In 2008 the markets got very worked up with what at the time I was relentlessly calling a China commodity bubble. A search under the term “China Bubble” from Winter Watch turns up 75 articles mostly in 2007-2008 and also in 2011. A bubble can be defined as speculative activity not well related to the real economy, in short a maladjustment. One of the consequences of this was the ramp up of shipping construction to feed the China boom. When commodities came back in late 2009-2011, shipping construction surged forward unchecked. Now with China rolling over, the shipping that was produced during this period is increasingly lined up and stacked in Asian harbors around the world. 22.7% of the existing fleet, is due for delivery this year. Shipping rates have collapsed, another event which the markets continue to largely ignore.
I have been feeling for some time that this would bite the players involved. Although the shipping company stocks have become very depressed of late, the story as it relates to shipping lenders has been relatively overlooked. Now the IHT is out quoting industry observers stating that European banks may be facing writedowns on these loans on the order of $100 billion, which is even more than their Greek losses.
At my Actionable site I am now recommending a bearish strategy using a big poorly capitalized European bank that is not only exposed to European sovereign debt, but also to the double impact of inflated commodity lending in general. The market thinks LTRO, I think multiple lending blowups in tandem. In addition to shipping, I am including shale nat gas, which is also maladjusted. Natural Gas was discussed separately on Jan. 23 in the “Natural Gas in Maladjusted Feast and Famine Mode” report.
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