Worse Than 2008

BALTMORE – “Stocks still not finding bottom” warned a headline at Investor’s Business Daily.

Earlier last week, the Dow (DIA) ended down 255 points – or 1.6%.

The index is down by around 8% since the start of the year.

“These developments, if they prove persistent, could weigh on the outlook for economic activity…” proffered a nervous-looking Janet Yellen in her testimony on Capitol Hill yesterday.

She was signaling to investors.

“Don’t worry about us,” she may as well have said. “If we can get away with a big U-turn, we’re not going to raise rates anymore.”

“Massive Deterioration”

On Tuesday, Maersk Group, the world’s largest container shipping company, said it was suffering a “massive deterioration” in its business.

“It is worse than 2008,” its CEO, Nils Andersen, told the Financial Times.

But this is not even near the bottom for the world economy.

Hedge fund manager Kyle Bass warns that the other shoe is a big one… and it hasn’t dropped yet.

China’s economy is heavily dependent on capital investment. It puts its money into building factories, highways, offices, apartment blocks, railroads, ports, and airports.

What do all these projects require?

Rebar!

Concrete is reinforced with steel bars. As the pace of building slows, the price of rebar goes down.

In 2008, a ton of rebar cost about 5,500 renminbi ($836). Now, it costs barely 2,000 renminbi ($304) – the lowest price in at least 15 years.

Compared to the size of its economy, China has two to three times the debt the U.S. had in 2008 – a total of $34 trillion, said Bass.

As the Chinese economy slows, more steel mills, real estate developers, and manufacturers can’t pay their debts.

Total losses from debt defaults could be four times U.S. losses in the 2008 crisis. And that is just the beginning.

Next week, we’ll explain why… and why Trump and Sanders are getting so much of the millennial vote.

In the meantime, here’s an essay from the archives…