The commodity price collapse and New Zealand media lies and half-truths

Bad news for dairy in New Zealand (which represents nearly a quarter of the country's exports (and for the economy as a whole) is coming through thick and fast.

The coverage, to the extent that it is covered at all (forget about the print media) is starting to resemble the old Pravda.

Menwhile the headline on Radio New Zealand, the coutnry's "BBC", that is supposed to discuss the serious stuff was - and I kid you not - Kermit no longer Miss Piggy's prince.

Meanwhile the following piece from Bloomberg reveals the coverage presenting an "all's well in the Rockstar economy" message is revealed for that it is - lies and half-truths.

Commodities Are Crashing Like It's 2008 All Over Again

Bloomberg,

6 August, 2015

Attention commodities investors: Welcome back to 2008!

The meltdown has pushed as many commodities into bear markets as there were in the month after the collapse of Lehman Brothers Holdings Inc., which spurred the worst financial crisisseven years ago since the Great Depression.

Eighteen of the 22 components in the Bloomberg Commodity Index have dropped at least 20 percent from recent closing highs, meeting the common definition of a bear market. That’s the same number as at the end of October 2008, when deepening financial turmoil sent global markets into a swoon.

A stronger U.S. dollar and China’s cooling economy are adding to pressure on raw materials. Two of the index’s top three weightings -- gold and crude oil -- are in bear markets. The gauge itself has bounced off 13-year lows for the past month.

Four commodities -- corn, natural gas, wheat and cattle -- have managed to stay out of bear markets, due to bad weather and supply issues.

Hedge funds are growing more pessimistic as the year has gone on. Money managers have slashed bets on higher commodity prices by half this year, anticipating lower oil and gold prices.

Here's Radio New Zealand reporting on the 'bare facts' - starting to resemble the Soviet Pravda

Cut in forecast dairy payout 'certain'

An economist says there's only one way Fonterra can go with its forecast payout to farmers this Friday - and that's down.

Radio NZ,

6 August, 2015

Photo: RNZ

Dairy prices plunged again at the latest global dairy auction, with the key whole milk powder price slipping 10.3 percent to $US1590 a metric tonne.

The dairy co-operative is holding a meeting at the end of the week and will be reviewing its farmgate milk payout for the current season.

It set a cautious opening price of $NZ5.25 a kilo of milk solids in May.

BNZ senior economist Doug Steel said a cut to the forecast was all but certain.

"They could easily drop it by $1, given where prices have got to," he said.

But Mr Steel said there could be some upward pressure on dairy prices in the months head.

"We're not sure that the market at the moment is properly pricing the weather risk around Oceania milk supply, ie El Nino, and how much that might dent production both in New Zealand and Australia," he dded.

He said BNZ had forecast a payout of $3.80 a kilo.

Labour market hit by slowing economy

The labour market is starting to feel the effects of the slowing economy

Radio NZ,

6 August, 2015

Photo: RNZ

Official figures show the unemployment rate increased by 3000 people in the three months to June and is now at 5.9 percent, or 148,000 people.

Unemployment rose slightly as the number of jobs created failed to keep up with the expanding workforce.

But the increase in the number of jobs and the growing economy pushed up employment for the 11th successive quarter.

Statistics New Zealand said it was the second longest period of expansion since the 1990s.

However there were signs employment growth was slowing as the economy cool.

Wage growth subdued

Meanwhile wage growth remained subdued, rising 1.6 percent for the year.

A senior economist at Westpac, Satish Ranchhod, said momentum was turning.

"What we are seeing when we look into the underlying detail is a picture of an economy that is losing momentum."

"When we look to the second half of this year, it's likely we are going to see it slowing by even more," he dded.

Inflation stands at 0.3 percent.

Most economists expect the Reserve Bank to cut interest rates further to help prop up growth.

And more from Zero Hedge

Six Warning Signs That The Economy Is In Trouble

Zero Hedge,

5 August, 2015

Submitted by Tony Sagami via MauldinEconomics.com,

On July 14, I wrote about the danger developing in the transportation sector, and things are looking even worse today. Here’s what I mean:

Look Out Below #1: Royal Dutch Shell reported its quarterly results last week—$3.4 billion, down from $5.1 billion for the same quarter a year ago—and warned that “today’s oil price downturn could last for several years.”

In anticipation of tough times, Shell slashed its 2015 capital expenditure budget by 20% and is going to lay off 6,500 high-paying jobs (not Burger King-type jobs) this year.

Look Out Below #2: UPS is a very good barometer of the consumer end of our economy: It’s the largest component of the Dow Jones Transportation Average both by sales and market valuation.

And UPS isn’t very confident about the US economy. Here is what UPS CEO David Abney said in a recent conference call with analysts:

If you just look at in [sic] January, the GDP forecast we thought was going to be about 3.1%. Now the thinking in July is about 2.3%, so let’s say a pretty significant decrease.

Why so glum?

The continued strength of the US dollar and I think this impending rate hike by the Fed appears to be holding back some US growth.

Abney has good reason to complain: UPS’s revenue fell 1.2% over the last 12 months. Not good.

Look Out Below #3: Rolls Royce may be best known for its luxury limousines, but the heart of its business is making engines for jet airplanes. Along with General Electric, the company dominates the aerospace engine business.

Business isn’t so good. Rolls Royce just issued its fourth profit warning in the last year and a half and is shutting down its $1.56 billion share buyback, introduced a year ago, to conserve csh.

The problem? Weak demand for its jet engines.

Hey, if Rolls Royce doesn’t want to buy its own stock… why should you?

Look Out Below #4: The reason Rolls Royce is suffering is that the airborne freight market is shrinking. While the passenger cabins you and I sit in may be full, the belly of the plane where the cargo freight is held is growing increasingly empty.

The International Air Transport Association (IATA) reported that air freight load factors have dropped to lows not seen since 2009.

“The expansion in volumes we saw in 2014 has ground to a halt, and load factors are falling… we have to recognize that business confidence is flat and export orders in decline,” said the CEO of IATA, Tony Tyler.

Look Out Below #5: The trans-ocean freight business isn’t doing any better; the number of idle container ships has increased two months in a row.

The number of idle ships (over 500 20-foot-equivalent units) has jumped from 82 to 108. Yup… business is so bad that the owners of 108 ships don’t have any business whatsoever.

“The traditional peak summer season has so far failed to provide a boost to vessel demand, as the weak cargo outlook is forcing carriers to cut back on their capacity deployment plans,” reported Alphaliner, a container shipping watchdog.

Look Out Below #6: The reason why all these transportation companies are struggling is that global trade is simply shrinking.

Moreover, world trade is falling at the fastest pace we’ve seen since the last financial crisis. Global trade shrank 1.2% in May from the previous month, and the little-followed World Trade index (which tracks import and export volume) fell to 135.1 in May.

Look, transportation companies prosper when the economy is rocking and rolling. However, they are among the first to feel a business slowdown when things turn downward.

My bashing of the transportation industry is just as much of a warning about the overall economy as transportation stocks. Do you have a contingency plan to protect your portfolio when things turn ugly?

The best time to prepare for trouble... is before trouble arrives.