The global economic trade is down 8.4 percent so far this year. Among the
many economic indicators that experts use to gauge the health of the world
economy, the Baltic Dry Index (BDI) usually goes unnoticed. This Index offers
an indication of the global demand and supply of major stock materials that
are used by manufacturers at the beginning of production. And the shocking
truth is that the index has been plummeting to reach a new low not seen before.
BDI is often considered a good indicator about the state of the global economy.
Economic pundits consider the index as a crystal ball to provide insight about
the general direction of the global economy.
An upward trending BDI indicates strong global demand of commodities. A high
BDI reading shows that producers are purchasing more raw materials, which in
turn is indicative of growth in global economic activities. On the contrary,
a downward trending BDI indicates slowdown in economic activities.
Just a month ago, BDI was showing a reading of 950, but now it has fallen
all the way to 498. And when you look at the trade numbers of specific countries,
the significance of the numbers become quite apparent.
US Economic Data Indicative of Imminent Global Meltdown
WARNING: The latest economic data released by the US Census Bureau
shows that inventories increased again, wholesales declined again, and the
inventory-to-sales ratio has reached the levels that were last seen just after
the 2008 global meltdown.
Inventory-to-sales ratio is an important figure that shows how long the merchandise
remained hung up before being sold. This ratio has been getting worse with
each passing month. This recent spike to 1.31 in August this year is the same
level it had reached after the economic crises began in 2008.
Wholesale merchants are hit the most with the increase in inventory-to-sales
ratio as it has tied up their capital. When they are unable to get rid of the
inventory, they resort to slash orders. This creates a chain reaction affecting
every member in the supply chain that may lead to disastrous consequences.
The effects can range from business cycle recession similar to one occurred
in 2001 to a general global crises as seen in 2008.
This is extremely bad in my opinion as it means the world is scrambling to
save money and not buy anything extra as they/we all fear something big and
bad is going to happen eventually. Just imagine how slow sales will be and
how high this inventory ratio will be once the next major financial crisis
hits...
The dismal figures shown by Cass Freight Index (CFI) also point to an imminent
collapse in global trade. The index has been used since 1990 to show monthly
North American freight volumes and costs. Latest CFI figures show a declining
trend of both shipment and expenditures which can be seen in the graph below.
During the past four years, both freight volumes and expenditures remained
low in the US. The index levels have been below even the 2013 levels for past
several months. In October this year, the shipment index stood at 1.092, which
represents a year-to-year decline of 5.3%. Moreover, the index level has declined
4.7% as compared to the previous month.
Expenditure index also showed a declining trend standing at 2.435 in October
that represents a decline of 8.7% as compared to previous year. In many ways,
the declining CFI levels hints of a general slowdown in the US economic activity
that promises to have deep consequences both locally and in the global arena.
China Export and Imports are Collapsing - A Danger Sign for World Economy
The economic picture of our biggest trade rival, China, is looking bleak as
well. The country is being plumetted by two forces: declining competitiveness
due to increase in wages and weak global demand. The red dragon at the moment
is no longer looking as vicious as it seemed during the first half of this
new millenium.
Chinese exports plummeted to $192.41 billion, declining 6.9% in October as
compared to a year ago. Exports peaked in December last year when they stood
at $227.5 billion and have fallen 15.4% since then. The imports also decreased
closing at $130.8 billion in October, which represents an whopping 18.4% decrease
compared to last year.
The dismal economic figures in both the US and China give indication of an
imminent collapse in global trade with servere consequences. Economic figures
in the Euro area also paint a bleak picture about the state of the world economy. Learn
more about this in my book.
Should We Brace Ourselves for the Next Global Meltdown?
Maersk CEO, Nils Smedegaard Andersen, told Bloomberg that the global economic
growth is declining, and that the figures are much worse as forecasted by the
IMF and others. Contrary to what we may have been led to believe, the state
of most of the world economy is in dire state.
If the economy was really doing well as suggested by President Barrack Obama
and others, then why is the largest shipping line, Maersk, scaling back at
capacity and eliminating jobs? Why is Target suddenly closing stores in the
US? And most important of all, why are the largest banks in the west laying
off thousands of workers?
All of this points to just one fact that the next global economic meltdown
is upon us. What we are seeing are the precursors of a collapse in global trade.
The declining trade and economic activities in the US, China, Europe and other
many other regions that we have not touched point to the beginning of a crisis
that will soon be making headlines of most newspapers around the world.
