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American canaries in American coal mines

Jeffrey Landsberg from Commodore Research highlights concerns he’s seeing with US housing data where there’s been 13 straight months of contraction. You can probably guess the last time this situation was this dire.

Data released this week shows that pending sales of existing houses in the United States contracted on a year-on-year basis by 2.3% last month. This marks the thirteenth straight month of contraction. Prior to this current period, the last time that pending sales of existing houses in the US contracted on a year-on-year basis for thirteen straight months was back in 2007/2008.

As we have been stressing in our work, this issue is very important. So too is the fact that many pundits and major global economic media are not discussing this ongoing development. Experiencing a period of contraction not seen since 2007/2008 is worthy of attention. Housing sales remain a very telling gauge of the health of any economy. Unlike overall consumer spending, housing sales cannot be fueled by credit card debt.

Overall, we continue to see various signs of significant weakness globally that are not getting attention from pundits and major global media outlets. While we have been bullish for the dry bulk market for the very near term, we also remain of the view that the global economy is doing much worse than many experts and government officials are acknowledging, and as 2019 continues this weakness could present significant headwinds to the dry bulk market later on after normal seasonal surges in spot cargo volume (including South America’s peak grain export season) come to an end.

Finally, we would be amiss to not briefly mention the chairman of the US Federal Reserve, Jerome Powell’s comments this week. At a congressional hearing Powell was asked if he was seeing any “canaries in the coal mine” in the US economy. His answer was that there has been slowing of growth abroad, and specifically he mentioned China and Europe. When asked again later if he was seeing any specific US issues, he again only specifically mentioned issues outside of the US and only went as far as stating that while in the US he viewed the “current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals”.

Certainly there has been slowing of growth abroad. But what is significant to us is that there are also very real American canaries in American coal mines that are simply not receiving much attention. One issue that continues to stand out to us is that a record 7m Americans fell into delinquency on auto loans as of the end of last year (the partial government shutdown began on December 22, so record delinquency has developed largely independently of the shutdown). Many Americans, like citizens elsewhere, use their vehicles as a means of getting to their jobs and, when all else falls, as a place to sleep. Often, a vehicle payment is one of the last things that a person will stop paying. The ongoing lack of coverage on this issue remains noteworthy its own right, as is that fact that there remains so little coverage on that fact that US housing sales are currently experiencing a period of contraction that has not been seen since 2007/2008.

The weakness we are observing in the US is not unique. We continue to observe significant weakness across many other economies. This ongoing global weakness remains very significant for overall dry bulk prospects for 2019. Also remaining very significant to us is just how disproportionately negative global economic issues and developments are being discussed. Our view of both the US economy and global economy remains very different than is often being discussed elsewhere.

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