I want to capture this moment, because (depending how things change), people might not have this on their radar screen a month or so from now. Remember, I warned you. The Stock Exchange lost over 5% of its value in the first week after New Year’s, and lost over 900 points. That makes this the worst stock market opening since official records started being kept in 1897. There’s a CNN story here. You can also look at the WSJ’s article on the same topic here–they count the DJIA as down by 6.9%.
“This has all the earmarks of the beginning of a significant stock market correction. Many would argue it’s the beginning of a bear market,” Tim Anderson, managing director of MND Partners, wrote in a client note.
Most of the articles being written about the ‘correction’ (nobody’s calling it a crash yet) fault China, which has halted trading on its stock market several times over the past week due to prices crashing. They’ve now stopped the trading circuit breakers, fearing that the action of the circuit breakers themselves was causing great turmoil (traders were trying to get sales in before the cooling off periods). But China’economy is an export-driven creation. If there’s no demand for its products, that isn’t China’s fault. And (larger point), the demand side for consumer products (in the US and most of the industrial world) has cratered. And the fact that the oil patch is also crashing means there aren’t lots of people in the Kingdom who can pick up the slack.
The fact that consumer spending (worldwide) has fallen off a cliff is the prime suspect in oil being devalued back to where it was in 2003. As Matt Simmons tried to point out in his analysis of peak energy, economic growth requires energy growth. Conversely, if energy use is not growing, then it’s safe to assume that the economy is stalled (or worse). I’ve written before about the crash of oil prices during the Great Depression, when oil fell to a dime a barrel at one point. Right now, Oil is going for $33 a barrel, and that isn’t enough to service all the bonds and stocks based on a time when oil prices were in the $100 a barrel range.
But here’s the scariest piece of the puzzle, provided by Robin Westenra’s blog See More Rocks, which I’ve referred to before. There’s been a huge fall-off of transport and shipping, with virtually nothing moving across the Atlantic. Overall shipping is down some 40%. Westenra pulled several articles from different sources about the decline, and most telling is this map, which shows virtually no ships crossing the Atlantic.
UPDATE: I have removed the chart that previously appeared here as there were questions regarding its accuracy. The new chart (below) is the Baltic Dry Yield indicator, and it better shows the cratering of international shipping. There’s a link below.
Detail for the chart can be found here on zerohedge.
Meanwhile, pundits are all agog at falling gas prices and are bloviating about how happy consumers are about this. The problem is that the minor increases in discretionary income gained from deals at the pump aren’t enough to juice the economy. More and more of the jobs post-2008 crash are paying subsistence level wages. And whatever extra ducats people got from lowered gas prices are more than eaten up by increases in the costs of medical care and insurance. Don’t get me started on the ACA. And forget about the rosy picture MSM painted for the December Jobs report–per David Stockman, a close reading of the numbers behind the ‘executive summary’ indicate that perhaps 11,000 actual jobs were created. Everything else is a ‘structural adjustment’. While not reaching the same conclusion, Paul Craig Roberts points out that the count is for total jobs, not total persons employed, and the number of adults participating in fulltime work continues to decline. Roberts notes that the number of 55+ workers went up in December, but attributes much of that to retirees who find that Social Security, their savings and 401K’s do not provide them with enough money to live on.
Could be worse. You could be in the proposed evacuation zone from the California methane plume.