Friday, November 28, 2008

The state of the global economy....

More has happened to the global economy in the past 3 months than any other 3 month period in the last 50 years or even longer. I like the following chart because it really shows what has happened:

This is the BDI (Baltic Dry Index) it shows the shipping rates for commodities. This index is non-speculative as these rates are set based on professional assessments made by a panel of international shipbroking companies[Link]. The index fell from about 10,000 to 773 in 3 months. In May 08 shipping a ton of dry bulk from Australia to China cost $45. Today it cost$4. A collapse of more than 90%. Imagine if you were a shipping company, at BDI=10,000 or 7000 you're making healthy profits, borrowing to build new ships and expanding capacity because the margins are so healthy. At 773, shipping companies are seeing losses with every shipment. It is not unusual for shipping rates to fluctuate as we go through economic cycles but this time it did not fluctuate - it collapsed. Within 3 months healthy shipping companies suddenly find themselves in danger of insolvency. What happened in shipping is a microcosm of what is happening in the global economy. In the words of the macro economists in PIMCO, the global economy had a HEART ATTACK.

"The economy has had a heart attack. It needs careful attention." - Mohamed El Erian Pimco CNBC 11/21/08

In July 2008, the economy was like a unhealthy overweight feller with high blood pressure, high cholesterol...clogged arteries and a bad heart. But in mid-Sept 2008, the collapse of Lehman Brothers triggered a heart attack. If you recall, the US govt bravely proclaimed "no more bailouts" prior to the collapse of Lehman. A week after the collapse of Lehman, they asked for $700B to bailout everyone else.... the collapse of Lehman put the overweight feller in ICU. The $700B was like a defibrillator to prevent the economy from sudden death. Now in ICU day to day different problems appear - the heart is weak so the kidneys are failing (GM?) , so is the liver ...and other organs.

"Construction firms face 'collapse risk'"- Straits Times 28 Nov 2008
Today's Straits Times talks about the possibility of close to 2000 (out of 6000) construction companies in Singapore failing as a result of this crisis. In another article, a well established British retailer Woolsworth has collapsed and 30,000 employees there may lose their jobs. In China there has been growing unrest and riots. There was some talk that the Chinese has given the world a "gift" by stimulating their own economy and cutting rates aggressively - they have not acted out of kindness by are driven by the need to survive. Thousands of factories depenedent on export to US has closed its doors and workers are left stranded and desperate in many parts of China. The tension in the Chinese society is increasing as the economy falters. While many analysts talk about the future of the global economy being increasingly dominated by China, China is fraught with numerous problems due to the incompatible mix of an authoritarian govt and capitalism. There is not outlet and process for resolving the problems brought about by capitalism.....problem shows up as riots, they just send in the police to disperse their rioters ...problem solved? The Chinese govt is now extremely concerned about unrest around the country : [Link].
The Americans have spent about a $1 trillion on bailouts and the Fed announced on Tuesday it will throw in another $800B into the consumer loan market to get it going, President Elect Obama is considering a $700B stimulus package to kick start the economy. There is some faith that the Americans can keep spending and spending to get out of this malaise. If the economy does not get better after so much money is thrown at it, I think we have to prepare for really dark days ahead.


Anonymous said...


Anonymous said...

But Singapore will be still be as peaceful as ever, unlike China, where there are riots. You just suffer silently. When it is peaceful, everything is OK. Maybe at the "meet the people" sessions,the MP might just have to stay back a bit longer. That's all. And if they call a snap election, they will still win hands down, just like in 2001. And things will become better again, with more FTs if needed.

DONG said...

This time round will likely to be worse than 1929 great depression where nobody has ever experienced. Be ready to have a rough ride!

Onlooker said...

It the consolidation period of the major banks in the world.So long as information flow freely the impact of such exploitation can be minimized.
And our Mediacorpse think Obama did not consider this when he appoint his net neutrality people and stuff.
Rich people will start hoarding non perishable(commodities like china has been hoarding oil since 1994) stuff and refuse to sell them at non inflated price.
(theory heard somewhere)The purpose is to wipe out the middle class and working class so that when demand increase they will consume more.
Solution is actually quite easy:-
Estate Tax.

AlphavilleSG said...

...meanwhile down in silicon valley where bailout is unheard off, VCs are liquidating stakes at 10~60 cent to the dollar.

VC dumping stakes

I am hoping to develop a solar thermal water purification and refrigeration system (meaning it also make ice), anyone want to give me money? I will only buy 10 herman-miller chair, promise.

Anonymous said...

The news reported our PM just said situation now is not as bad as was during the SARS period.So why are you needlessly panicking the people?

Anonymous said...

Frightening. And to think that I just bought OCBC shares yesterday. What an idiot I am.

Anonymous said...

Look at this link, u still can trust yr PM's foresight...
Is time to wake up from nanny state mentality and think on yr own

Anonymous said...

Anon 9.17 pm

Is our PM saying another of the "mee siam mai hum" thing?

I also don't know.

Anonymous said...

This is horrible, no one mention 80% of SME company listed on SGX are at historical lows at under 0.10.. question is some can still get listed at 0.010 value or wvwn lower. This should be headlines on papers but why no one mention this?

Donaldson Tan said...

I seriously think credit card debt will be the new sub-prime in the making that will rock 2009.

LuckySingaporean said...

anon 11:15,

The stock market is another thing - with so many people saying this is the worst economic situation since 1929, I really wonder if all and everything has been discounted. At this point accounting skills to go through the companies balance sheet in invaluable. The small cap space is most interesting. There are very clear cut cases of companies likely to fail and the market sold them off. There are also companies that I cannot see how they will fail - and these got sold off too.

The implicit assumption of long term investing is that the economy always recovers and get better. But one only needs to look at Japan to see how this assumption can go the other way.

Maybe I should have bought Citibank AFTER GIC reject an offer to invest more money in it - the stock doubled in 5 days. Gee...really quite amazing.

Anonymous said...

It is not surprising that Citibank's price go up because the world learn of the Hojinx curse. Look like the Lee family is cursed and jinxed.

Now anything that HoJinx of TH touch, the investing company will avoid investing. Those that HOjinx now reject, they will invest. Maybe there is some truth in the jinx.

Now we know why the TH refuse to open up the accounting book in case people start dumping share that TH invest in.

Anonymous said...

Hi Dong, I don't think it is that bad. The impression that I got from our leaders is that it is not even raining yet. We still have our reserves just in case if it actually rains. Naturally we are concerned about when would our great leaders eventually see the current downpour. I am sure it is not their intention to wait until everybody is dead so that the reserves are preserved for the privilege few. I'm keeping my faith in them but with the eyes opened.

Anonymous said...

Hi Lucky

Its very bad.
Initially the collapse of the BDI was courtesy of the financial mafia in wall street. Now its for real as shippers goes bankrupt.

I was counting on the world recovering after Bush,Paulson and gang gets kicked out.

Guess what. Obama is hiring a fresh batch of thugs from Goldman Sachs (Rubin!!!).

Looking at the Citi bailout, it looks like we are in for a long financial winter.

Anonymous said...

tell me where the us gets
their money from?
the bank prints it out.
they'd pour out alot of money now,
it would take them quite some time
to repay the bank,
furthermore, theyre paying the bank
with interest and you should check the interest rate.

so once US can't pay back the bank.
the bank wont produce money.
so how'd to pour more money then?
how to continue everything?

it's just the start of everything(:

New World Order.

jeflin said...

Next year will be very tough for Singaporeans.

It is easy to steer the country when times are good.

But when times are bad... there is high discontentment and the government have to show their leadership qualities.

This baptism of fire is good as we can get a true measure of this generation of leaders.

MM Lee said this is the finest batch of ministers, well, they got to prove it with actions.

AlphavilleSG said...

Yup, they are the finest alright! Finest batch of sacred cows that should be slaughtered, we should ask not for miracles but appeasement! Please free us from this suffering!

Anonymous said...

Every investor say its the bottom of crash.. what next? SGX index will goes back historical 3400 status soon.. a rally of 1668 within one month?

Anonymous said...

Occupancy costs fall in S'pore: CBRE27/11/08
(SINGAPORE) The republic is still one of the most expensive places in the world to do business in, even though office occupancy costs here have dropped, the latest survey by CB Richard Ellis (CBRE) shows.

* See, singapore property are recession proof.. still maintain as one of the most expensive places the world.. do not worry everyone, there will be more + more good years for real estate.

me said...

Maybe I should have bought Citibank AFTER GIC reject an offer to invest more money in it - the stock doubled in 5 days. Gee...really quite amazing."

i have invented a new tactic and foolproof way of investing. its to short anything Temasek or GIC buys. sure gain. just imagine if you shorted everything Temasek or GIC bought in the past two years. you would be laughing your way to the bank and laughing at your monthly stock statements.

Anonymous said...

its 684 now?

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