Economic Activity Is Slowing Down Much Faster Than The Experts Anticipated

Locomotive - Public DomainWe have not seen global economic activity fall off this rapidly since the great recession of 2008.  Manufacturing activity is imploding all over the planet, global trade is slowing down at a pace that is extremely alarming, and the Baltic Dry Index just hit another brand new all-time record low.  If the “real economy” consists of people making, selling and shipping stuff, then it is in incredibly bad shape.  Here in the United States, the dismal economic numbers continue to stun all of the experts.  For example, on Monday we learned that the Texas general business activity index just hit a six year low

Economic activity in Texas keeps getting worse.

The general business activity index out Monday from the Dallas Federal Reserve for January was -34.6, a six-year low and much worse than economists had expected.

The forecast for the monthly index was -14, following a December reading of -21.6 (revised from -20.1) that was also worse than expected.

One could perhaps argue that this is to be expected in Texas because of the collapse in the price of oil.

But what about the very unusual things that we are seeing in other areas of the country?  In Erwin, Tennessee, a rail terminal that had been continuously operating for 135 years was just permanently shut down, and hundreds of workers now find themselves without a job

The last coal train to leave Erwin rolled slowly out of town just after at 3 p.m. Thursday, less than eight hours after CSX Transportation employees heard the news that rocked all of Unicoi County.

“Its a hard pill to swallow,”  county Mayor Greg Lynch said. “Of course, we heard rumors that something was coming down. But never in my wildest dreams did I imagine they would just shut down and leave town.”

CSX delivered the news of its decision to immediately close Erwin’s 175-acre rail yard and abruptly end the employment of the facility’s 300 workers in a series of meetings with employees conducted at the start of their morning shifts.

It has been said that if you want to know what is really happening with the U.S. economy, just watch the railroads.

And right now, rail traffic all over the nation is falling to depressingly low levels.

One of Steve Quayle’s readers says that rail traffic in Colorado has slowed down so much that hundreds of engines are just sitting there on the tracks

With regard to the train freight article this morning, we have in Grand Junction, CO., literally hundreds of engines sidelined on the tracks. They are three deep on some tracks and easily number over 250. I have never seen this many engines on the tracks before and I feel this is just another indicator of the slowdown in shipping.

In case you are tempted to think that this is just anecdotal evidence, I want you to consider what is happening to the largest railroad company in the United States.

According to Wolf Richter, operating revenues for Union Pacific were down 15 percent last year…

Union Pacific, the largest US railroad, reported awful fourth-quarter earnings Thursday evening. Operating revenues plummeted 15% year over year, and net income dropped 22%.

It was broad-based: The only category where revenues rose was automotive (+1%). Otherwise, revenues fell: Chemicals (-7%), Agricultural Products (-12%), Intermodal containers (-14%), Industrial Products (-23%), and Coal (-31%). Shipment of crude plunged 42%.

So Union Pacific did what American companies do best: it laid off 3,900 people last year.

And of course we can see evidence of the emerging economic slowdown all around us pretty much wherever we look.  Sprint just laid off 8 percent of its workforce, GoPro is letting go 7 percent of its workers,  and Wal-Mart just announced the closure of 269 stores.

But instead of dealing with reality, there are a lot of irrational optimists that insist that things will start bouncing back any day now.  For instance, CNBC is reporting that Goldman Sachs is forecasting that the S&P 500 will end up finishing the year back at 2,100…

Goldman, though, is sticking with its forecast that the S&P 500 will rebound and finish the year at 2,100, a rise of about 11 percent from current levels but basically no net gain for the full year.

It is easy to say something like that, but the actions of the big banks speak louder than words.

Most people don’t realize this, but several of the “too big to fail” banks laid off thousands of workers in 2015

Bank of America and Citigroup reduced headcount the most, eliminating about 20,000 staffers between them, according to fourth-quarter earnings reports from each bank. The respective moves amount to 4.6 percent and 4 percent fewer workers at the banks. JPMorgan Chase reported in its earnings that it employs 6,700 fewer workers than a year ago.

And guess what?

The “too big to fail” banks did the exact same thing just before the great stock market crash of 2008.

When are people going to finally start understanding that we have a major league crisis on our hands?

Since June 2015, approximately 15 trillion dollars of global stock market wealth has been wiped out.  After a brief respite at the end of last week, it appears that the global financial crisis is getting ready to accelerate once again.

On Monday, the price of oil dipped back under 30 dollars, the Dow was down another 208 points, and the Nikkei is currently down another 389 points in early trading.

Somewhere close to one-fifth of all global stock market wealth has already been wiped out.

We only have about four-fifths left.

But in the end, I can talk about these numbers until I am blue in the face and some people will still not get prepared.

Some people have so much faith in Barack Obama, the Federal Reserve and the mainstream media that they would literally follow them off a cliff.

By now, most of the people that believe that they should prepare for the coming crisis have already gotten prepared, and most of those that want to believe that everything is going to work out just fine somehow are never going to get prepared anyway.

What is going to happen is going to happen, and tens of millions of people are going to end up bitterly regretting not listening to the warnings when they still had the chance.

2016 Market Meltdown: We Have Never Seen A Year Start Quite Like This…

Time Abstract - Public DomainWe are about three weeks into 2016, and we are witnessing things that we have never seen before.  There were two emergency market shutdowns in China within the first four trading days of this year, the Dow Jones Industrial Average has never lost this many points within the first three weeks, and just yesterday we learned that global stocks had officially entered bear market territory.  Overall, more than 15 trillion dollars of global stock market wealth has been wiped out since last June.  And of course the markets are simply playing catch up with global economic reality.  The Baltic Dry Index just hit another new all-time record low today, Wal-Mart has announced that they are shutting down 269 stores, and initial jobless claims in the U.S. just surged to their highest level in six months.  So if things are this bad already, what will the rest of 2016 bring?

The Dow was up just a little bit on Thursday thankfully, but even with that gain we are still in unprecedented territory.  According to CNBC, we have never seen a tougher start to the year for the Dow than we have in 2016…

The Dow Jones industrial average, which was created in 1896, has never begun a year with 12 worse trading days. Through Wednesday’s close, the Dow has fallen 9.5 percent. Even including the 1.3 percent gains as of noon Thursday, the Dow is still down nearly 8 percent in 2016.

But even with the carnage that we have seen so far, stocks are still wildly overpriced compared to historical averages.  In order for stocks to no longer be in a “bubble”, they will still need to decline by about another one-third.  The following comes from MarketWatch

Data from the U.S. Federal Reserve, meanwhile, say U.S. nonfinancial corporate stocks are now valued at about 90% of the replacement cost of company assets, a metric known as “Tobin’s Q.” But the historic average, going back a century, is in the region of 60% of replacement costs. By this measure, stocks could fall by another third, taking the Dow all the way down toward 10,000. (On Wednesday it closed at 15,767.) Similar calculations could be reached by comparing share prices to average per-share earnings, a measure known as the cyclically adjusted price-to-earnings ratio, commonly known as CAPE, after Yale finance professor Robert Shiller, who made it famous.

Of course the mainstream media doesn’t seem to understand any of this.  They seem to be under the impression that the bubble should have lasted forever, and this latest meltdown has taken them totally by surprise.

Ultimately, what is happening should not be a surprise to any of us.  The financial markets always catch up with economic reality eventually, and right now evidence continues to mount that economic activity is significantly slowing down.  Here is some analysis from Brandon Smith

Trucking freight in the U.S. is in steep decline, with freight companies pointing to a “glut in inventories” and a fall in demand as the culprit.

Morgan Stanley’s freight transportation update indicates a collapse in freight demand worse than that seen during 2009.

The Baltic Dry Index, a measure of global freight rates and thus a measure of global demand for shipping of raw materials, has collapsed to even more dismal historic lows. Hucksters in the mainstream continue to push the lie that the fall in the BDI is due to an “overabundance of new ships.” However, the CEO of A.P. Moeller-Maersk, the world’s largest shipping line, put that nonsense to rest when he admitted in November that “global growth is slowing down” and “[t]rade is currently significantly weaker than it normally would be under the growth forecasts we see.”

In addition, another very troubling sign is the fact that initial jobless claims are starting to surge once again

The number of Americans applying for unemployment benefits in mid-January reached seven-month highs, perhaps a sign that the rate of layoffs in the U.S. has risen slightly from record lows.

Initial jobless claims climbed a seasonally adjusted 10,000 to 293,000 in the seven days stretching from Jan. 10 to Jan 16, the government said Thursday. That’s the highest level since last July.

Since the last recession, the primary engine for the creation of good jobs in this country has been the energy industry.

Unfortunately, the “oil boomtowns” are now going bust, and workers are being laid off in droves.  As I mentioned the other day42 North American oil companies have filed for bankruptcy and 130,000 good paying energy jobs have been lost in this country since the start of 2015.  And as long as the price of oil stays in this neighborhood, the worse things are going to get.

A lot of people out there still seem to think that this is just going to be a temporary downturn.  Many are convinced that we will just go through another tough recession and then we will come out okay on the other side.  What they don’t realize is that a number of long-term trends are now reaching a crescendo.

For decades, we have been living wildly beyond our means.  The federal government, state and local governments, corporations and consumers have all been going into debt far faster than our economy has been growing.  Of course this was never going to be sustainable in the long run, but we had been doing it for so long that many of us had come to believe that our exceedingly reckless debt-fueled prosperity was somehow “normal”.

Unfortunately, the truth is that you can’t consume far more than you produce forever.  Eventually reality catches up with you.  This is a point that Simon Black made extremely well in one of his recent articles…

Economics isn’t complicated. The Universal Law of Prosperity is very simple: produce more than you consume.

Governments, corporations, and individuals all have to abide by it. Those who do will thrive. Those who don’t will fail, sooner or later.

When the entire financial system ignores this fundamental rule, it puts us all at risk.

And if you can understand that, you can take simple, sensible steps to prevent the consequences.

Sadly, the time for avoiding the consequences of our actions is now past.

We are now starting to pay the price for decades of incredibly bone-headed decisions, and anyone that is looking to Barack Obama, the Federal Reserve or anyone else in Washington D.C. to be our savior is going to be bitterly disappointed.

And as bad as things have been so far, just wait until you see what happens next.

2016 is the year when everything changes.

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