Brace yourselves, we are going down!

[Dalty]

Happy thought for the day! Boring stuff but interesting nonetheless.

Against the backdrop of nose-diving oil prices and collapsing stock markets across the world something important happened yesterday on the Baltic Dry Index. That's the Index linked to the Baltic Exchange in London that pretty much sets global shipping rates for dry cargo. It has, without fail, always fallen dramatically before a global financial problem. Before Black Wednesday and before the Lehman Brothers fall and before the dot-com crash and so on.... always. It is always an early indicator that economic demand is about to fall.

Yesterday it dipped to its lowest ever point. EVER.

Oil has collapsed as a commodity, £55B was wiped off the FTSE in a day's trading. Only government interference has stopped China suffering complete economic meltdown and they can't hold back the tide forever. Chinese investors (foreign and domestic) want out and fear total loss, but can't as the government keeps suspending trading.

Problem is that the "recovery" appears to have been driven on cheap money flooding markets because of quantitive easing (govts printing ca$h basically), underpinned by ongoing low interest rates and Chinese demand for goods and services.

However China is proving (as I believe Mal said himself a couple of years ago, if I recall?!?!) that its entire miracle economy is one gigantic big, fat lie! Building cities nobody lives in, airports no planes ever land at, high speed rail lines to nowhere, all the time artificially interfering in its own internal free market. As a side note they now have a wealthy and motivated middle class who may well cause the dictatorship problems - Tiannemen Square style - as the shit continues to hit the fan over there.

So Chinese demand has evaporated. Brazil and other emerging economies who emerged thanks to China are now in, or shortly entering, recession.

But global investors piled into Brazil and China and others and are now trying to get the fuck out of Dodge at speed. Investment houses are currently telling their clients to sell absolutely everything except the surest of long term investments.

Problem is that a lot of this investment was built on debt, borrowed cheaply as a result of low interest rates and new money being created by governments. But interest rates can go no lower. And no more money can be created. So these investors (and households who have bought new cars and taken on bigger mortgages and run up credit card bills / companies who have hired new staff and invested in new products and channels) are going to be unable to service these debts and will default on an unprecedented scale.

And governments have absolutely ZERO economic ammunition left to help out the institutions which will be affected by these defaults.

In 2008 there was a very real possibility that the world was actually going to run out of money. That the economic system would simply gum up and freeze. No cash for ATM machines, credit cards stopping working etc. It's not scaremongering - we were really fucking close to this happening at one point. And this is where social unrest starts.

Not sure it will come to apocalypse - however I do believe we are about to go through a seriously fucking unpleasant time in the next 18 months.

[The Swollen Goiter of God]

[Dalty]

40 markets into "Bear" territory now, and apparently $27T locked into those markets.

Hence no confidence as investors have to take a massive hit to get their hands on this cash.

[The Swollen Goiter of God]

Money's always been a shaky concept. That's why Lex was more interested in accumulating land. A man with land is a man with power. A man with no land is a man with nothing.

My grandfather had a similar attitude. My grandfather, like Lex, was also a little nuts.

[Dalty]

I don't know which way to jump on this. I am potentially looking at moving house and have been staggered by how much house prices have gone up since I bought the Dalty-Cave a couple of years ago.

One would expect a global recession to make the property prices fall. So waiting would seem like a good idea for me.

However if people rush out of stocks and commodities they may well plough their cash into property / land. Pushing prices up.

Lex was kinda right either way.

[The Swollen Goiter of God]

[Dalty]

Well...... oil is cheap....

[Space Tycoon]

So I guess I won't quit my job then...

[Space Tycoon]

To what extent is the Saudi-Iran "cold war" to blame for the current situation?

[Dalty]

Well the Iranians haven't been able to ship oil for a few years until earlier this week when the sanctions lifted.

Saudi profligacy with oil supply is mostly aimed at strangling the US shale gas industry at birth (and it could, as many of those shale drillers are small companies up to their eyeballs in debt with everything I mentioned above still to come to pass!) and to move the Russians away from their patch.

It's at the heart of the nosedive in oil prices. But low oil prices should be good news for a lot of the West on their own. It's China being one gigantic Ponzi scheme destroying investor confidence that's the root of this, and no central bank having any tools left to stave off crisis, not low oil prices.

[Space Tycoon]

Interesting. And to think I was going to learn Mandarin. Probably less valuable a skill going forward...

[The Swollen Goiter of God]

Well...... oil is cheap....

So I guess I won't quit my job then...

What ratios are you workin' with? What's the most common base for exterior paint? Oil? Latex?

[Space Tycoon]

My company sells no more exterior or interior paint to the homeowner-residential market. Beyond a couple of primers, that is. Commercial-industrial is a different matter, though even there we've seen more of a move to water-based acrylics and epoxies.

[Adam54]

Well the Iranians haven't been able to ship oil for a few years until earlier this week when the sanctions lifted.

Saudi profligacy with oil supply is mostly aimed at strangling the US shale gas industry at birth (and it could, as many of those shale drillers are small companies up to their eyeballs in debt with everything I mentioned above still to come to pass!) and to move the Russians away from their patch.

It's at the heart of the nosedive in oil prices. But low oil prices should be good news for a lot of the West on their own. It's China being one gigantic Ponzi scheme destroying investor confidence that's the root of this, and no central bank having any tools left to stave off crisis, not low oil prices.

We get to hear a decent amount of North Dakota news here (I'm fairly sure there's not a single TV station in North Dakota. They just borrow Minnesota's), and a lot of shale drillers are already folding. The Saudi plan is working well on that front. You think they'll continue oversupplying to take Russia out of it?

It just doesn't make sense to me. Once the price goes back up, won't shale drillers/Russia just start right back up again? This won't kill their efforts forever.

[Dalty]

Not if all the entrepreneurial people in this area drowned in debt and went bankrupt!

And Russia's economy is hurting bad.

However Saudi is burning through cash reserves so it's not pain free for them either.

[Space Tycoon]

So I guess I won't quit my job then...

Actually, what I kinda meant by this was that if the global economy is about to go south, it may not be the best time to look for work...

[The Swollen Goiter of God]

I figured that's what you meant. I just assumed oil figured into your work. Not in the conventional way, perhaps. But still!

[Adam54]

Not if all the entrepreneurial people in this area drowned in debt and went bankrupt!

And Russia's economy is hurting bad.

However Saudi is burning through cash reserves so it's not pain free for them either.

I don't buy this. Wouldn't new entrepreneurs just spring up to take their place?

Let's you, me, and Goiter go in on an oil well when the time comes.

[Space Tycoon]

I just assumed oil figured into your work. Not in the conventional way, perhaps. But still!

Well, I may as well admit it here; sometimes when the store was empty after close I would shut the blinds, lock the doors, remove all of my clothing and rub linseed oil all over my body, whilst dancing around the aisles singing "I Feel Pretty," as immortalized by the delightful Natalie Wood.

[Space Tycoon]

What, that don't don't make me a fag or nuttin'!! I just like the song! And oil an' stuff...

[Space Tycoon]

Man, I gotta remember...outside voice, outside voice.

[The Swollen Goiter of God]

It happens outside. The music is outside. It's happening outside. The music is outside.

[Adam54]

You wanna invest in the oil well that me, Dalty and Goiter are gonna buy, Spacey? We can find some land in Alberta so it's more convenient for you.

[The Swollen Goiter of God]

I can contribute up to five dollars. Anything more would be financially irresponsible. It's not that I don't believe in Adam's vision, mind you. It's because I don't have much more than five dollars to contribute.

[Adam54]

No worries, I didn't specify just because I assumed that was implied. You and I are in for $5-10 each, good ol' Moneybags Dimple will front the rest and we split all profits equally since all three of us are investors and it's only fair.