Mattress Stuffing: What Does It Mean?

Yesterday I wrote about mutual funds - money market accounts, specifically, and how the banks and other financial entities appear to be looking at your money market funds while drool creeps from the corners of their mouths. It's money - and they want it. As much as they can lay hands on without further diluting the value of what there is by printing more.

There's good reason money is called the "root of all evil". People who don't have it will often do whatever it takes to get some. But it's an evil we all need. It is an absolute necessity for living like a human being. It buys stuff. It puts clothes on our backs, food in our bellies and a roof over our heads. It brings, or it at least appears to bring, power.

After all, if you have enough money, you can do just about anything you want because a) you're not beholden to anyone else; b) you can buy whatever or (in some cases, depending on the weakness of character of the other party) whoever; and c) if things don't go your way, you can retreat to some mountaintop - privately owned and well fortified, and do whatever you like there. Like sulk. Or build an army or something.

Because of the power of money, anyone with the lick of sense that God gave a chicken wants it.

So that's the money market thing. The safest of the safe might not be so safe after all because this house of cards we're living in is starting to shake. The bankers want your money to shore it up if the tiles start sliding off the roof and the foundation starts to crack.

So why else do I and others who pay at least passing attention to this stuff think the house is about to collapse? Because of what's happening with the Baltic Dry Index.

HUH? That's that you're thinking, right? I'm assuming that's what you're thinking because that's the reaction I had the first time I heard that term.

It is real. It has nothing to do with the northern part of Europe, and it has little to do with 'dry' - although it does, too.

It's shipping. Cargo and container shipping across the oceans, excluding oil tankers. Container and dry cargo shipping - concrete, lumber, steel, cars and so on - are an indicator of what's happening in the world economy.

If there's lots of cargo being shipped, that's good. That means people are making things and selling things and buying things because those cargo ships are full. If there is little cargo being shipped, that is bad. People aren't buying and making and selling.

Virtually all of the raw materials in the world get shipped by cargo carriers - dry bulk ships (hence the name 'dry' in Baltic Dry Index). Not everywhere in the world has all of the basic materials it needs to make things, so they ship it across the ocean from wherever they can buy it for the least amount of dinero.

China imports, the U.S. imports, Russia and virtually every other country on the planet imports - and most import both raw materials for manufacturing, and finished goods for sale.

So shipping is critical to a healthy economy. Without shipping in raw materials, China can't make the stuff they make. Without the shipping out, China would be overflowing with:

misseye.wordpress.com

Instead, they pack all that stuff into containers, put it onto ships, and share that junk with the rest of the world.

However, if the rest of the world isn't buying, if China makes a bunch of stuff but nobody wants it because they've just looked in their wallet and their money isn't t'home, the stores don't order. The manufacturers don't ship, and those big, hugely expensive-to-operate cargo ships sit idle. And that's the indicator that not all is right with the financial world.

Idle ships, ships just sitting around in ports, rusting and collecting barnacles on their hulls, means commerce ain't happening. Buying and selling, trade, isn't taking place, and that means that people are holding onto their money, or they don't have money to spend on SpongeBob dolls.

When money contracts, isn't readily available, people turn from luxuries, like SpongeBob dolls, to necessities, like food. Here's an article from the LA Times that shows that this year's big shopping day - Black Friday - indicates that things aren't so rosy on the Main Street home front, no matter what the talking heads are saying:

"“Retailers are standing on the edge of a cliff,” said Britt Beemer, a retail expert at America's Research Group who has tracked U.S. holiday sales nationally for more than three decades. “These two days are a reflection that consumers are extremely cautious and are focused on buying necessities."

About 60% of Thanksgiving shoppers bought door-buster deals and nothing else, and an additional 7% picked up only one or two other items aside from major promotions, Beemer said. That's a problem for stores, which draw customers in with bargains in the hopes that they will toss pricier products in their baskets."

http://www.latimes.com/business/la-fi-black-friday-shopping-20151126-story.html

What makes Black Friday so important is stated here, in this same article:

Retailers can haul in as much as 40% of their annual revenue during the holidays. This year, the retail industry's anxiety has ratcheted up after retailers, including Macy's and Nordstrom, reported disappointing third-quarter results. 

40%! That is a lot - a boatload, one might say. And it's all tied together through the Baltic Dry Index.

All U.S. retailers - from Ross Dress-For-Less to Wal-Mart to Target to Macy's to Nordstrom - rely heavily on China, Korea, Indonesia and other countries around the world to produce the goods they sell. If the U.S. retailers can't sell those goods, if they have stock piling up in their warehouses because people aren't buying, they aren't ordering more stuff from China and Korea and Indonesia. The ships that carry that stuff aren't moving - they're sitting idle.

And that is what the Baltic Dry Index is indicating right now - the article below is from November 20, but as of day-before-yesterday, the Index was down to 484, even lower than mentioned in this article titled "We Just Got Major Sign that World Trade is Crashing":

http://www.businessinsider.com/baltic-dry-index-hitting-record-lows-2015-11?r=UK&IR=T

From this article:

"The index has always been used as a bellwether indicator for global trade conditions and the state of the international economy, but it attracted special attention after it pointed to the coming financial crisis back in 2008."

And that's why, ladies and gents, I think this house of cards is starting to shake pretty heavily.

Go stuff your mattress. I've got to get back to stuffing mine.

Best~
Philippa

Follow me on Twitter: https://twitter.com/PhilippaStories 

Drama Queen and the Dragon in the Room

No doubt most people who have read this blog in the past few days think I’m a blithering idiot and I’ll admit, maybe I am. Then again, maybe I’m not.

I am not a market investor. I do not trust brokerage houses, or Wall Street, or anything to do with stocks, bonds, commodities or equities of any kind. If I cannot hold ‘it’, whatever ‘it’ is, in my hot little hand, I want no part of it.

My husband, back in 1989, quit his job to become a day trader. He began playing the market – longs and shorts, puts and calls – and we made some money. In the process, he became fascinated by the operation of the various markets: stocks, bonds, commodities. His enthusiasm spilled over onto me, willing or not. It has, for the past twenty-five years, been the primary topic of conversation in our house.

We talk at length about market manipulation and algorithms and all sorts of other shady things. Watching the markets as we do we were not surprised to hear about ‘front running’ markets. That is a trick where fund managers intercept electronic transactions and trade ahead of them via algorithm. That way they are guaranteed to have the price of their ‘whatever’ go up. Their order hits, they buy and golly gee whiz be damned, a second later another order shows up and boosts the price. Then the first guys have a choice: buy, hold or sell?

They can buy more or hold what they have if they think another order is going to come through. Otherwise they can sell and take the profit off their trade, then do it again the next time and again and again and make a whole load of money.

‘Flash Boys’ is a book on the subject that was released a while back. When it was talked about all over the financial news stations, no eyebrows in our house were raised. It was a shrug and a ‘yeah, so?’ Since then a number of other books on the subject have been released.

Naturally, a bunch of people “inside” rushed forward and tossed the BS flag. But if the guy who wrote the book, Michael Lewis, was on the inside, saw it happening and didn’t like it because he actually has a moral compass so outted what’s well known within the industry, isn’t it just possible that the naysayers are just covering their hinies?

Whatever.

The point is that I am not a complete nincompoop when it comes to markets and trading and understanding the lingo. I’m not an expert, either. I’m a person who knows more than the average person because I’ve been talking the talk for a quarter of a century. I pay attention and I graze, looking through a variety of sources and putting the pieces of the puzzle together until it makes sense and fits the overall scheme under discussion by all parties.

So, back to the economies and the news.

Up until today, what Greece is going through, the speculation, referendum and talk about a ‘Grexit’ has been overshadowing, to some extent, what’s been happening in China. With all eyes focused on the drama queen in the Med nothing was left to spare to the dragon in the room. Now, though, that focus is changing – rapidly.

Starting last night, during the early morning in China and Bloomberg’s looking up from Greece for a moment, there was an ‘oh shit’ moment. They started talking, actively and with some energy, about China and the Chinese markets.

In China over the past few years, stocks have flown high on speculative trading. Now, as usually happens, the parabolic curve has tipped over and the market is in free-fall. The government has stepped in, throwing money at the conflagration to no effect.

Since June 12 – in less than four weeks – the Shanghai Composite has lost 32% of its value. Almost $33 or €33 or whatever currency marker you want to use out of every one-hundred is gone. Vaporized because it was paper and there was nothing supporting its value.

More than one-half of all of the companies listed on the exchange have decided to pull their stocks – they will no longer offer shares for sale. That is as of this week.

The People’s Bank of China is stepping up, offering money – but it is government money. The government will print, the people will be taxed, and nothing will fundamentally change. According to Bespoke Investment Group, China’s stock markets have lost a whopping $3,250,000,000,000 ($3.25 trillion).

In China, regulators are now allowing people to put up their homes – the houses in which they live – as collateral against margin trades! I kid you not, the report about that is here, in this article (fourth bullet point near the bottom of the first page):

http://www.marketwatch.com/story/chinas-stock-market-crash-is-just-beginning-2015-07-08

I graze broadly when I’m interested in something. Forbes, CNN, CNBC, The Economist, Financial Times, New York Times, whatever. In my graze last night, reading and skimming, I saw several interesting, and alarming, points.

First, several articles and Op Ed pieces commented on the similarities between what’s happening in the world economies now and what happened in the run-up to the 1929 crash on Wall Street. Just because Wall Street has moved to the Far East doesn’t change the effects a major market crash would have on everyone and everything else.

Hong Kong, India and a number of other markets, including currencies, are already feeling the pinch, and it’s only going to get worse. As one starts to rattle, it’s going to shake the next, all the way around the world, through all of the markets. It’s just as is happening in Europe on a much smaller scale since Greece’s referendum. Only China is the elephant and Greece is the gnat.

This is the biggest problem with having things so inter-related. It’s like being a conjoined twin. If the system of one fails, the system of the second will follow suit and there’s no getting around or saving it. Same thing here. We are too tightly conjoined to be able to stand alone, on our own.

What happens in China is not going to stay in China. At 11:11 this morning local time, the Dow Jones Industrial Average was off slightly more than 180 points. This afternoon, ten minutes before the NYSE closes for the day, it’s down 231 points. It was down yesterday and I’m pretty sure it’s going to be down again tomorrow. Looking at the one month chart, it’s off about 700 points, so it’s much less than 1% of the overall market value. However, is this the start of a major bear market?

If we are a conjoined twin with China and the EU, how far down will we go?

How is the China effect going to impact business and production here, in the US? If we cannot buy cheap goods from China, our prices will go up, what effect will that have on the cost of living?

Lots of questions – far more than I have room to ask here.

Another issue is the commodities markets and, no, I’m not talking about pork bellies. It’s the metals that are interesting.

China has vast gold holdings – bullion, the hard stuff, not the paper ETFs that aren’t worth the ink with which they’re printed.

(Aside: take a tree, a single tree and make it into sawdust – that is what the gold ETFs do to gold bullion. The tree had value, until it was ground into sawdust. Then it has no value, just like the gold ETF you probably hold in your retirement account. It’s a paper IOU, a promise that cannot be redeemed even if you wanted to. Try – take your shares of paper gold and try to redeem one ounce worth. You will be laughed at and told ‘sorry, you can’t do that’ or ‘sorry, it’ll be six months before we can deliver it to you’.)

So, will China dump gold into the world market in order to cover their economic implosion? If they do, that will be a temporary punch in the gut to the price of gold. All gold prices – bars, rounds, ETFs, stocks of gold producers – everything will drop like a rock. But when the paper money reaches its intrinsic value (zero), gold will revert to its historic relevance and become ‘money’ again. Then the value of it will soar because physical gold is in limited supply. Paper gold – those ETF shares so many hold – will have value only as toilet paper.

Time will tell and guessing is simple exercise to no real purpose. So, I’ll sit here on the sidelines and watch the action unfold.

Good luck to you in this mess!

Best~

Philippa

Follow me on Twitter: https://twitter.com/philippastories