The deflationary credit contraction and revenge of the gold standard is leading to significant civil unrest throughout the world and I have mentioned Iceland, Greece and now the behemoth China.
The illusory and evaporating FRN$ is the world reserve currency and the root cause of these problems. It is not surprising that public sentiment is fomenting as the Federal Reserve has enemies.
The job market in China is flooded by 20M new workers each year. The 20 year growth in the standard of living of the average Chinese may be slowing down or coming to an end unless their leaders instigate change. Dongguan a large city in Southern China has exprienced massive street riots after factory owners fled without paying employees.
The slowdown in the world economy has led to less demand for Chinese exports. Factories have closed leaving 6.7M workers in China without their jobs. If this trend remains then the unemployed Chinese could be a significant political force.
Diana Shipping (DSX), Paragon Shipping (PRGN), Excel Maritime (EXM) and DryShips (DRYS) are all from Greece.
Along with Eagle Bulk Shipping (EGLE) and Genco Shipping and Trading (GNK) they will all have a very difficult time going forward. Their balance sheets are filled with empty boats and bloated debt.
As the Baltic Dry Index makes painfully clear from the excess supply and declining demand there is no bottom line without a top line and therefore their income statements are going to take a beating. The end result will be a hemorraging of cash to service debt on empty ships with no tourniquet in sight.
If this economic slowdown continues, which it will because this is an immoveable deflationary credit contraction, these shipping companies will be in serious trouble. There is no demand for Chinese trinkets to fill these depreciating empty ships and the insidious debt still has to be serviced. Even being down 70-90% from their highs I do not think these shipping stocks are a very good value.
As the world economy slows towards stasis capital will continue seeking the safest and most liquid assets. Currently, capital has piled into T-Bills or unsafe money market funds and driven yields down tremendously and the zero-interest rate environment is leading to negative real returns.
As a result gold has been flirting with backwardation. But the largest bubble of them all, the FRN$, is searching for a golden pin and is going to find one. After all, that is the only cure for the Financial Insanity Virus that is sweeping the globe.
But there is a truly safe place for holders of capital that provides immunity to the FIV and that is to be ensconced in the invincible and immoveable golden forcefield.