There are many reliable ways to see that the economy is in bad shape. These are all effective indicators that have passed the test of time. Commodity prices may be the most reliable indicator, followed by freight costs. In other words, if the goods are cheap, no one wants to buy them, so there is almost no economic activity.
Is it possible for them to recover without conflict? Not without a driver, such as China. About a year ago, China bought a large number of commodities, not only controlling the supply, but also allowing producers to increase production. The only problem is that China does not actually need these goods. They used these goods to build dozens of vast cities, airports they didn’t use, and other kinds of expensive infrastructure. But the world doesn’t care. When the order came, nobody asked.
But now China has reached the final stage where it can no longer build a bridge to any place. There are no planes in the airport and no people in the city. People have raised questions. In addition, as the only buyer has just left the market, the demand for commodities is not strong. To make matters worse, commodity producers, who previously ignored questions and decided to build new production facilities, are now facing a serious situation of overcapacity. Maybe someone should ask you a few questions.
Now we can see that commodity producers around the world are performing the same scene. They were too lazy to ask questions about China, so they decided to increase production. Now, when the demand for bulk commodities falls to the cliff, they all take huge new production facilities on board. Take iron ore for example, BHP Billiton and other companies are good examples. In order to meet China’s huge demand and build billions of dollars of production facilities, they believe that this demand will never end. Well, it’s just over. From the perspective of Phil and Filzhuo, it is about 30-40 years fast. They are not the only victims. Large enterprises all over the world are in the same predicament. They have no choice but to complete their projects and produce with smaller profits or more likely losses.
In terms of oil, it is an amazing feat to see that shale oil producers have doubled the output of the United States since 2006. Unfortunately, it happened when the oil used in the United States was 15% less than that in 2008. This led to oversupply and a sharp fall in oil prices.
It is easy and attractive to blame the price slump on the oversupply, but the demand is also weak and very low. In an interview with Bloomberg, Saudi Arabia’s Energy Minister directly said that who knows more about oil demand than Saudi Arabia’s Energy Minister? Some people say that this is because of efficiency, which does explain some reasons, but it is much less than the simple lack of demand.
Historically, there is about 3-9 months between the reduction of commodity demand and the economic downturn. We are now between two and six months, depending on how you calculate. But don’t expect the stock market to tell you about the economy. They are full of free and easy funds that are no longer similar to the real economy. If you want to know what is happening in the real economy, you must know the facts such as commodity demand.
