Big Shock

The financial news continues to confound and confuse investors. The Fed is telling one story. The world economy is telling another.

The Fed is talking about increasing the federal funds rate – eventually getting rates back to “normal” – because the U.S. economy is so healthy. Meanwhile, the world heads toward deflation.

Says Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management:

We are now just one big shock away from a global downturn, and the next one seems most likely to originate in China, where heavy debt, excessive investment, and population decline are combining to undermine growth…

But it looks to us as though the global downturn is already here.

First, the Baltic Dry Index is at a record low. Here’s Bloomberg with the full story:

The cost of shipping commodities fell to a record, amid signs that Chinese demand growth for iron ore and coal is slowing, hurting the industry’s biggest source of cargoes.

The Baltic Dry Index, a measure of shipping rates for everything from coal to ore to grains, fell to 504 points on Thursday, the lowest data from the London-based Baltic Exchange going back to 1985.

And falling shipping costs aren’t the only sign of global deflation…