by John Galt
April 25, 2016 19:00 ET
And everyone should be worried…..
The new mantra on Wall Street and Main Street is that Europe, Asia, and the Middle East do not matter. What happens there is relatively irrelevant and just keep buying crap be it at the retail level for a new gadget or electronic game app, or in the stock market a biotech with losses of over $100 million and a product which is still five years from viability.
Yet reality is happening everyday overseas and Americans had best start paying attention.
This morning, a headline appeared to a large yawn by the so-called televised financial circus media and was update this morning in the Wall Street Journal:
So what? No big deal, right?
It only had a debt to operating cash ratio “allegedly” north of 850% but that’s no big deal to Americans, right?
From the Journal of Commerce on April 22nd:
Hanjin Shipping wants its main creditor, the Korea Development Bank, to take over management of the company in order to restructure its debts and streamline its operations.
South Korea’s largest container line is struggling with heavy debts and an unfavorable market defined by slack demand and rock-bottom freight rates. The difficulties come as trans-Pacific shippers negoiate annual contracts with container lines and its competitors.
Hanjin’s announcement comes as rumors mount that the carrier is trying to renegotiate with its ship charterers, like its compatriot Hyundai Merchant Marine, which is trying to do the same.
Hanjin suspended trading of its stock, which will resume April 25, ahead of the announcement.
The company had not been pursuing charter renegotiations and at least two of Hanjin Shipping’s tonnage providers have said payments are being received and remain on time.
Why is this important?
If South By God Korea is having trouble with its exports to the world, especially to China and the United States, then we are getting ready to witness an epic slowdown comparable to the 2008-2009 collapse when the “ghost fleets” appeared in Asian ports due to the collapse in demand.
It is so bad that earlier today, the CEO of Hanjin essentially surrendered control of his company’s operations (via Yonhap News):
This ten year chart illustrates how South Korean exports have plateaued over the past decade and started to decline despite the usual Q1 2016 bounce after the U.S. holiday period:
Keeping in mind the price of bulk and containerized shipping rates, Hanjin is just another canary in the coal mine warning everyone that the deflationary cycle started by the debt excesses of the prior two decades will eventually be completed. Sadly, Americans will be the last to realize that their great excesses will result in the largest punishment of the citizenry when the system starts to implode.