnant
Germany’s rising trade surplus, now at over 7% of GDP, is widely regarded as unsustainable, particularly since Germany refuses to continue financing its trade partners.
It’s been remarkable to see how long Europe has been able to keep a broken economic model going well beyond its sell-by date. How long they can keep this up is still very much open to question. However, Storm’s and Naastepad’s paper is an important addition to a now robust literature on the contractions and failures of Europe’s post-crisis economic policies. When the day of reckoning finally arrives, no on in authority can claim they were not warned.
http://www.nakedcapitalism.com/wp-content/uploads/2015/05/The-Eurozone-Crisis.pdf
http://www.nakedcapitalism.com/2015/05/wolf-richter-china-containerized-freight-index-plunges-multi-year-low-shanghai-eu-rates-totally-collapse-us-rates-morose.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.
Two weeks ago, when I wrote about the Shanghai Containerized Freight Index (SCFI), the index had fallen so far so fast that it seemed to be a statistical fluke, something that would instantly bounce back. The SCFI tracks the spot rates from Shanghai to various destinations around the world. At the time, the SCFI component for Northern Europe had plunged 14% from the prior week to $399 per twenty-foot container equivalent unit (TEU), down 67% from a year ago. An all-time low. There was a lot of handwringing because, even with the lower bunker fuel costs, the break-even rates for these routes were $800 per TEU, according to a report by Drewry Maritime Research. Over twice the spot shipping rates!
The question was how much lower could rates drop?
A lot lower. Over the two weeks since, the SCFI for Northern Europe plunged another 14% to $343, setting a new all-time low. A terrific 68% collapse from the same week a year ago. Something big is going on in the China-Europe trade. Carriers have tried to impose big rate increases, with UASC pushing for an increase of $1,300 per TEU, and a gaggle of others going for an increase of $1,000 per TEU, according to the Journal of Commerce. None of them were able to make them stick. The swooning rates came as bunker fuel costs have been rising off their January lows. Higher input costs are hitting container carriers just as revenues are collapsing. A toxic mix. Now the hope is that planned rate increases for June are going to stick….On some other routes, carriers have succeed in raising rates, and so not all routes from China suffered the same relentlessly brutal fate. Rates ticked up recently to the Mediterranean, South America, and the US West Coast. But that doesn’t say much. On the routes from Shanghai to the US West Coast, carriers tried to impose rate increases effective April 1. But after rising by nearly $300 to $1,932 per forty-foot container equivalent unit (FEU) in the first week, the spot rate plunged to $1,623 in the second week, and to $1,596 in the third week. In the week just ended, the index jumped to $1,783. It’s still down 8% from early April, and about back where it was a year ago...Rates lost ground on other routes, such as to Australia/New Zealand and the US East Coast (those rates had been inflated by the labor dispute at West Coast ports that had caused shippers to bypass them). And so the composite SCFI for all routes rose to 761, from 702 which had been the lowest level in years! The index is down 34% from a year ago and far below the multi-year range between 900 and 1,200. The much broader China Containerized Freight Index (CCFI), which is sponsored by the Chinese Ministry of Communications, paints a similar picture.
While the SCFI tracks spot rates from Shanghai to global markets and can be very volatile, the CCFI tracks spot and contractual rates for all Chinese container ports, is much less jumpy, doesn’t react as quickly to changes in spot rates, and is “more comprehensive and macroeconomic,” as the Shanghai Shipping Exchange, which operates it, explains. It’s considered “the second world freight index” after the Baltic Dry Index. And it has skidded 16% since mid-February to a multi-year low of 899. This is what the 2-month plunge looks like:
Another index, the Worldwide Container Index for routes from Asia to the Americas and Europe, which Drewry cites, has plummeted 41% since January to below $1,300 per FEU (ugly chart). Clearly, something is going on in the east-west container business – and beyond – to create this sort of gloom. On top of the list of reasons is weak demand for imports in Europe, particularly the Eurozone, whose currency has been purposefully massacred by the ECB to achieve just that sort of effect: reducing imports and goosing exports as part of the currency war. Imports measured in euros may actually rise, since the same imports are now more expensive. But the number of containers would drop, since the same amount of euros now buys a lot less in China, whose currency is pegged to the dollar...In the US, there has been a monstrous buildup of business inventories. Inventories tie up cash. Eventually businesses try to bring them back in line by cutting orders. And that comes on top of a really crummy first quarter. On the Chinese side, the impact has already shown up, however foggy the figures may be. China’s “official” manufacturing PMI, which was released on Friday, came in at 50.1, barely in expansion mode, and the worst reading for an April since 2005. But it captures the state-owned giants that are less engaged in manufacturing for exports. The HSBC manufacturing PMI, released today, fell to 48.9 in April, solidly in contraction mode, the worst level since April last year. The new-orders sub-index, which points at what the near future might look like, dropped to 48.7. The March PMI had also been in contraction mode. It’s the HSBC PMI that captures the private-sector companies that are heavily export-oriented. These companies are struggling with very lackluster global demand for their products.
In terms of shipping, on the supply side, carriers have been adding new and ever larger ships, now that money is nearly free. Decision makers had been bamboozled into thinking that QE and interest rate repression would stimulate actual demand! And they’d expanded their fleets to meet this illusory demand. Cheaply borrowed money gets plowed into creating overcapacity: Investors desperately chase yield, and companies become over-optimistic believers in the fallacy that central-bank asset-price inflation can create actual demand for everyday goods needed or wanted by real people. This happened in the global resource sector, in the US oil-and-gas sector, in the global shipping business…. These are among the places where money now goes to die.
There are other places where money goes to die as investors who’d bought into the hype get crushed. Read… Stocks in This Totally Hyped Sector Are Crashing
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.
Two weeks ago, when I wrote about the Shanghai Containerized Freight Index (SCFI), the index had fallen so far so fast that it seemed to be a statistical fluke, something that would instantly bounce back. The SCFI tracks the spot rates from Shanghai to various destinations around the world. At the time, the SCFI component for Northern Europe had plunged 14% from the prior week to $399 per twenty-foot container equivalent unit (TEU), down 67% from a year ago. An all-time low. There was a lot of handwringing because, even with the lower bunker fuel costs, the break-even rates for these routes were $800 per TEU, according to a report by Drewry Maritime Research. Over twice the spot shipping rates!
The question was how much lower could rates drop?
A lot lower. Over the two weeks since, the SCFI for Northern Europe plunged another 14% to $343, setting a new all-time low. A terrific 68% collapse from the same week a year ago. Something big is going on in the China-Europe trade. Carriers have tried to impose big rate increases, with UASC pushing for an increase of $1,300 per TEU, and a gaggle of others going for an increase of $1,000 per TEU, according to the Journal of Commerce. None of them were able to make them stick. The swooning rates came as bunker fuel costs have been rising off their January lows. Higher input costs are hitting container carriers just as revenues are collapsing. A toxic mix. Now the hope is that planned rate increases for June are going to stick….On some other routes, carriers have succeed in raising rates, and so not all routes from China suffered the same relentlessly brutal fate. Rates ticked up recently to the Mediterranean, South America, and the US West Coast. But that doesn’t say much. On the routes from Shanghai to the US West Coast, carriers tried to impose rate increases effective April 1. But after rising by nearly $300 to $1,932 per forty-foot container equivalent unit (FEU) in the first week, the spot rate plunged to $1,623 in the second week, and to $1,596 in the third week. In the week just ended, the index jumped to $1,783. It’s still down 8% from early April, and about back where it was a year ago...Rates lost ground on other routes, such as to Australia/New Zealand and the US East Coast (those rates had been inflated by the labor dispute at West Coast ports that had caused shippers to bypass them). And so the composite SCFI for all routes rose to 761, from 702 which had been the lowest level in years! The index is down 34% from a year ago and far below the multi-year range between 900 and 1,200. The much broader China Containerized Freight Index (CCFI), which is sponsored by the Chinese Ministry of Communications, paints a similar picture.
While the SCFI tracks spot rates from Shanghai to global markets and can be very volatile, the CCFI tracks spot and contractual rates for all Chinese container ports, is much less jumpy, doesn’t react as quickly to changes in spot rates, and is “more comprehensive and macroeconomic,” as the Shanghai Shipping Exchange, which operates it, explains. It’s considered “the second world freight index” after the Baltic Dry Index. And it has skidded 16% since mid-February to a multi-year low of 899. This is what the 2-month plunge looks like:
Another index, the Worldwide Container Index for routes from Asia to the Americas and Europe, which Drewry cites, has plummeted 41% since January to below $1,300 per FEU (ugly chart). Clearly, something is going on in the east-west container business – and beyond – to create this sort of gloom. On top of the list of reasons is weak demand for imports in Europe, particularly the Eurozone, whose currency has been purposefully massacred by the ECB to achieve just that sort of effect: reducing imports and goosing exports as part of the currency war. Imports measured in euros may actually rise, since the same imports are now more expensive. But the number of containers would drop, since the same amount of euros now buys a lot less in China, whose currency is pegged to the dollar...In the US, there has been a monstrous buildup of business inventories. Inventories tie up cash. Eventually businesses try to bring them back in line by cutting orders. And that comes on top of a really crummy first quarter. On the Chinese side, the impact has already shown up, however foggy the figures may be. China’s “official” manufacturing PMI, which was released on Friday, came in at 50.1, barely in expansion mode, and the worst reading for an April since 2005. But it captures the state-owned giants that are less engaged in manufacturing for exports. The HSBC manufacturing PMI, released today, fell to 48.9 in April, solidly in contraction mode, the worst level since April last year. The new-orders sub-index, which points at what the near future might look like, dropped to 48.7. The March PMI had also been in contraction mode. It’s the HSBC PMI that captures the private-sector companies that are heavily export-oriented. These companies are struggling with very lackluster global demand for their products.
In terms of shipping, on the supply side, carriers have been adding new and ever larger ships, now that money is nearly free. Decision makers had been bamboozled into thinking that QE and interest rate repression would stimulate actual demand! And they’d expanded their fleets to meet this illusory demand. Cheaply borrowed money gets plowed into creating overcapacity: Investors desperately chase yield, and companies become over-optimistic believers in the fallacy that central-bank asset-price inflation can create actual demand for everyday goods needed or wanted by real people. This happened in the global resource sector, in the US oil-and-gas sector, in the global shipping business…. These are among the places where money now goes to die.
There are other places where money goes to die as investors who’d bought into the hype get crushed. Read… Stocks in This Totally Hyped Sector Are Crashing
