About That Whole Global Economic Collapse Thingy - Part III

(See part II - especially the first paragraph)

I don't believe I've ever posted a link to a commentary from Kitco.com, but this one, by Clive Maund, is worth reading.

I relate this story to you because most market commentators right now are ..... - “Don’t worry, everything is going to be alright, earnings have recovered and companies are paying dividends - the stock market has recouped most of its 2008 losses so everything’s back to normal - that drop in 2008 was just an aberration and now everything’s back to normal and its business as usual.” According to our interpretation of the charts if you fall for this spin you are going to get seriously fleeced in short order, and this could also apply to those who listen to the siren calls of those exhorting the virtues of Precious Metals stocks at this time. So let’s make this as clear as possible - if there is another market crash soon as expected, investors are going to do what they always do, which is go into blind panic and toss almost everything overboard, and that can be expected to include gold, silver and PM stocks. Yes, we fully understand that the fiat money system is rapidly approaching its nemesis and that gold is the ultimate safe haven and is set to soar as currencies become worthless, but that won’t help it much short-term during the crash phase, which is likely to result in a heavy reaction in gold back probably to its long-term uptrend support line. Silver will be treated as a base metal and will plunge precipitously as in 2008, which it is now perfectly set up to do. PM stocks will tank and many PM stock investors will be devastated as their cheerleaders slink into the shadows. All of this looks very, very close.

If you look at the charts he shows, which are the S&P500, the XAU (a market index of primarily precious metal mining stocks), and the Baltic Dry Index, you see a consistent pattern.  They are all pointing to a serious downturn coming.  Timing is hard to extrapolate, but it looks like this coming fall; October to December at the latest.  (Oh, great.  I'm supposed to travel to give a conference paper right in the middle of that.  Anybody else read Patriots?)  Extrapolating off the end of a curve is always risky, but that's why people do this technical analysis stuff.  

The Baltic Dry Index is particularly interesting because it is an index of the cost of shipping dry cargo.  It's already down 50% from its May peak.  That means that the amount of bidding for cargo shipments is way down, which implies a lean Christmas coming.  At this point, mid-summer, if cargo hasn't been scheduled for shipment in the next couple of months, it ain't coming.  In a way, it's another measure of the size of the Ghost Fleet of the Recession (old article).  Maund says,

What this means is that the second major downwave has already begun, it’s just that the stock market doesn’t yet realize it...

That pushes the old pucker factor up by about 50%.  Are you prepared?