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A Canary in a Coalmine

You hang a canary, which needs more oxygen in the air than humans, down in the bowels of a coalmine. If the bird falls over dead, you know the oxygen is getting thin and are approaching the Queen Mother of all OSHA lawsuits. It’s a useful early warning system, if a tad indelicate.

No one uses them anymore officially, there is a lot more sophisticated kit for reading oxygen levels out and avoiding shaft-loads of dead miners. Still, you really can’t beat a canary for on-the-ground, immediate situational awareness without waiting for a data read-out. Likewise, the government has lots of reports on the economy and markets and just what your money is doing, but the market’s invisible hand, or at least it’s middle finger, is always pointing at some canary to see if it’s wheezing.

FedEx was that canary. And by the end of last week, it was about a billion dollars short of breath. Last Friday the carrier took a 23% bath in its stock price, the worst fall since the company went public in 1978, after missing its quarterly earnings forecasts. When your canary is the size of big bird, it can’t help to take the market down with it. Other carriers, like UPS and OPX Logistics took a hit domestically as well as Deutsche Post AG in Germany and the London-based Royal Mail. FedEx CEO Raj Subramanian only took the helm from founder Fred Smith in June, so analysts scrambled to suggest that FedEx’s problems were company specific as company spokespersons blamed “macroeconomic conditions in Asia” rather than saying,“Well, fellas, Raj just pissed in the whisky.”

Perhaps it’s a little column A, and a little column B. Either way, the fact remains that shipping volumes have been in freefall since their peak in February.

The government figures, while accurate, always have a whiff of the outdated about them – like getting yesterday’s weather why you were soaking wet – which is imperfect, but generally doesn’t cause panics. “The FedEx news was pretty stark. But when I read it, I wasn’t surprised.” BNP Paribus Chief US Economist Carl Riccadonna told MarketWatch. What the canary told the markets wasn’t just that a major US company missed quarterly earnings by nearly a billion dollars, but that the all-important “flow” of the global economy has slowed dramatically.

The whole object of the market, and why it works so well is to take low-value object and move them to a higher value. Someone dug out of the coalmine that killed that damned canary a lump of coal as a low-value input for higher-value commodities like steel and electricity, and from there the rest of your life. Without “flow” – the moving of commodities and products around, none of the market magic is available on scale. And when it stops, the world doesn’t sleep, all hell breaks loose.

The drop in volume and flow was suspected, of course, but the market loves a winner and has a regrettable habit not indulging its darker suspicions. Then someone comes out and says it; or to beat the metaphor further, the canary dies. And the market must to react. Suddenly we’re thinking about the spring earnings of Target, Bed Bath and Beyond and Walmart and the grim, meat hook reality of a massive deceleration of the global economy.

On the bright side, unlike the 2008 crisis, we aren’t the center of it. That and the average American’s willingness to spend their way out of a bind is will take your breath away. Just don’t take the canary’s breath… that’s bad.

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