Hello and apologies for the sparsity of new comments, but capitalwhispers is travelling at the moment. I was planning to write something about the Great Depression and the New ‘New Deal’ but I decided instead to share some gossip and market colour from Greece. It helps, as it puts things into perspective.
1. First some couleur local on the global financial crisis. Greeks, after pioneering philosophy, democracy etc, were among the first to withdraw their savings from Greek Banks, threatening the system with serial bank runs. This is a puzzle to me, since:
- the Greek Banks are relatively underexposed to ‘toxic’ (sic) assets and are generally well capitalised
- the state is a protectionist one (it rushed to guarantee -following Ireland- local deposits up to EUR 100k)
- Greeks complain that they have no money
In the end, these ‘runs’ fizzled out to the following typically melodramatic pattern: Mr Papadopoulos went to the cashier, demanded that all his savings are withdrawn immediately and when he was presented with a pile of bank notes, said: ‘Oh, so you have my money after all; ok, you can keep it’
Nevertheless, the local banks are facing an uphill struggle, primarlily due to exposure to the Balcans as well as to a rather inflated local housing market and a heavily geared population. In response, Greece has adopted UK-like support measures (recapitalization, interbank lending, deposits and bank refinancing guarantees)
2. Then some more sombre news on the shipping markes. The last years were good years for shipping. Actually, good is nowhere near where they were. In the scale of booms this was a supernova.
Unfortunately though, physics kicked in. Sir Isaac Newton was among the first to formulate the rules of gravity, i.e. what goes up must come down (he was followed by Justin Timberlake who expanded the theorems on the horizontal plane, postulating that ‘what goes around must come around’). The supernova years were feeding on -sounds familiar?- cheap credit and the insatiable appetite from a developing China (and others) for raw materials (iron ore ) and food (grains). This translated to:
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Shipbuilders in the Far East were booked to capacity for decades to come
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Ships were changing hands while at the dock being built (something like buying a new flat off the plans, paying the deposit and selling on for profit prior to completion)
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Second-hand ships were at times more expensive than ones being built, since the demand for their services was so great and the supply limited
Unfortunately, gravity is brutal and inescapable. The global financial crisis, i.e. the credit crunch which led to a liquidity crunch which caused a confidence drain and a hard-landing (?) in a recessionary landscape, brewed a perfect storm in shipping. The BIFFEX index (a benchmark index for ocean freight futures) dropped 10fold from 11,500 to 1,500. Now that is scary. The results?
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Banks have closed their lending books and no credit is available
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New-buildings are being abandoned (with the ‘owner’ foregoing deposits) with chain reaction to steel suppliers and builders workforce
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Sales have ground to a halt
I heard of the story of a shipowner who has chartered one of his vessels for free (the charterer pays crew, fuel and insurance – the freight is thrown in for free) to avoid docking it. Extreme times ask for extreme measures..
The reason why these developments are a concern for us all is that transporters are the canary that gives the early warning to the rest of the economy. China has stopped imports of steel for 6 months, so shippers are tumbling since they largely operate with term contracts and they are out of cargoes to carry. It doesn’t stop there though. Chinese factories close, workers get laid off, China’s growth rate decelerates, imports/exports slow down, everyone feels the consequencecs. We move to Australia then where miners feel the pain of smaller demand that causes base metal prices to plummet (check Rio Tinto shares); further factories close and so on. A recession avalanche at its early stages..
3. Finally some lighter news to leave you with a smile. A new phenomenon in Greece is the emergence of the supermarket Robin Hood. A vigilante gang robs food from supermarkets (not money) and distributes it to the people. This is not a joke, It is happening -of course they don’t wear green tights and there is no romantic sub-plot, but you get the picture. The best story we heard lately.
Before I bid you good night, I leave you with the following:
Ben Bernanke, thought Milton Friedman was right to blame the Federal Reserve for its role in the Great Depression, stating on Nov. 8, 2002: “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”
Good Luck!
•nikosgi
