Economy

Trudeau waves to an empty airfield?

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Canadian blogger Spencer Fernando reports,

During yet another foreign trip (this time to Peru for the Summit of the America’s), Justin Trudeau took a moment to wave to the adoring crowds as he boarded his airplane.

Trudeau often waves as he boards his airplane, and this time seemed no different.

Except, there was nobody there.

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Talk about a photo-op failure.

It was a great visual example of how Trudeau’s manipulatively-crafted image is empty at its core, based on appearances above substance.

Beyond these photos though, the real concern is the damage Justin Trudeau is doing when it comes to investment fleeing Canada. With the Kinder Morgan Trans Mountain expansion on life support, and people losing confidence in Canada as a place to do business, no amount of photo-ops can distract from the real economic consequences of Trudeau’s failed policies.”

Shipping industry needs to save ITSELF before it has any chance of saving the PLANET

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Yet more eco-mentalism being celebrated by the UN International Maritime Organisation (IMO) with little thought to the very economics that has crippled shipping companies for so long. Shipping companies need to save themselves before bothering to save the planet.  Although the back slapping for the supposed “watershed agreement” (their words) will be achieved by 2050. The most pressing global issue of our times and these metal hulks which burn the ugliest, dirtiest and cheapest fuel (bunker) available have 32 years to get there. Perhaps the irony is that bankruptcy might take half the ships out of service meaning the emissions target could be hit decades earlier. A brief look at history.

It wasn’t so long ago that Korea’s largest container transporter Hanjin Shipping declared bankruptcy.  The above chart shows the daily shipping rates for the industry which remain tepid for the past decade. The problem with the shipping industry is the fleet. Ships are not built overnight. Surging order books and limited capacity meant that as the pre GFC global trade boom was taking place, many shipping companies were paying over the odds without cost ceilings on major raw material inputs (like steel). This meant that ships were arriving at customer docks well after the cycle had peaked at prices that were 3x market prices because of the inflated materials.

The pricing market was looking grim in 2016. CM wrote, “These are the latest prices in 2016 vs the 5 year average by type. New LNG, grain and oil carriers etc are holding up but the used market is being slaughtered. Ships are generally bought with a 25-yr service span at the very least. Global seaborne trade growth has shrunk from 6%+ growth in 2011 to less than 2% now.”

Ship Prixces

According to Weber’s Week 4 report, VLCC rates for the route from the Arabian Gulf to China dropped to $10,925 per day on January 26 from $18,389 per day on January 19, which represents a 40% fall week-over-week. The average rate for all VLCC routes dropped to $13,179 per day from $19,974 per day on January 19. The current rates are 67% lower year-over-year.

Clarkson’s note 2010 build Capesize rates have fallen from $20,000/day 6 months ago to less than $3,900/day as of April 2018. 84K CBM LPG carriers have fallen from over $800,000/mth in April 2016 to $542,000/mth today.

Take a look at the financials of global leader Maersk. It recorded $US27.1bn of revenue in 2012 but only $24bn in 2017. Yet profitability slumped from $2.1bn to a paltry $25mn. Maersk carries around $34 billion in deferred tax loss carry forwards. That is the extent of the ‘financial baggage’ it still carries. The three major Japanese shipping companies have had a hell of a hit to profitability in recent years. See below.

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If the volume of goods transported by sea increases 3% every year, the volume in 40 years will be 3.3 times today’s volume. To cut total CO2 emissions in half by 2050, CO2 emissions per ton-mile need to fall by 85%. NYK is looking at the following ship that will cut emissions by 69% in 2030.

If the shipping industry is not fixed through market forces it will be difficult to repair the profitability and balance sheets that would allow the companies to invest in more eco friendly vessels. Bankruptcies are mergers are needed to streamline the sector.

According to Clarksons, the global fleet of all types of commercial shipping is 50% larger than it was before the GFC despite the World Trade Organization saying growth in global trade has crept up from $14.3 trillion in 2007 to $15.46tn in 2016 (+8%). Scrapping rates have fallen 40% since 2012 but since 2017 have risen moderately, appealing to owners with too much tonnage on their hands.

The International Chamber for Shipping’s secretary general Peter Hinchliffe said, “This is a ground-breaking agreement — a Paris agreement for shipping — that sets a very high level of ambition for the future reduction of carbon dioxide emissions…We are confident this will give the shipping industry the clear signal it needs to get on with the job of developing zero carbon dioxide fuels so that the entire sector will be in a position to decarbonise completely.”

What a wonderfully naive plan. At least the IMO can feel warm and fuzzy despite so many headwinds ahead of an industry still in structural distress.

Chapter 11 bankruptcy filing trends in the US surging

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The Chapter 11 bankruptcy trends in the US have been picking up in the last 4 years. While well off the highs of the months and years of the GFC and years following it, the absolute numbers of filings has exceeded the levels leading up to the crisis in 2007/8.

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Here we put 2006/7/8 alongside 2016/17/18. The average monthly bankruptcy filings were around 355 in 2006 moving to 429 in 2007 and then 718 in 2008. If we looked at the data in the 12 months prior to the quarter leading into Lehman’s collapse, bankruptcies averaged 463/month. The ultimate carnage peaked out at 1,049 in 2009 (1,377 in Apr 2009). For 2016, 2017 and 2018 (annualized) we get 454, 480 and 521 respectively.

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Bankruptcy filings tend to be seasonal and often show peaks in April when tax season coincides with businesses.

However the %-age spike in bankruptcies in 2008 ahead of Lehman’s downfall was 46%. In the latest recorded month from the American Bankruptcy Institute (ABI) was 81%. This March 2018 spike is the second highest since the GFC hit. April figures will be interesting if we get another lift on that figure. Not even seasonality can explain away the differences. The trends seem clear.

Thinking logically, we are at the end of the generous credit cycle. Interest rates are heading north thanks to a less accommodating Fed. Naturally ‘weaker’ companies will have more trouble in refinancing under such environments. The lowering of corporate taxes would seem to be a boon, but with loss making businesses it becomes harder to exercise tax loss carry forwards.

We’ve already started to see GFC levels of credit card delinquency at the sub-prime end of town. Sub-prime auto loan makers seeking bankruptcy protection have surged too.

Fitch, which rates auto-loan ABS said the 60+ day delinquency rate of subprime auto loans has now risen to 5.8%, up from 5.2% a year ago, and up from 3.8% in February 2014 to the highest rate since Oct 1996, exceeding even GFC levels.

growing number of car loans in the US are being pushed further down the repayment line as much as 84 months. In the new car market the percentage of 73-84-month loans is 33.8%, triple the level of 2009. Even 10% of 2010 model year bangers are being bought on 84 month term loans. The US ended 2016 with c.$1.2 trillion in outstanding auto loan debt, up 9%YoY and 13% above the pre-crisis peak in 2005.

The irony here is that sub-prime auto loan makers expanded lending because new technology allowed these companies to to remotely shut down and repossess vehicles of owners who were late on payments. That game only lasts so long before it forms its own Ponzi scheme.

Throw skittish financial markets, geopolitical instability and the mother of all refinancings coming the US Treasury’s way it is not to hard to see bankruptcies pick up from here.

Manhattan property in a gully

Manhattan property seems to be in a gully according to Elliman R/E in Q1 2018. While a slightly better QoQ performance, average prices fell 8.4%YoY, price per square foot fell 18.5%YoY and the number of sales transactions fell 24.6%YoY. This was the lowest quarter total in 5 years and the biggest annual decline in 9 years. Absorption rates hit 8.4 months in Q1, +38%YoY. New federal tax laws, higher interest rates and the end of legacy pipeline contracts were factors. At the luxury end of town average price per sqft fell 20.6%YoY with absorption up 50%YoY to over 20 months. As the real estate agent and stripper said in The Big Short, “it is just a gully we are experiencing right now.

Pregnancy shifts in Japan – synchronizing biological clocks

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With a population crisis like Japan has, one would hopefully encourage couples to be active to mitigate the problem. A private daycare company in Aichi Pref has lambasted one of the staff for getting pregnant before her turn! While we’ve heard of seniority based systems for remuneration, it is unbelievable to think that a company allowed staff to set up a pregnancy roster. The real downside would be if the couple before your turn had issues conceiving. In any event the insanity of such a policy shows how not even one’s private life choices are respected by some.

Roseanne continues to romp

The Hollywood Reporter revelead that Roseanne, Episode 2 of the reboot,  averaged a 3.9 rating among adults in the key demo of 18 to 49 year olds with about 15.2 million total viewers on Tuesday.  Total viewership of Episode 1 resulted in a 25 million audience after accounting for delayed viewing.The CBS comedy hit a 7.3 Nielsen rating in the key 18-49 age demo and replaces the ABC 2014 revival of “How to Get Away With Murder.” Analysts expect Roseanne’s numbers to grow even larger once Hulu and ABC online streaming is accounted for, which could add several more millions.

Food insecurity & poverty levels by US state & the 2016 election result

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The US Department of Agriculture listed the level of food insecurity by US state as at the end of FY2016. Looking at the data, Deplorables (states that voted Republican (red) in the 2016 election) made up 20 of the 25 states that suffered the most from it. Coincidence? Looking at the % below the poverty line and 19 out of 25 states voted for Trump. Coincidence? There is a touch of irony that the Democrats, which push for citizens to be married to the state, were by and large rejected by those suffering the most and want to be free of the shackles of poverty. So is it any wonder they’d reject the establishment. Should also be a signal for the Democrats to think more widely about what makes the Deplorable tick – not free hand outs. Opportunity!

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