Baltic Freight, Shipping Credit and China: Part 1
with Bert Dohmen & Gordon T Long
23 Minutes, 37 Slides
Bert Dohmen who recently authored "The Coming China Crisis" is now warning about Chinese shipping credit and what he sees in oversea freight rates. He believes there was a major dividing line that was crossed in June 2013 when overnight lending rates abruptly tripled. Though government actions quieted things down on the surface (at least temporarily), below the surface an avalanche of credit issues has ensued.
Bert predicted much of what is currently occurring in his book and describes it as China hitting the "Great Wall of Communism". As an export led economy being capital investment driven it is now time for innovative entrepreneurs to take over, but they can't. 41% of Chinese GDP is primarily foreign capital investment which has slowed and new investment from investment savings is not occurring. "It has gone as far as it can go!" according to Bert Dohmen.
The basic reason is mal-investment due to corruption and the unregulated and massive shadow banking system which has taken hold of the Chinese economy. With $21T of loans outstanding the unregulated shadow banking system has funded half of these loans and is now facing escalating levels of default.
Most troubling is the level of corruption and the control that the government owned "SOB" exercise. Only recently has the scale of the corruption began to be made visible outside of China.
Baltic Freight Rate & Shipping Credit
Chinese government economic numbers are manipulated and therefore shipping levels and their rates are the actual measure of the real global trade which investors need to study.
The Chinese private sector is in recession and has been for some time which can be seen in the 40% decline in one month in the Baltic Freight rates. It was made clear last month when 300 tons of Soybeans could not get a shipping letter of credit. Additionally, financial leverage being employed regarding the use of imported commodities as loan collateral became public.
The shipping credit 'canary' is very reminiscent of exactly what preceded the 2007 global financial collapse.
US Economic "Demand Engine" is Stalled
China's export lead and investment driven economy has been powered by the US consumer. However US and European retail sales and real disposable income is sending an unambiguous message that slowing growth and even contraction lay ahead. US Money velocity has been steadily falling as US businesses continue to resist investment. This does not bode well for for an already tenuous problem in China.
Bert sees turbulent times directly ahead as the realities of slowing global trade come home to roost in China.
Macro Analytics Video: Baltic
Freight, Shipping Credit & China - Part 1 w/Bert Dohmen
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