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Baltic Dry and the Growth Trade
Tyler Durden has been pounding on the Baltic Dry Index plunge story. Here, here and here.
I’m fascinated by this. Shipping is the backbone of global trade. So
when a big index like this makes a big move in a short period of time
there is almost always a message. But what message? One could easily
read the drop in BDIY as a warning sign of a slowdown in global trade.
Virtually every other barometer is pointing up. With that in mind, I ask
the question; Is the BDIY an outlier, or should we be paying attention to what it is saying?
I called a friend in Athens who is in the shipping business. On the question, “Why the drop” I got the murky answer, “It’s a lotta things all at once”. Some specifics he mentioned:
-The
floods in Australia have tied up ports and cargos. Therefore there are
many ships looking for a load while the country dries out. This puts
downward pressure on the BDIY. This is a short-term phenomenon.
-Many
new ships have come into service in the past 18 months. This is part of
the boom bust cycle in new construction/shipping rates. His words, “There is no shortage of ships today, prices look soft.”
So we have both long and a short-term factors weighing on the BDIY. The
short term one is going away, a possible conclusion is we see a bounce
in the index soon. On this type of thinking I got this response:
-Maybe,
maybe not. The biggest driver in shipping is China. They have been
importing all manner of raw materials and finished goods for two years
on a massive scale. That trend has slowed markedly in just the past
sixty-days. There is no indication that it will resume at anytime soon.
I ask, “Of the three things weighing on the BDIY which is most important?” Answer:
-China trumps everything. It's not just shipping rates; all the froth in the commodities market is at risk.
This is of course just one mans opinion. Who knows, maybe China will
ramp up its infrastructure development again sometime soon. But given
that they are going hell bent for leather in the opposite direction to
cool an overheated economy I would suggest that a revival of their
build-out program is the least likely thing we might see.
There are two basic trades. The Growth Trade and the No Growth Trade.
In many areas of the markets (stocks, commodities, currencies and to
some extent bonds) the Growth Trade is fully priced in at the moment.
When (if) more evidence of a China slowdown comes out it is possible
that a fair bit of “air” will have to be released. Nothing like that is
in today's 'print'.
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Watch for a possible large move, probably to the upside, on the USDJPY pair @~ 0100 01.07.11 local time.
:D
WTF! You got a crystal ball or something? Just a question. Whose local time? Mine? Yours? Theirs?
Always yours.
Not a crystal ball...
"-Many new ships have come into service in the past 18 months."
This not exactly true, I have closely followed and reported on the BDI for the past 3 years. I'm aware of how they calculate the index, all the different transport organizations, surface crafts, docks, salvage yards, pricing, etc.
This needs to be a bit more granular on rates based on regions/hemispheres/branch sectors.
Under all current economic indicators/conditions... it's a bad pointer.
The beginning of every new recession is always a question mark- are we seeing inflation or deflation or stagflation? The mixed results from an assortment of indicators- leading concurrent and following all rarely if ever give a conclusive answer. Blood in the streets is the best indicator, with the worst indicator being that it is your blood.
Does the BDIX also factor in cocaine and heroin shipping? I think that's a growth industry that could certainly bring the BDIX back up to its former glory.
a way to confirm one way or another would be to check on Port of LA activity--
ISM that just came out indicates lower imports and exports.
so do we have a disconnect or confirmation.
The Aker ship building facility in Philadelphia has announced that they will close in July. There is too much supply of ships and ship building capacity. So how does cash-strapped, mismanaged government respond?
Pennsylvania Gov. Rendell, in his last months in office, authorized $42 million in capital spending to go to the nonprofit shipyard development corporation to help Aker build two more tankers - without buyers lined up - and stay afloat. Kvaerner ASA came to Philadelphia in the late 1990s after receiving a $429 million public subsidy, including $182 million from Pennsylvania. Read more: http://www.philly.com/philly/business/Without_financial_aid_Aker_Philadelphia_Shipyard_will_close_by_July.html#ixzz1AHP8jJnFUnchecked insanity. Rendell, beloved by Eagles fans, is a likeable guy but really just a political hack, perpetuating the madness in a state with municipal and pension shortfalls.
Is long gold part of the growth or no growth trade?
i'll take a stab at that one. there are two somewhat different future scenarios driving the gold bull market. one is a transition of the global trade system in which non-fiat money, i.e. gold, becomes an essential component. gold will start flowing in the opposite direction of tangible goods sold, or else nations will build up the credibility of their paper currencies based on gold backing of some sort. the other scenario is the one involving economic collapse. i would say that a resumption of economic growth, or its increase as the case may be, would relieve fears and perhaps take some support out of the gold market. but in that case the transition to at least a partially gold-backed trade regime would remain on the horizon, so the gold bull will probably continue in one form or another.
It's both. Buy gold or be assimilated. After buying, tell others to buy or be assimilated. And since we cannot price gold, it has infinite value so you should never sell, or at least sell only after me. But until the time that I'm completely out, you should buy and encourage others to do so in any and all circumstances.
a fundamental and obvious though little acknowledged effect of the growing fissures of credit contraction in the increasingly stressed world banking lending rates might be adduced to explain this singular, ominous, and foreboding phenomena
potentially meritorious suggestion. So far the most common factors have been suggested as shipping oversupply or a drop in shipping orders
but alternative costs - such as provision of credit, and insurance - may also be important factors
If I was Cramer I'd say it shows the confidence shippers have that the goods will all be sold upon destination.
But then if I was Cramer I'd be a total f**knuckle
there are other explanations. manufacturing is less reliant on bulk materials, more reliant and things such as rare earths. and while grains and softs contribute a great deal, it's also likely that peoples dietary habits are changing. China is eating more meat for instance. In which direction is the grain trade these days? Are US exports down, last years crop did not meet USDA projections. The hottest cargo is probably steel from Australia to China? But this index was down before the flooding? Bottom line is the global economy going into recession, China's hard landing? And how long will it take to recover, maybe years if at all, if the trend toward fewer commodity driven businesses, and more efficient consumption, and local manufacturing utilizing available materials, for instance how much of todays automobile is steel, and how much is other metals and plastics? This could just be part of a sea change, (pardon the pun).
I remember a couple years ago, after the Crash of 2008, when the ship building companies were debating whether they should keep on building ships, or cut back. Many decided "full steam ahead", so to speak, and now we're starting to see the results of that.
I do hope they didn't go too much into debt on that bet.
Aaaaaa Herrrriiiiiiiiinnnnnnnnnnnng.
We are the knights who say, nnnnnnnnnneeeeeeeeeedless prattle about the BDI. NOW, when the BDI effectively goes to ZERO, then we will quickly become the kinghts who say icky icky economic collapse kablang.
A lot of "slow steaming" going on....
"The Port of Rotterdam Authority has in recent years blamed falling bunker sales on fewer container ships bunkering in the port, but also on slow steaming implemented by several container ship operators in a bid to cut fuel consumption.
Several ship operators, in particular container lines, have said slow steaming will continue even if market conditions improve.
Container line giant Maersk Line believes shipping companies will remain under pressure to cut bunker consumption due to rising bunker prices, as well as reducing emissions due to environmental pressure from consumers. Slow steaming also helps to manage over-capacity in the market, which will see more newbuilds become available in the next few years."
http://www.bunkerworld.com/forum/polls/99397/Will-global-shipping-and-bu...
http://www.bloomberg.com/news/2010-09-30/shipping-s-hidden-capacity-to-c...
"The basic problem is that there is still a large order book overhang of tonnage and even some new ordering. The slow steaming has been masking the existing over capacity and some are even calling for these measures to become permanent."
http://www.hellenicshippingnews.com/index.php?option=com_content&view=ar...
I'm just waiting for them to raise the sails.
Trivial point: The name of the ship is: Pensilvania. Spanish for Pennsylvania?
And Best Buy's miss back in December was an outlier too
+ about a billion....
Good analysis.
I'd add valuable and needed, as well. I've been wondering the exact same thing of late.
does this mean that this is a good time to buy some shipping stock on the dip?
http://covert2.wordpress.com
Some shippers have their rates locked in with contracts, others have rates that follow the BDIY. I would expect those pricing based on this index to have poor upcoming earnings reports.