Hard times ahead - the financial market

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Earlier today, I was writing about the situation in Greece and how we are headed down the same path.

Here are a few observations.

If I earn $1,000, I will save a good chunk but I will also go and spend part of it - mundane items like food and diesel and fun items like radio equipment. The gas station owner takes their part of my diesel purchase and buys something for themselves.

How money gets churned in the economy is called the Velocity of Money. It is at an all-time low. NOTE: M1 is just notes and coins in circulation. If I pay for something with a credit card, that does not enter into the calculation. M2 is notes and coins in circulation as well as bank and savings accounts.

20150627-money01.png

FRED is the Federal Reserve Bank of St. Louis and they have some excellent tools for analyzing the economy of the USA.

Now, we look at New Orders for Consumer Goods. Crashed in 2008 and was recovering steadily until around May of 2014. You can clearly see the effects of the artificial stimulus through around mid-2011 but then the growth settles down to its natural value.

20150627-money02.png

The Baltic Dry Index is an average of shipping costs - when trade slows down, shippers lower their costs - supply and demand.

From The Economist (March 10th, 2015) comes this chart and text:

Why the Baltic Dry Index is at an all-time low
The Baltic Dry Index (BDI), which measures the rates for chartering the giant ships that transport iron ore, coal and grain, has long attracted the attention of commentators hoping to take the pulse of world trade. The cost of shifting the basic raw materials that are the ingredients of steel, energy and food supposedly provides a leading indicator of the state of the world economy. If so the forecast would suggest that a storm at sea will shortly make landfall. The index, a composite of rates charged on a variety of important trade routes, has hit an all-time low, after sinking by 65% in the past 13 weeks alone. Even in the depths of the financial crisis shipping rates kept their heads further above water (see chart). Why are they so remarkably low now?

20150627-money03.png

A good chunk of this is oversupply of shipping but the worlds economies are slowing down and this contributes to a significant chunk. China's growth has especially slowed down.

Corporations are not making any profits - from the U.S. Department of Commerce's Bureau of Economic Analysis:

National Income and Product Accounts - Corporate Profits: First Quarter 2015 (Revised Estimate)
Corporate Profits
Profits from current production (corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj)) decreased $110.8 billion in the first quarter, compared with a decrease of $30.4 billion in the fourth.

Profits of domestic financial corporations decreased $2.1 billion in the first quarter, compared with a decrease of $12.5 billion in the fourth.  Profits of domestic non-financial corporations decreased $79.6 billion, in contrast to an increase of $18.1 billion.  The rest-of-the-world component of profits decreased $29.0 billion, compared with a decrease of $36.1 billion.  This measure is calculated as the difference between receipts from the rest of the world and payments to the rest of the world.  In the first quarter, receipts decreased $40.0 billion, and payments decreased $11.0 billion.

Taxes on corporate income increased $25.3 billion in the first quarter, in contrast to a decrease of $4.8 billion in the fourth.  Profits after tax with IVA and CCAdj decreased $136.1 billion, compared with a decrease of $25.8 billion.  The first-quarter changes in taxes on corporate income mainly reflect the expiration of bonus depreciation provisions. 

Of course taxes are up even though profits are down - big government always gets la mordita. The United States has the highest corporate tax rate in the world.

The Bureau of Economic Analysis is another excellent resource for economic analysis.

There are a lot of websites that are posting doom and gloom stories (here, herehere, here and here) but to get these numbers from the government's own sources is sobering to say the least. We have had a nice ride through our profligate printing of money and the time to pay the piper is approaching fast. It will not be good and it will take a long long time to recover this time.

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About this Entry

This page contains a single entry by DaveH published on June 27, 2015 9:15 PM.

River flow was the previous entry in this blog.

Now this will be interesting if it pans out is the next entry in this blog.

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