Ghost Ships

“Ships that pass in the night, and speak each other in passing, Only a signal shown, and a distant voice in the darkness; So on the ocean of life, we pass and speak one another, Only a look and a voice, then darkness again and a silence”- Henry Wadsworth Longfellow

Although some economists and pundits are declaring the recession over, color me more pessimistic. One website that I keep on eye on is Kiplinger’s Recover Index. They list six leading economic indicators and only two of them are “fully positive”. One of the positives, an increase in existing home sales, says more about the collapse of mortgages and house prices than about the strength of buying power. And harking back to an earlier post, what does “success” mean here? Kiplinger says that just three positive indexes would indicate that the recession is over. I’d set the bar higher and suggest at least 4 out of 6 before declaring victory.

Economics is a complex science with many time-delayed built in interactions. It’s possible for unemployment to decline, yet the newly employed people are still shell-shocked and reluctant to spend for a while. So store sales and profits remain low which slows down future hiring.

A well-written article on the stalled state of the global economy appeared in the UK Daily Mail Online, Revealed: The Ghost Fleet of the Recession. Hundreds of the world’s cargo ships have been parked off the southern shores of Malaysia, near Singapore. A local fisherman says, “We don't understand why they are here. There are so many ships but no one seems to be on board. When we sail past them in our fishing boats we never see anyone. They are like real ghost ships and some people are scared of them.”

The answer is that 12% of the global cargo fleet has nothing to ship (this could climb to 25% before things improve). Business and profits have plummeted, “This time last year, an Aframax tanker capable of carrying 80,000 tons of cargo would cost £31,000 a day ($50,000). Now it is about £3,400 ($5,500).” The ghost ships sit idle waiting for better times ahead.

Bottom Line

Curiously despite the glut in cargo ships, new ones are still being built. It takes three years to build a ship so orders placed when the economy was good in 2006 are ready to hit the water and the delivery bill is due. But now some clients are unable (or unwilling) to pay and the ships are sold instead on the open market for a bargain price. New orders have slowed to a trickle so expect the ship building industry to remain in recession for several years to come.

For another sign of slow sales and unsold inventory, check out these picutues of new unsold cars www.guardian.co.uk/business/gallery/2009/jan/16/unsold-cars

Here is another article claiming that the financial crisis is just the first in a series of interlinked crisises as one problem cascades to another. http://www.financialarmageddon.com/2009/09/still-in-the-economic-crisis.html

Update

CONSUMER CONFIDENCE INDEX drops in September.