Bubble Watch: Is Recession on the Way?


January 29, 2016—Paul-Martin Foss has written a new “Bubble Watch” report for the Carl Menger Center for the Study of Money and Banking website that should not be ignored.

As the economy continues to struggle, so do the air flight and cargo markets. Companies behind the production of airplanes are the first to feel the consequences.

But as we prepare for this big bubble to go bust, Foss reminds us that the low demand is not only affecting the plane production bubble. It also impacts other cargo markets.

Here’s what he had to say:

Boeing is cutting production of its 747 in half. Demand that had been expected for the 747-8 freighter, in particular, never materialized. Is this just the result of airlines and air freight companies preferring twin-engine jets to the four-engine 747? Is there overcapacity among airlines, making it cheaper to buy or lease used planes than purchase them new? Or is the market for airplanes, in particularly freighters, declining as a result of the oncoming recession manifesting itself in a decline in air cargo?

Remember that the Baltic Dry Index, which represents the price of shipping raw materials, has been declining precipitously in recent days, reaching an all-time low last week.

While some argue that that is due more to an oversupply of ships versus cargo to carry, could it not be indicative of a collapse in global trade?

The HARPEX index, which reflects container shipping rates, i.e. finished goods, is declining as well. And of course the stock indices have started the year off in the red as well. When everything is declining at once, it’s a pretty ominous sign that bad times are on the way.

Are things going to get worse in the near future? Let us know what you think!

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