Economic Slowdown? Early Warning Indicators.

Two useful charts are great indicators of economic health, but are often ignored: the Cass Freight and Baltic Dry indices. Both are measures of shipping activity. I like these measures because they are based on hard numbers and represent the here & now.

The Baltic Dry measures global shipping activity based on chartered shipping vessels. A lower Baltic Dry indicates slower shipping activity, which also suggests decreased consumer demand. Manufacturers and retailers will schedule less shipments when they sense that demand is lower – further suggesting that consumers are purchasing less.

In early 2016, the Baltic Dry was at all-time lows. It has increased, but only slightly. Little more than noise, in the grand scheme. The 5-year trend is still perfectly clear: downward.

bdy

Meanwhile, the Cass Freight measures shipping activity in North America. The chart is down across the board, both relatively and absolutely.

cass

The index is at 4-year lows. But more importantly, 2016 has not had a rapid spring/summer increase like we usually see. Shipments are way down. This indicates an increasingly grim trend.

30-year bond yields are at record lows.

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Investors are eager to pile into government bonds. Why? Security. They’d rather put money into low-yield government bonds with a pathetic return than invest in the private markets for better money, because the private markets are looking increasingly risky.

Some bonds even have negative interest rates, meaning that investors literally pay to hold the bond. Sound insane? Once again, it’s for the security. Investors prefer having their money in theoretically 100% secure government bonds rather than risky private investments.

Look at the 1-month record for 30-year bonds. Notice anything interesting?

day

Yields plummeted on June 23rd; the day of the Brexit vote. Investors like consistency and stability. The Brexit vote changes the status quo. This has frightened investors into government bond-buying activity.

CONCLUSION

We are supposedly 7 years into an economic recovery. But the data shows a major slowdown. The economy is sputtering. The best days of the recovery are behind it.

The Federal Reserve is trapped. Rates fall no matter what they do. They are losing their ability to influence the economy. Even if they give more money to banks, the banks will not lend it out. They are too risk-averse, and understandably so.

Keynesians are trapped. They want high government spending. They claim high government spending fuels the economy. Well, they’re getting high government spending, and it accomplishes nothing. Bureaucrats waste money on boondoggles like they always do. But the economy is going nowhere. High deficits are not having the claimed impact.

I predict recession. Knowing is half the battle.

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