The Shipping News Suggests Economic Weakness
bloombergview.com
bloombergview.com
The index was flat in the 80' and 90's yet the global economy boomed.
Not sure why stories that are sensationalist hyperbole get voted to the front page anyway
Unfortunately, the amount of stuff being moved is not public record and stays locked away on internal books that get summarized for the quarterly financials if the company is publicly traded. Which means we can infer how much stuff is being moved by reported dollar value but that's a lagging indicator. This leaves us with price to move goods as the major inference point to determine the health of commodities shipping and if the price is crashing, it's usually an indicator there's not a major uptick in the demand for commodities. When the price skyrockets it indicates people are trying to move a ton of stuff quickly and there isn't capacity to do it (causing more hulls to be built) and indicating the economy is hopping.
And then Volvo is obviously not raw goods, but this article talks a lot about raw goods which I would presume to slowing with China's economic slow down (for how long can one build ghost cities).
My layman's analysis is that the US is in a pretty decent spot right now with a decently diversified economy but lots of other nations around the world are going to have to pull some smart moves if they'd like to sustain decent growth, but economics is a vast vast field with a seemingly unending number of indicators, so I may be totally off.
Excuse me if my questions aren't sophisticated to someone with a better understanding, I do literally plead ignorance here.
At a macro level, when we see demand for future transportation assets decreasing that gives us insight into the transportation market and how people who provide the services see it going. They won't buy massive quantities of new goods if they don't see any business. Yes, companies like Apple release quarterly numbers, and we have to examine them in the context of their industry. Apple focuses on consumer electronic goods. As their numbers adjust and change, that gives us insight into (past) demand for consumer electronic goods and the state of the general consumer's purchasing power. You get leading insight into what Apple thinks demand will be, to some extent, by looking at their suppliers. Watch Samsung/TSCM when they announce big contracts from Apple. That gives you an inference as to what Apple thinks demand will be for a product. Same thing with shipping and transportation. Look at the industries that supply the goods and services transportation companies have to make capital expenditures to acquire and you'll get a rough idea of what the companies are thinking the market looks like.
Economy wise, yes, it's complicated to get a finger on the pulse of an economy and a lot of what goes into it. Technology and information travels over cables and electromagnetic waves and we've increased the efficiency of the manufacturing process to such an extent that we can use less people to sustain a higher rate of output than previous generations. However, there are fundamental factors that go into any economy you can measure to get an idea of what's happening and that usually takes the form of commodities. We need raw resources like food, energy, precious metals, and manufactured consumer goods to sustain the economy and most of those goods require special transport equipment to get from the suppliers and manufacturers to the consumers. Monitor that and you get a pulse on the overall health of the economy. The more facets you can monitor (trucks, rail, ships) the better your understanding.
Edit: Fixed wording
Not true - you can get a sense of this through ATA's Truck Tonnage Index.
1. http://www.trucking.org/article.aspx?uid=5897732a-ea35-4369-... 2. http://www.trucknews.com/transportation/ata-truck-tonnage-in... 3.
It's more interesting to know that JP Hunt increased their lettuce hauling business from California to Missouri than it is to know that trucking tonnage creeped up ir down. That doesn't give you insight into the why or what's happening behind the scenes.
http://www.forbes.com/sites/timworstall/2015/11/20/dont-aban...
http://www.aei.org/publication/its-official-a-lost-decade-fo... : "One potential explanation that reconciles these observations is that structural changes in the US economy may have resulted in a statistical understatement of real GDP growth. There are several possible areas of concern, but the rapid growth of software and digital content—where quality-adjusted prices and real output are much harder to measure than in most other sectors—seems particularly important."
I think people imagine "technology" is only Uber et al and can still be segregated into its own market, but some of the most interesting tech developments and software engineering are happening far from the Silicon Valley app-culture.
http://finviz.com/futures_charts.ashx?t=ENERGY&p=w1
http://finviz.com/futures_charts.ashx?t=SOFTS&p=w1
http://finviz.com/futures_charts.ashx?t=METALS&p=w1
http://finviz.com/futures_charts.ashx?t=MEATS&p=w1
http://finviz.com/futures_charts.ashx?t=GRAINS&p=w1
Usually plummeting commodity prices are not a sign of economic activity, although they are priced in dollars so maybe a stronger dollar has something to do with it... but a strong dollar itself might suggest a flight to safety instead of global economic activity:
http://www.usatoday.com/story/money/business/2015/05/05/trad...
Food crops may be good but food prices are the first thing to spike when inflation spikes, and many nations have seen food prices climb ~20% across the board without parallel increases in wages and salaries. This is not good.
Megaships, in general, don't work for the general shipping case. They work well for oil and containers where clients are either purchasing a small segment of the ship and their goods fit in 40' containers or they're buying millions of barrels of oil and need to move it halfway around the world. These ships are also port/canal limited. Most of the megaships cannot traverse the Suez or Panama canals and get forced to take the long way around, which can increase shipping time, and many of them cannot use most ports in the world. The new megacontainer ships are extremely limited because existing ports need to spend a significant chunk of capital to increase their capacity. Oil tankers, on the other hand, can lighter off the coast and either use offshore booms to transfer to shore via undersea pipelines or offload onto smaller tankers who take it into port.
The biggest driver in shipping costs is fuel. Yes, shipping is efficient in a tonnes/gallon ratio sense, but it still ain't cheap to fill up the tank. As oil prices plummet, it reduces the costs of operating tankers which increases the profit margin for the operating company and allows them to reduce prices in order to gain business. The second biggest driver is business. Companies position their assets where business is and if a lot of people have put their ships near the business, the business can negotiate a lower rate which will push the BDI down in price.
Source: I've built systems designed to track the maritime shipping market and the impact on commodities.
There was a brief glimmer of hope a few years ago when most of these companies refinanced their debt. The P/E ratios for most of these companies are incredibly low, but even still they are a bad investment. The structure of a lot of these companies is odd as well. They are often structured as shell companies wrapped around a private entity that actually employs everyone and does all the work. I'm guessing some companies have some pretty nice, debt financed, salaries for upper management.
Given the glut of shipping supply, and our current, modest recovery, I find BDI's tulmult to be less surprising than the sun rise this morning.
Also like the "lesswrong" folks who use statistics to make grand claims. Statistics is not a looking glass. It is a math that is only as useful as the wisdom of its practitioner, and can lead to false confidence.
Arguing that axes should never be cut is silly indeed, but axes should also show the relevant ranges for the context (here the 2008 values for both x and y would make today's fluctuations look minor).
This anchors the reader to misread 50% reductions from peak over the past five years and leaved reasons for the spikes which created the peaks unexamined.
One thing is clear is that the article doesn't point to a Volvo.
These are the global numbers from their latest quarterly IR release, regarding Q3 2015 (Their Q4 report is due next Friday):
http://www3.volvo.com/investors/finrep/interim/2015/q3/q3_20...
Net order intake, number of trucks:
42,648 (Q3 2015)
50,449 (Q3 2014)
and, also:
58,024 (Q3 2007)
This last (global, not european) number from: http://www3.volvo.com/investors/finrep/interim/2007/q3/q3_20...
> In the third quarter of 2015, net sales for the Volvo Group amounted to SEK 73,309 M (67,222) with growth coming from North America and Europe. However, this was partly offset by a significant decline in South America. Adjusted for changes in currency exchange rates net sales increased by 1% compared to last year.
Ex. http://assets.bwbx.io/images/iDUeUG9Br9mI/v1/-1x-1.jpg
According to that chart, the beginning of 2012 would have been a horrible time to an invest and the market was about to enter a massive correction. Except the S&P is actually up >50% from 2012.
The Baltic dry should be studied in conjunction with other indicators such as yield curves and indications of credit tightness.
That said, I do not think this is a case of a bad economist.
Economics theory is theory... theory that attempts to quantify societal behaviour, various cooperation dynamics, measurable output, etc. None of them know how to deal with various problems like "quality" & "technology" even though all economists admit they are pretty important. These theories usually have money playing a central role in some way). Anyway, they're theories about people acting together in big groups economics calls markets.
Political dynamics is another piece of the puzzle. So is every other meme in society. In some place homosexuals are allowed by society. In some places it is banned. Why now? Why not in 1750 or 2235? There are theories about how to quantify and predict here too, but obviously the ability of theories about such things are not up to the task of making consistent predictions.
Asimov's "psychohistory" is a fictional discipline which is basically economics, historical determinism, political science etc. The fictional twist is that these theories can make consistent predictions within very usable margins of error.
Keynes himself had differing policy recommendations, as well, but ultimately settled on what he called "socialization of investment" where the state would fill in certain entrepreneurial activities that the private sector is deemed to be lacking, though the specifics were elusive. Contracyclical fiscal policy was actually popularized by Alvin Hansen IIRC, and the more extreme functional finance favored by Post-Keynesians was formulated by Abba P. Lerner.
Of course, if you're in recession for 8 years, you start running out of such things.
Also, if you have data supporting your hypothesis, I would be very interested to see it.
If you had an idea for a great startup, you wouldn't wait for a few years. You'd do it as soon as it was ready.
1. Do a small renovation to a bridge and it will stay usable for five more years, or
2. Do something more comprehensive (teardown + rebuild), after which you don't have to do anything for 20 years
If there's a temporary high in building costs, it makes sense to do 1. If there's a temporary low, it makes sense to do 2.
"If you take an economics course, they’ll teach you, correctly, that if the government spends n dollars to stimulate the economy, it doesn’t really matter what it’s spent on: they can build jet planes, they can bury it in the sand and get people to dig for it, they can build roads and houses, they can do all sorts of things—in terms of stimulating the economy, the economic effects are not all that different.² In fact, it’s perfectly likely that military spending is actually a less efficient stimulus than social spending, for all kinds of reasons. But the problem is, spending for civilian purposes has negative side effects. For one thing, it interferes with managerial prerogatives. The money that’s funneled through the Pentagon system is just a straight gift to the corporate manager, it’s like saying, “I’ll buy anything you produce, and I’ll pay for the research and development, and if you can make any profits, fine.” From the point of view of the corporate manager, that’s optimal. But if the government started producing anything that business might be able to sell directly to the commercial market, then it would be interfering with corporate profit-making. Production of waste—of expensive, useless machinery—is not an interference: nobody else is going to produce B-2 bombers, right? So that’s one point."
— Noam Chomsky, "Understanding Power"
But, probably not. Even "social spending" opens up lots of procurement opportunities for the corporate manager. There might be some crowding out in real terms (government having political authority to exclude activity it deems to be an interference), but it'll be offset by the likely benefits of ensuing expansion, corporate welfare grants and workforce mobilization.
The problem with Chomsky here and many others is that they have the causality backwards. They see corporations as evil entities that spontaneously emerged from the ground to usurp the state, when in fact they were explicitly cultivated by states looking for economic growth.
This is the problem in an HN culture where commenters don't support claims with cites. Chomsky frequently explains that corporations are creations of the state, and they share the same interests to a first approximation. You can find it in the book I referenced, or google for sources.
This comment seems to paint him as a liberal who favors the state (blaming everything on corporations), when of course he's an anarchist who sees both state & its corporate creations as illegitimate top-down power structures.
I know full well he isn't a liberal and never implied that he's one (in the modern Galbraith sense). Nonetheless, most analyses by the revolutionary left are definitely slanted towards a picture of painting the issue as being primarily one of corporate hegemony.
they’ll teach you, correctly, that if the government
spends n dollars to stimulate the economy, it doesn’t
really matter what it’s spent on
What you wrote is correct, the flaw is you put in the word 'useful'.
If it were just about bridges and railways, it wouldn't be so bad. But lately economic stimulus is used as the fig leaf for all types of whole scale wealth destruction like cash for clunkers, amongst countless other examples.
Where I live billions and billions was spent on water infrastructure. No actual improvements in supply were made- no additional catchments were built, because dams == bad. The money was spent in pipelines and a desalination plant that has never - and I mean never - been switched on. It's 5 years old and has never output water, because the cost is too high compared to dam water.
Now I have a 400% increase in water bills but no actual improvement in what I get. That money goes to paying the interest and running costs for that investment. That money goes out of my local economy. That, in aggregate, prevents and extra shop from opening, or causes an existing one to close. Most businesses run in thin margins and diverting cash away on pointless make work lingers long after the supposed boost happens.
http://www.huffingtonpost.com/2011/08/15/paul-krugman-fake-a...
At that point somebody has to pay for that malinvestment through reduced future consumption. Make work projects are not a free lunch. They work by pulling demand from the future into the present via issuance of new debt.
How those costs are allocated in the future are delicate social issues with entrenched interests. In many cases these make work projects are themselves politically palatable ways to socialize losses by transferring bad debt from private balance sheets (households and corporations) to public balance sheets (government).
It could be argued that all economic cycles can be explained through malinvestment and then working through allocating losses.
My concern is that with activist central banks and fiscal policies that prefer to kick the day of reckoning into the future we have created a situation where allocating losses may lead to significant social and military confrontation (i.e. Revolutions and war).
All because a guy who actually didn't study economics waved away the long term structural issues by stating 'in the long run, we are all dead'
Besides, it's not economists that matter here. It's talking heads who provide cover for politicians to create massive amounts of malinvestmemt of scarce resources, diverting from possible productive investments and leaving behind the interest payments as a drag on future investment.
Boom & bust cycles are driven by the fundamental difficulty of quantifying value. Since there is no true value, people base their opinions on those of others (+delay), leading to "inertia," leading to oscillation. The government might exacerbate the oscillations, but the lion's share of responsibility lies with the market. Complaining that the oscillations happen because the market "just isn't free enough" represents a delusion about the qualities of free markets.
As for make-work, it's a compromise that nobody is happy with, but it is a compromise, and that's its value proposition. Some want to let the market clear without intervention by any means necessary, regardless of the social cost, based on (arguably misplaced) faith that this will ultimately make things better. Others think it's ridiculous that periodically attacking the foundation-tier Maslow needs of large swaths of the population is "a feature not a bug," and demand (arguably unsustainable) social policy to fix it. Make-work lies between the "free-market reckoning" and "re-distributional cash grant" extremes and so once the dust of democratic process has settled it's the thing that actually happens even though both sides see it as a poor alternative to their favored solution.
> The Baltic dry should be studied in conjunction with other indicators such as yield curves and indications of credit tightness.
The Baltic dry should be studied in conjunction with the reliable unreliability of the market in general. Since markets are as inherently unavoidable as physics or politics, we cannot simply wish them away. Instead, we should develop social policy to decouple the markets for well-understood core needs-providing infrastructure from the global economy in order to place bounds on the social cost of market corrections, which could then be allowed to happen (otherwise) unimpeded.
Virtually no one, not even Keynesian or other left-economists support make-work. It's mostly an idea favorable to laymen, or often done for more nationalistic rather than economic reasons. FDR was inspired by William Trufant Foster's and Waddill Catchings' policy advice for instance, who had Keynesian-esque underconsumptionist views but did not derive these from any economic theory per se.
Even ardent Keynesians will advocate a more sophisticated proposal of what amounts to government-owned employment agencies that combine private contract procurement with state investment projects, with the intention of having the unemployed serve as buffer stocks of labor to meet some form of output target. But not quite brute make-work.
(Actually the "quantifying value" problem makes no sense. It's not as if there is some objective essence called "value" that people seek. Value is largely denominated in units of currency. I suppose what you're getting at is the importance of monetary policy?)
use-value? you know, people actually using the goods and services they acquire?
Practically every economic theory that has tried to objectively quantify "value", i.e. those of Ricardo, Marx and Sraffa, relies on gigantic and complicated expositions involving leaps of abstraction and mathematical transformation problems that are completely detached from how real-world people actually think about or treat value.
(Indeed, such exercises in value theory aren't so much about determining value as much as trying to work out given theories of income distribution and perceived exploitation.)
Use-value is definitely context dependent and agent dependent. This is fine. But we have to acknowledge that the reason why people assign exchange-value to goods is because they have actual use-value: economics describes physical, real world activities.
I can agree that no one has presented a good dynamical theory of use-value. That's sensible: it would require at least a full description of reality, and a deep understanding of nonlinear mathematics. One quibble i have is i don't think Marx tried to establish such a theory: his observations about use-value and exchange-value can be made without a full theory of use-value or a full theory of exchange-value. The relationship between the two can be examined in the abstract and that is Marx's program.
I can still perform calculations with use-value to derive exchange value: why is water worth so little in exchange-value even though it is so vital to life? The marginalist point of view says that the price of water is determined by equilibrium between marginal cost and utility. Why is the marginal utility of water so low?
Well, if we're talking about people drinking water, then it is obvious, isn't it? You only have to drink so much water. When you're not thirsty, water has none of that use-value anymore.
Ignoring the relationship between use-value and exchange-value is... weird. It's replacing the true and difficult reality with a nice fiction amenable to manipulation with our primitive mathematics. Do markets define exchange-value or do they compute exchange-value from the aggregate use-values of everyone participating?
Edit: as for business cycles, i think they are caused by structural flaws in property rights and financial institutions, but if you asked 5 people why the business cycle occurs, you'll get 6 conjectures and 3.5 theories.
Marxian economics has a whole lot of categories that are awkward, like "constant capital" being homogeneous and "variable capital" referencing wages of labor in producing commodities. There's barely any room for disequilibrium effects, complementarity, reserves and so forth. In turn, the organic composition of capital is held to be c/s+v, but empirical evidence on relation between OCC and crisis is scant and the concept of OCC is again completely foreign to uncertainty, disequilibrium and capital structure. It's just a ratio between two questionable taxonomies. Marxian economics has many similar failings as neoclassical economics, but because of its origins as a heterodox critique of Smith, Ricardo and Mill from a particular period, its evolution has been even more confusing.
Marginalism is situated in a means-ends framework, which is the most one can really say about value without introspecting into personal intentions and valuations. It should be underlined that neoclassical production theory (MC=MR) is separate from the subjective theory of value proper, however. Menger, Jevons and Walras all had different takes on it.
It's also worth noting that Marxian conceptions of use and exchange value have little to say about contemporary monetary and financial economies. Marxians still focus too much on issues like falling rate of profit, accumulation and OCC and often miss elephants in the room like financial fragility, or downplay them. It strikes me as archaic.
Whether or not markets compute or define exchange value seems to me like a problem of overaggregation where the contemporary social institution of a "market economy" is conflated with a market in the abstract as a system of mutual exchange, as in Proudhon and others.
The latest round of stimulus spending included cash for clunkers, lots of money for financial institutions and paybacks to teachers unions and other supporters. That's not a partisan criticism, an administration of the opposite party would have given to their supporters in equal measure.
The rules of startups are about : make something that people want, and don't take money for the sake of it, your better of solving problems out of necessity.
The truth is that, as a theory, the idea works. In practice, it doesn't because it relies on the idea that central planning can work at all, and that lots of productive projects are available but can't get started due to lack of capital and resources. If a dam or bridge makes sense, then build it the moment it makes sense.
I disagree with this statement. Although I do agree that it is hard to quantify or even estimate value, all things do have a true intrinsic value relative to the utility they can provide human beings.
Entire empires have been built based on the concept of intrinsic value. Berkshire Hathaway is probably the most famous.
Instead of providing government cover for the cycle, the lesson for businesses should be that they need to prepare for boo and bust. Knowing a truckload of government money will splash down the chute only increases moral hazard for reckless investment.
Your last paragraph sounds like a central planning nightmare. We don't need people in government buildings drawing lines around core needs. People faced with scarce resource allocation will make the choices that are right for themselves. Anything else ends up with tractor and leather shoe 5 year plans which don't match what people want.
That doesn't mean that monetary policy is the right solution. The right solution is fiscal policy (government spending) but this is not happening because politics is dominated by crazy ideas about austerity and fiscal balances.
(edited to emphasize that if fuel cost magically dropped to zero, costs could not drop more than perhaps 20%. And fuel has dropped, but not to magical zero)
Capex and maintenance are expensive.
Shipping is already highly efficient in general, so it might be the opposite that fuel prices are a significant percentage of operating expenses. Low estimates I've seen state that fuel costs are around 40% of operating expenses. Source: https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/bdi.ht...
I'm not arguing they're the only cost, but there has been a lot of hysteria about the Baltic Dry Index this month. So much that Snopes and Marine Traffic responded to it: http://www.snopes.com/cargo-ships-atlantic-map/
And they are doing just that.
2010 7.8 million TEUs
2011 7.9 million TEUs
2012 8.1 million TEUs
2013 7.9 million TEUs
2014 8.3 million TEUs
2015 8.1 million TEUs
The discouraging number in this is that half the containers going out of LA are empty. Only 3% coming in are empty. That's the US export/import imbalance. And a lot of the ones leaving the US are full of paper and metal scrap.
(One TEU is a "Twenty foot equivalent unit", or a 20' long container. A forty foot container, the most common size now, is 2 TEU.)
A disregard for being accurate with units makes me suspicious of any conclusions this author might reach.
Low demand for commodities, also reflected in low prices, is driving the price of bulk shipping down. There's lots of slack capacity. But no problem getting a letter of credit if you are moving things.
I see these bears come out of the woods everytime they beat the "the bull run has been too long" drums.
Either way, there are interesting questions here which are unanswered. Like why do companies have so much money in their cash accounts? Generally, if a company is accumulating cash it isn't re-investing to grow. And while that might mean a planned acquisition of some other company the phenomena has gone on long enough that this seems less likely [1]. So why the cash hoard? For people it might be a 'rainy day' fund but does anyone believe that these companies will sit there, paying salaries, while selling few goods, waiting for the demand to return?
Or is it that the rent seeking transactions have become such a burden that it has been completely damping out new demand? One of the interesting thoughts is that if you go back and fix copyright and patents such that their terms expire in a more reasonable amount of time, or in the case of patents they are carefully scruitinized, then you take away this rent stream from big content and a number of license funded entities, that forces them to go out and make new content, or come up with new patented things, rather than just collect license fees. That creates new economic activity and that boosts GDP. It is a point of view that is gaining some adherents as a drag on economic growth.
Shipping as a leading indicator though has a couple of problems, both with isolating improvements in the industry (supermax ships) and shifts in modalities (air freight being acceptable for high margin goods like iphones) and generally the way consumption and manufacturing is changing (China's economic growth has zero impact on shipping if they pulling their bulk goods in over land and shipping locally).
Mostly though I suspect that there are lots of things that are unprecedented and so folks who are trying to plan are in a world of hurt in terms of confidence in their predictions. And like the reference to the movie in the article, it is always safer to predict doom and then report on "avoiding" it, than to mis-predict non-doom and to have it land at your feet. Hence more and more economists are saying "The world economy is toast!" rather than "I wonder if this is what it looks like at the leading edge of the switch away from a scarcity economy?" Sure, we could be approaching the singularity/jackpot what have you, but if you say that and the instead you get the biggest economic depression ever, well that is a worse outcome for the predictors.
[1] In an related note, having 10s of billions of dollars in cash means a company can do dozens of "10 - 50M" acquihire type deals, and that is driving some of the seed investing thinking I believe.
Pundits also suggest that shareholders who should be the beneficiaries of the cash through dividends are content to let CEO's and boards invest the cash for them due to a lack of other compelling investment opportunities.
Cynics might say with the prevalence of index and other funds who hold shares by proxy and who tend to vote with corporate management there is little pressure for CEOs or Boards to return funds to shareholders and instead hold them as a personal insurance policy and to extend their power base.
An economist suggests this is an example of a skills mismatch.