Global Trade: Fading to Black

globaltrade-fade-to-blackRarely does an idiom manifest itself in as many mediums as does the seemingly ubiquitous “Fade to Black.”

Spreading far from its beginnings as the director’s call to slowly dim the lights, end the scene and fade away, it runs the gamut from dark beer, to mystery novels to documentaries, from slasher films, to music, lots and lots of music. And, with the music there can be darkness, perhaps even the darkness of suicide. Dire Straits’s self-titled cut is a bitter rebuke to a wicked woman with black widow tendencies. Tommy Cash chose the idiom but not the darkness in his 2008 album, “Fade to Black: Memories of Johnny,” a tribute to his older brother, “The Man in Black.”

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Urban lore consigns to Metallica, the thrash metal band formed in 1981 Los Angeles, the honor of bringing the most darkness and crossing the boundaries of metaphorical meaning in its version of “Fade to Black.” Have a listen: “I have lost the will to live, Simply nothing more to give, There is nothing more for me, Need the end to set me free.” Now, you may think there’s no gray area in those words, but you would be wrong. Rather than suicidal tendencies, the song was written by James Hetfield, the group’s lead singer, after the band’s van was broken into leaving him robbed of his favorite Marshall Amp. Call that a really bad day for the lead of one of the 80’s “big four” thrash metal bands.

And for us, is there a fading to black that could bring us a really bad day? Miles of airwaves have been devoted to the vulnerable state of an enormous economic engine. Will the backlash against globalization and the rise of protectionism herald the death of global trade as we’ve known it for most of our adult lives? Late last month, the World Trade Organization (WTO) dramatically decreased its forecast for the growth in the trades of goods in 2016 to 1.7 percent from 2.8 percent. The implication was that trade would grow at a slower pace than global gross domestic product for the first time in 15 years. The outlook beyond year end is no more uplifting. The WTO lowered its 2017 forecast to between 1.8 percent and 3.1 percent from a previous 3.6 percent.

For any of you wondering if this development came out of left field, look no further back than March 2015 when the Baltic Dry Index (BDI), a gauge of shipping rates, hit a 30-year low. At the time, The Economist cautioned worrywarts to not get carried away with the dire message the index was communicating, pointing to several commentators’ suggestions that the decline was a good thing.

Forbes Contributor Tim Wortstall best captured the tenor of the glass-is-half-full thesis. He observed that while there was a possibility that the crash in the BDI reflected curtailed demand for shipping, the more likely cause was an increase in the supply of tankers, which reduced shipping costs and was therefore a good thing. His conclusion: “Other than a few ship owners who might now regret having ordered more ships, that’s actually good news, not bad, for the global economy.”

It’s conceivable that investors in South Korea’s Hanjin felt a wee bit more than “regret” when news arrived August 31st that the world’s seventh largest shipper had filed for bankruptcy, the largest in the history of the industry. Perhaps the punditry should have paid closer attention to the CEO of Maersk, who warned over a year ago that it was not an oversupply issue but rather slowing economic growth in every country outside the United States that was pressuring shipping rates downwards.

The sticky part comes down to where the onus lies to escape the global economy’s slide. As has been the case for all too long, most continue to look for refuge in central bankers’ actions. If only we could get economic growth off the floor, a virtuous cycle could be ignited as a trade revival follows.

While the drumbeat of this modern-day zeitgeist is convenient to embrace, evidence to the contrary suggests the actions of other leaders, as in those of the political ilk, are needed to begin to fill the economic vacuum. That’s where the situation gets dicey, as yet another detracting obstacle presents itself, that of the growing protectionist movement sweeping the globe.

In the event you missed it, the Economist also recently did a deep dive into the protectionist movement and its underlying causes. The conclusion was much more nuanced than you would have thought looking purely through the prism of traditional macroeconomics. An extensive study of 40 countries cited in the special report found that borders closed to trade resulted in high income earners losing 28 percent of their purchasing power. For the lowest 10 percent, however, 63 percent of their spending power would vanish into thin air due to a heavier reliance on cheaper imported goods.

Before closing the case on this stark conclusion, consider the veritable plight to which many of the least educated in developed countries have been subjected. The situation in the United States is particularly fraught. Most rich developed countries spend 0.6 percent of GDP per year on “active labor market policies,” as in retraining and helping retrofit displaced workers so they can become once again gainfully employed. That little thing we refer to as dignity is thus preserved. The U.S. for its part, though, assigns a mere 0.1 percent of GDP.

It’s with less frequency that yours truly agrees with the Economist, for many reasons. But the newspaper’s conclusion on the travesty of encouraging permanent workforce refugees is spot on: By neglecting those whose jobs have been swallowed by technology or imports, America’s policymakers have fueled some of the anger about freer trade.” Does anyone object to adding to that list neglecting to reform the education system such that all American children have opportunities to excel in STEM studies after, and if, they graduate from high school?

Exacerbating this dynamic is what is not happening in the land that consumed so many manufacturing jobs in developed nations during its historic and compressed rise as an economic powerhouse.

Leland Miller is a good friend who also happens to be an expert on China. From his perch as the head of theChina Beige Book (CBB), a quarterly survey that tracks the world’s second-largest economy, he sees troubling signs that suggest the slide towards protectionism will get little in the way of relief from China. The country’s leadership has been bending over backwards to convince the rest of us that it is intent on retreating from its role as a predominantly export-driven nation.

“While it’s only one quarter, CBB’s data saw an almost total reversal of rebalancing trends in the third quarter,” said Miller. “Spurring growth is the only priority and restructuring is being left by the wayside.”

Miller worries that there is too little recognition among policymakers and that exporting their way out of economic trouble is not a viable option. It is rather a “laser-focus internally on structural reform” that holds the key to future prosperity. He adds that the quiet currency wars underway render the dynamic that much more sensitive.

“Who is doing this well?” Miller asked. “Maybe no one; certainly not the USA and certainly not China.”

The deterioration in world trade, multiple depressants and all, presents yet another example of the rising cost of our world leaders being incapable, or worse yet, unwilling to address the serious challenges facing the global economy. This will not end well. The more money central bankers pump into the financial system, the greater the divide that opens between the haves and have nots, a direct consequence of the fallacy of the wealth effect. Global trade fading to black is simply what stares back at central bankers when they look in the mirror even as the anger rises unchecked in nearly every corner of the globe.

It’s interesting to note that Metallica’s version of Fade to Black was by no means the band’s most popular, though it was certified gold by the Recording Industry Association of America. Rather than fading in popularity, it became a staple of the band’s tour repertoire. It never has, though, lost its reputation as an anthem to demise. It was thus fitting that it was the last song played on the Los Angeles heavy metal radio station KNAC, which went off the air on February 15, 1995, as the metal movement faded, making way for the next musical wave.

World leaders should be so lucky. But first, they must get out of their own ways and implement the structural reforms needed to shore up their domestic economies — without stifling trade. Though a nettlesome needle to be threaded no doubt, pigheaded politicians could find themselves unwillingly channeling the ghosts of Smoot & Hawley as the world economy itself fades to black in coming years.

Full article and credits here.

China’s Stunning Move To Dominate The World And The Real Reason Why China Is Buying So Much Gold

kwn-leeb-i-6172016-768x419With many investors worried about the economic turmoil that has engulfed the globe, here is a look at China’s stunning move to dominate the world and the real reason why China is buying so much gold.

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China Quietly Increasing Its Global Dominance
Stephen Leeb:  “In a fairly lackluster week for the markets, the only news that seemed to arouse any response was China trade data. The headline numbers reported that, contrary to expectations, both Chinese exports and imports had declined in September compared to year-earlier levels, with exports dropping by more than 10 percent in dollar terms. Stock and commodity markets in the West fell in response, believing the numbers signified Chinese weakness that would hurt global growth…
But when you look more closely, things weren’t quite what they seemed. One clue: Western markets fell more than Chinese markets. If the trade news really was so bad for China, you’d expect the reaction in China would be far worse than in the West.

Moreover, the higher-than-expected decline in trade came when you looked at monthly results. But the quarterly figures told a different story: both exports and imports in the third quarter were higher than in the preceding quarter, the first time this year to see a quarter-to-quarter rise.

A Worrisome Message For The West
In other words, the trade data doesn’t depict a China that is faltering. Ironically however, they do, nonetheless, convey a worrisome message for the West, but for a very different reason.

The really pertinent news is that exports from China to countries along the “Silk Road” have exploded this year. On an unweighted basis, exports to Pakistan, Russia, Poland, Bangladesh, and India increased by over 11 percent, a remarkable number, especially in a world with barely 3 percent growth. Moreover, barring a massive economic accident, China’s trade with Silk Road countries will amount to more than $1 trillion in 2016, accounting for more than 25 percent of its total trade compared with less than 20 percent conducted with the US.

The undeveloped Silk Road encompasses nearly 4.5 billion inhabitants when you include China. By steadily creating land and maritime routes linking those vast populations, China is laying the groundwork for burgeoning trade. Through its policy banks and several dedicated development banks, including the AIIB, China will be front and center in developing infrastructure within this enormous region. According to Oxford Economics, infrastructure spending in the East will amount to over $5 trillion a year. Such spending will hand China a key lever for controlling what are still the building blocks of world growth: commodities, ranging from the very scarce, like heavy rare earths, to ones that are seemingly more plentiful, such as iron ore (see iron ore chart below).

China’s 10-Year Iron Ore Imports

kwn-leeb-i-10152016

If that sounds farfetched, look at the chart above, which even surprises me. As it shows, China’s iron ore imports have continued to gallop forward. If we look at four-quarter moving averages, we find that over the past five years, which cover the 2011 peak in commodities, China’s iron ore imports have grown at a 9.3 percent annualized rate. The story is similar for oil, copper, and most other major commodities. China continues to accumulate them like they are going out of style – and, you know what, maybe they are, at least when it will come to the West’s ability to get enough.

King World News - What Is Really Happening In China Will Shock The World And The Global MarketsChina To Control World Commodities
I would be the first to agree that China itself still needs to build massive amounts of infrastructure within its own boundaries. Nonetheless, a sizable chunk of the commodities China has been accumulating will go to building infrastructure in the 40 or 50 countries that comprise the Silk Road (also known as “One Belt, One Road”). The bottom line is that China will end up controlling a vast portion of the world’s commodities along with a vast portion of world commerce. And this will give it a massive, unassailable lever for controlling the world’s monetary system.

So let me rewrite the headlines from the September trade report as follows: “China’s trade data shows continued burgeoning growth of trade along the Silk Road, with China’s surging imports of critical commodities moving it closer to world dominance over major commerce.”

Leeb II 8:14:2016A Yuan Oil Benchmark And A Golden SDR
The next step will be the trading of oil futures in Shanghai, which will establish an Eastern benchmark for oil. Through, among other things, its oil-refining and steel-making capacities, China will serve as the center for adding value to most commodities. China’s massive stockpiles of bulk and base commodities will ensure that it will always have access to adequate supplies. The oil benchmark will be denominated in yuan, as will other commodities that will be traded on the Shanghai exchange.

As I’ve argued before, China will then bring gold into the equation, either by backing the yuan directly with gold or by backing the SDR with gold and establishing the SDR as the currency for trading commodities. Or – and this would be the most complicated but perhaps the best solution – gold might become the sixth component of the SDR.

But if you’re a gold investor, the exact method doesn’t matter. They all point to the same outcome: gold and all gold correlates from gold mines to silver are embarking upon an historic ride to the upside.”

Credits and full article here.

Singapore’s Economy Contracts Annualized 4.1% in Third Quarter

shipping-lanes

Hi gang, Patrick here from www.SilverAg.com.sg where you can find some of the lowest gold and silver prices in Singapore.

As many of you already know, I’ve been suggesting that if you really want to know what’s going on in the world and how it affects Singapore as far as economics goes, check shipping numbers.

Anyone thats visits our shop knows this when they chit chat with us. These are the numbers that absolutely matter to you and me. Regarding checking shipping numbers, remember, shipping numbers are a look into the future. And the numbers I suggest you check can be found at HARPEX.  HARPEX is the sister to the Baltic Dry Index.

Harpex informs you on consumer goods. If ships aren’t being loaded up with consumer goods it means net importers such as the US are slowing. It will also mean net exporters will slow. As such, everything slows.

As things slow, prices have to drop. Others will choose to devalue their currency to be competitive.  Manufacturing and petroleum jobs usually are the ones affected the most. Why? If no one is buying, shipping slows, and manufacturing slows. After all, why make things if there is no buyer? Petroleum slows because as mentioned, when prices drop revenues drop, profits drop. In addition, so much of the world’s products are petroleum based.

Therefore you, our customers and friends, we know you were well informed and were not surprised. Shipping numbers already foretold what is going to happen in Singapore and in many parts of the world. We at SilverAg are hopeful that sharing shipping insights in our chit chats at our shop helped you to make decisions and continue to help you make decisions that are best for you and your family.

On to the featured article.

Full article, credits, and video here.

Singapore’s economy contracted in the third quarter from the previous three months, according to an advanced estimate from the government, more signs that the Southeast Asian financial and trading hub is struggling in the face of a global slowdown.

Key Points

  • Gross domestic product fell an annualized 4.1 percent on a quarter-on-quarter basis, compared with a revised 0.2 percent expansion in the second quarter, the Ministry of Trade and Industry said in a statement Friday.
  • The median estimate of 14 economists in a Bloomberg survey was for zero gains in GDP
  • Compared with a year earlier, GDP rose 0.6 percent in the third quarter, slower than the 1.7 percent median estimate in a Bloomberg survey of 20 economists

Big Picture

GDP growth in the export-driven economy has been under pressure since last year, mainly due to a slowdown in global trade and lower energy prices hurting the city-state’s oil and gas services industry. Government measures to cool the property market and curb the intake of foreign workers are undermining profits in some key industries, while manufacturing is struggling to gain traction, Joseph Incalcaterra, a Hong Kong-based economist with HSBC Holdings Plc, said before the data was released. The economy expanded 2 percent last year, the slowest pace since 2009, and economists forecast even lower growth this year.

Other Details

  • The services industry, which accounts for about two-thirds of the economy, contracted an annualized 1.9 percent in the third quarter from the previous three months
  • Manufacturing plunged an annualized 17.4 percent in the period
  • The advanced GDP estimates only include data from July and August. The government is scheduled to publish final GDP data in November.