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Baltic Dry Index Dropping 4%, Posting Longest Consecutive Loss In 6 Years, Refutes Australian Optimism
The biggest reason for the runup in the JPYAUD and its immediate secondary carry derivative, the stock market, was the earlier announcement out of the RBA claiming all is clear, there is no bubble in China, there is no bubble in OZ real estate, and all the other usual talking points one would expect out of a central bank whose future is inextricably linked to the endless commodity stocking in China. And indeed, one glance at the far more neutral indicator of the Baltic Dry index paints a far more dire picture: the BDIY plunged 4% overnight to 2,127, posting the longest consecutive decline in 6 years at 28 days. Despite the optimism from the conflicted money printers, those whose livelihood actually depends on a ceaseless influx of goods into China and broader commodity trading in general, are not nearly quite so happy, having seen a drop in their margins by almost 50% in just over a month.
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"the earlier announcement out of the RBA claiming all is clear, there is no bubble in China, there is no bubble in OZ real estate"
This must be why the RBA has left its target cash rate unchanged.
+10
Facts don't matter anymore. Only rhetoric. Particularly, if from someone with a vested interest.
Hey but at least Goldman is being awarded for being best in class risk managers: http://online.wsj.com/article/BT-CO-20100706-705503.html
Ummm mining super tax....were not scared of the reaper.
Is there a longer time series? Difficult to see if this is normal seasonality with a short time series. Thanks.
Go to Bloomberg's interactive chart:
http://www.bloomberg.com/apps/quote?ticker=bdiy&exch=IND&x=15&y=11#chart
On the three year scale, you can see the impressive crash of the BDI back in 2008.
The last time we were on this kind of downward slope at this level was in October of 2008.
nothing here... the baltic is only a cash index that might reflect actual demand.... BUY BUY BUY
Collapse of world trade. Won't need to leave the WTO at this rate.
Bulker sales fall through as charter rates tumble
Secondhand asset values fall for third consecutive week as buyers reconsider prices due to weakening dry bulk sector
Syndicated lending falls in second quarter
Loans to shipping aggregated just $3.1bn, less than half the figure in the first quarter of 2010
At your all American breakfast table after a long depressing 4th of July weekend. Not sure where the next paycheque is coming from, if there is going to be another paycheque - ever.
Myrtle: Oh my Bruce, look at the rising stock market today. Things are really turning around!
Bruce: Hey that's odd. How can that be? It was supposed to be all downhill from here?
Myrtle: Remember, Bruce our politicians know what's best for us. They will save us, they said so.
Bruce: So, there are people.. I gues investors, uhm.. going to put money into the stock market again. And what a rebound. They must have heard something we don't know yet.
Myrtle: Ah, I love that look on your face, Bruce. What are you thinking?
Bruce: Myrtle, how much do we have in little Johnny's savings account? You know the one where all aunts and uncles said they'd put money in over the last 6 years.
Myrtle: You mean Johnny's piggy bank?
Bruce: Yeah, whatever. How much, Myrtle?
Myrtle: Uh, I don't know. Maybe five thousand or so?
Bruce: Great, where's that business card of the guy we met the other day. What was his name? Jack of All-In-Trade or what?
Myrtle: Sure, Bruce it's on the fridge I think. Right with the business cards of those fine people that came to the door wanting to help us with our debt and all.
Bruce: Myrtle, where's the phone? We're going to be rich! Rich, I tell ya! Myrtle, do you want to go to the mall today?
How to profit from the coming collapse of China
1. Short commodity producers. China is biggest consumer of most of all industrial commodities except for oil. Prices are determined at the margin and when China falls commodity prices will plunge. Companies like Rio Tinto, Potash, Alcoa are a classic short in that case.2. Buy long out of the money put options on the Yuan ETF- Investors worldwide are making large bets that the Yuan will revalue and gain value versus the U.S dollar. Ironically, this intensifies the potential of a Yuan crash, since the presence of so much speculative funds is going to overweight China’s foreign exchange reserves. If China decides to let the Yuan float, it may go up initially but once foreign investors take the money out of the country once the revaluation has been done, the flow of capital will drain China holding of FX reserves since it will need to sell them in order to prevent a Yuan collapse, and to save the banks(See: The Next Black Swan- A Yuan Devaluation ).
If you are betting on China divesting itself of FX reserves, you'd best not be doing it in dollars or euro, as such an event will certainly cause instant hyperinflation in the US, and probably do the same in Europe, though perhaps to a lesser extent. Since there aren't really any good assets to buy in the world, such an event would also bode very well for commodity prices, or at worst be a wash (dumping a trillion dollars onto the public market will do that to most prices).
ISM missed, yet the market shruggs that off as not important. All that matters is those Aussies sure seem happy today.
No, it's not shrugged off, it's celebrated as it's still expanding.
So when it crashes to 0.01, they'll celebrate it's not 0.
And drive it up 100% to 0.02...
Physical transportation of goods is a lagging indicator. Like employment, prosperity and life-expectancy.
BDI is raw materials not "goods".
+10 on BDI and being bid daily hire rates rather than contract/ offtake pricing mixed with spot on commodity price it is a more accurate demand signal on those raw materials.
One wonders why it matters that the largest sector of US market (services) employment index is contracting again, as long as the Aussies are happy.
If this Aussie gets any happier, we'll be having a plate-smashing party sometime this week...to be followed by a window-smashing, car-burning party just to clear some damn space on the narrow discarded-furniture filled street outside. The dancing flames will be a nice change in view for the blank tenement blocks here in Sydney, where apparently 'everyone wants to live'.
May I suggest smashing these instead http://www.expressnightout.com/content/photos/20090120-bankers-450.jpg
OMG but those are cute! I want TWO sets.
One set for smashing - or hanging from a noose over the chair in some fat bankster's office.
And one set to play with.
Looks like the drop in BDI has been hedged by some investments in stocks, futures or options. BDI down 4%. Indices in Europe up over 3%.
Makes sense, no? Joking!
To me still looks like a nice bull trap has been set.
Today S&P 1040, below 1000 by Friday...
Party like it's July 2008...
In other news: ISM non-mfg index comes in at 53.8 below expectations of 55.0 (Bloomberg concensus). http://www.bloomberg.com/markets/economic-calendar/
Kindly do not attempt to confuse the issue with facts. One fact and one fact alone is all that matters - and that is that the S&P is still below 1040. And that, my friend, simply cannot - and will not - stand.
All hail the "free" market.
The BALDRY is sinking, in a vertiginous speed,and will soon dive below 2000.
I am sure this means real trouble with the world trade and the world manufacturing output in the next few months. Any "world recovery" is stalling right now..
In other news, Uruguay will beat the Netherlands today, and is going to be the World Champion for third time.
Go Uruguay!
On the plus side, soon container ships will be so cheap, anyone with a bit of money could buy one and start a new life at sea as a pirate. Even if there are no more active shipping lanes to operate in, there are always small seaside towns and the coastline. Anyone know where I can get army surplus cannons?
YARG!
If you want to make money on the BDI collapse, get into the shipping container market. When trade starts collapsing, these stop coming in and become much harder to find. These babies are used for everything these days when it comes to land shipping; especially for shipping food.
This is exactly what happened the last time.
All the ships are being converted into faux skimmers like 'A Whale'.
http://socialmediaseo.net/2010/07/05/bp-oil-spill-update-a-whale
this 10-year chart is out of date:
http://investmenttools.com/futures/bdi_baltic_dry_index.htm#bdi
...2127 is a very, very low number ...but not yet down to
the lows of the 2008 collapse ...
Not
Yet
Canary in the coal mine.
most excellent charts, thanks very much. now which instrument leads? the commodity or the shipping index? :)
Look at this BS I saw on Bloomberg this morning:
The S&P index will bounce back to 1,350 by the middle of next year as investors realize the recovery is on track and profits are rising, said David Bianco, head of U.S. equity strategy at BofA Merrill Lynch Global Research in New York.
“Right now, we’re in the worry season,” he told reporters June 28. “I look forward to moving into the earnings season.”
Rosie got fired for this??? - Ned
[Somehow this comment ended up on another thread - I meant for it to be here.]
Aus optimism is a bloody joke.
Our property bubble has left our prices on average over 80% higher than the US. Anyone who thinks this is 'optimistic' for a retail/consumer/tourism economy is smoking the really good stuff.
Just read that a significant minority of Aus homedebtors are feeding their children rice rather than default on their unpayable debt. What kind of drooling moron withholds proper food from their kids so they can pay rent to fat banksters.
Maybe the kind that's used to waiting 100 years before they (and their kids & grandkids) finally own a house. The kind that's used to being a barely-paid slave to dear leader, who doesn't mind remaining a landless peasant as long as their grandkids might own something someday.
My husband and I are seriously considering taking a 2-year hiatus over to Canada, where I have a semi-offer on a job, and coming back here in a couple years when the property market has had time to do some decent tanking. It seems that it isn't enough just waiting for homedebtors to go broke; some of them will have to be literally starved out.
http://www.whocrashedtheeconomy.com/blog/?p=1061
Between this and the government's internet snoop reports, Australia is really starting to look to me like a good place to stay well away from for a couple years.
Prices in AU will keep going up as long as the hype continues. All I keep hearing about is 'housing shortage housing shortage'. If that's remotely close to being true, people will still thinks it's a 'guaranteed investment' and will keep bidding up and up and away...
Affordability is so far above/beyond historical norms that if you believe there'll be any sort of reversion to the average in the future then prices there will have to tank.
As for your comment about feeding kids - since when is rce not 'proper food'?
'Housing shortage' is complete bullshit. There were NEVER any numbers to support that myth. I have a good article about it in my files - IIRC it was started by a property developer.
Prices will tank when financing of the financially illiterate stops. I hope the hedgies start shorting our banks good and HARD. I hear there has already been some action that way...
China's property bubble deflating is also taking our housing prices down a peg or two.
In case you were serious...rice, in conjunction with many other staples of a good diet, can be nutritious and indeed, 'proper'.
BUT, in this context:
"The study conducted by the University of Western Sydney and supported by the Reserve Bank of Australia interviewed people suffering mortgage stress. It found “people are literally eating the bare minimum - just rice - obviously looking after their children, but putting the repayment of the mortgage above every other thing that they could possibly devote an expenditure to” according to Professor Phillip O’Neill from the University of Western Sydney. He points out this is not just in the past tense - it is still happening."
...it is obviously not selected as part of a balanced, nutritious diet, but as a way to avoid spending more on food for the children.
(Those greedy damn kids, who would take food money from the very mouths of starving fat banksters!)
PS: Found one of my 'housing shortage myth' articles...one of them. A bit dated, but quickly to hand and covers the basics of the 'housing shortage' mythology. Damn I need to organise these files again. I'll take another look for an article I found once, that actually tracks the probable genesis of this particular 'shortage' lie (the same lie, incidentally, that California and London used to justify their property bubbles).
http://www.dailyreckoning.com.au/property-buyers-are-not-buying-property-at-all/2009/08/25/
Waiting for the SNAP CRACKLE POP.....
Found it.
Here's the original article by Kris Sayce covering the genesis of Australia's 'housing shortage' lie. And it IS a lie, courtesy of the Housing Industry Association. Basically they fudged a 'housing shortage' number by counting the number of people who are not adequately housed, and then fudged some more with projections.
http://www.nowpublic.com/world/australias-housing-shortage-lie
That was from August 2009. And here's the updated version (1 June 2010):
http://www.moneymorning.com.au/20100601/housing-shortage.html
A few selected quotes for you:
But even before you get out of the Executive Summary on page xiv you’re hit with a giveaway to how unreliable the data in the report is:
Two pages later:
There’s the source of the 85,000 shortage. I’ve actually removed a sentence that followed because I want to highlight it separately.
But before I do, remember, this report is the basis for every single argument made by property spruikers.
So, how have they come to the conclusion that there was a shortage of 85,000 dwellings in Australia in 2008?
This is the part that left me speechless…
The underlining is my emphasis.
There you have it. The housing market will always rise because of the ‘chronic’ housing shortage, a ‘chronic’ housing shortage being measured by the number of homeless people...
...
Before I do, let me give you the full rundown of the 85,000 shortage.
According to the report, the dwelling gap, which is the difference between the demand for housing and the supply is made up of:
Now, the human calculators out there may think, “Hang on, that’s only 83,000.”
You’d be right. But in true statistician fashion, they are only capable of dealing in numbers rounded to the nearest 5,000…
Hence, there was a housing shortage of 85,000 homes in Australia in 2008.
But the report doesn’t stop there. Not content with providing a suspect set of numbers for 2008, the report goes on to outline the shortage for future years.
So, based on the 85,000 starting number for 2008, this has been extrapolated to 108,000 for 2009, all the way up to 431,000 for 2028.
We’re not surprised the property spruikers have never mentioned the numbers behind the gap. If they did they’d be laughed out of town.
To argue that a housing gap and therefore ever-rising property prices can be based on the number of homeless people is utter nonsense. We don’t think we’ve ever come across such statistical foolishness.
And, from 2010:
Meanwhile, what happened to the housing shortage? You know the one I’m talking about. The “chronic” housing shortage. The one where Australia is short by 135,000… sorry, 200,000 homes.
The housing shortage which will reach – what is it – 400,000 homes by 2020.
I’ll tell you what’s happened to it, it’s gone up in a puff of smoke.
We’ve final proof that it never existed. And as far as we can tell, barring a man-made or natural catastrophe, there won’t ever be a housing shortage.
I don’t think I’ve laughed so much in a long time as when I read the headline in yesterday’s The Age: “Flood of property listings to hit Melbourne market.”
“Flood”. That implies a lot. It’s the opposite of a “drought”. A “flood” is a lot. According to the Microsoft Word dictionary, flood is a synonym to deluge, torrent and overflow. On the other hand, a “drought” is nothing. Hope you’ve got that.
According to the story, “The Real Estate Institute of Victoria is predicting 1210 auction listings over the next two weeks…”
But here’s the bit that had us rolling on the floor in laughter, “A 50 per cent increase of new home listings expected over the next three weekends comes as auction clearance rates begin to falter on pricier home loans and weaker buyer confidence.”
In other words, despite the housing shortage of 200,000 homes, the property spruikers and mainstream press have had the crap frightened out of them by an extra 605 houses hitting the market over the next two weeks.
Or to put it even simpler, if we average those numbers out, an extra 302.5 houses hitting the market next weekend is considered a “flood”. And it’s causing panic because it’s seen as a “flood” of supply.
Are these people insane?
One week they’re saying with a straight pen that there’s a 200,000 housing shortage and the next week they’re worried the whole market could topple over due to an extra 302.5 homes being offered for sale in one week.
Doesn’t make sense does it?
By our calculations, 302.5 homes equals around 0.15% of the number of homes needed to address the so-called housing shortage.
We’d have thought the spruikers would be cheering that the supply has increased. After all, with a shortage of 200,000 homes, surely an increase of just 302.5 properties isn’t going to burst the bubble.
This is the capacity increase they’ve been waiting for. Isn’t it?
Of course it isn’t. The housing shortage has been the biggest myth, furphy… and dare we say it, lie so far in the twenty-first century.
It has never had any factual basis to it. All they had to do was say it enough times and people would believe it.
Now they’re panicking.
And I’ll tell you why they’re panicking. They’re panicking because they’ve known all along that the housing shortage claim was just a massive hoax. And now it’s been exposed.
Sorry about the long quotations - there's a lot more in these articles and you should look them up.
But I really, really, REALLY hate the idea of anyone appearing to justify this situation, which is rapidly ruining the country that I love the most in the whole world, and which may drive us out to shores which are, alas, friendlier to a middle class.
We heard the "housing shortage" lie plenty during the U.S. bubble as well (not that it's over yet...)
The banks, the Fed, the Treasury, have this market by the balls again. 1250 by end of August.
Finally, someone who "gets it".
stocks are cheap here... /sarc
You all do not understand. This is all bullish. When BDI drops, the cost of trade is lowered, thereby increasing the incentive to trade and stimulating commerce. See it yet?
Totally agree with all the comments above BUT none of the indicators matter any more. The FED and all other CB's have recognized that if they allow a second dip in the equities markets this whole house of cards collapses in a nano second. All you are seeing is a globally coordinated CB and their surrogates market ramp up. The announcements used to justify this "bullish mood" are bogus. It's Australia optimism one day, it's euroland euphoria the next, it will Paris Hilton's lipstick tomorrow. None of it is real.
We are all living in Uncle Ben's world now, GET USE TO IT.
I'm used to it...made a small profit going long EUR on the heels of the report, in and out quick. There is no such thing as 'investment' these days...but being used to it doesn't mean we have to feel GOOD about it, right? Or that we have to quit bitching & moaning.
I love, love, LOVE the bitchers and moaners on Zero Hedge. Beats the clueless sunny optimism of peasants drowning in debt but trusting their government, any day... (If I hear one more person here say we're the 'Lucky Country' then the homicide will be justifiable.)
Sometimes bitching & moaning is at least some, tiny degree of protest! Maybe someday all that bitching & moaning will crystallise into some real resistance.
Hi Ren, nice new avatar. Freaky, but very cool!
Good to hear you don't have to resort to a pure-rice diet among that "massive housing shortage" you guys have down there. My visit next month should prove this, what, with homeless "buyers" who have loads of cash, but simply "can't enter" the housing market due to that "massive shortage" of real estate lining the streets of Perth from the airport to the city. That's going to be tough to swallow!
Yes, the "critical" or "massive" shortage sure is a Ponzi rumor to behold, one of the best actually. When that one dies, look out!! All the best to you.
Thanks, SteveO - it isn't as cool as your Hubble look (Hubble makes for some good PC wallpaper!) but everyone keeps taking me for a guy so I needed something, you know, Female. It was either this or Barbie, and I couldn't find any picture of Straitjacket Barbie for my Renfield nick. At least, not one that my husband would let me use!
Can't wait to hear your post-mortem of your Perth housing tour, right here on Zero! You must post one, you know. You must tell everything and leave nothing out. Otherwise all these upstanding American, European, and British citizens on this fine blog will believe the RBA that there 'is no bubble' here.
I am but a solitary voice, crying in the wilderness down here!! :-D
I'll be sure to clue you in, in detail! Crikey, it's too cold to swim at the beaches down there in August, might have to stop in Asia on the way back.....:)
yes, correct but can you trade it?
will there be enough stupid people putting stupid money into this market to make a trading profit?
You are making the mistake of assuming that CB's are ominpotent and can generate wealth at will. Very similar to the assumption that government deficit spending creates real economic growth. Like all frauds from Bernie Madoff on down, CB manipulation will work until it doesn't and when it doesn't the falloff will be steep.
I NEVER said that the FED & CB's can create wealth at will. BUT, they can create digital money at will and this is what you are witnessing at play right now.
And it will work, until it doesn't.
(FOR THE RECORD, not only I don't like what they are doing, I hate it but it is what it is)
Yes, the price of shiping is cheaper. But if the BDI index is falling, it's because there are fewer goods being shipped. It means demand is down (probably because so many people are broke). I wouldn't be optimistic about that!
"The last time that this happened was early March of last year. The Dow Industrials proceeded to lose 500 points within the next few weeks. However, I do not believe that this is a valid comparison since we are so late in the liquidity and the profit cycle – and the fact that we have not really had a significant correction since the cyclical bull market began in October 2002 (or March 2003 as people would like to label it). Perhaps a slightly more valid comparison would be when the McClellan Summation Index (Ratio Adjusted) hit this level in early July 2002. On July 5, 2002, the Dow Industrials closed up 325 points to 9,379.50. A few weeks later, the Dow Industrials bottomed only July 23, 2002 at a close of 7,702.34 – a plunge of 1,677.16 points in less than three weeks."
Does history repeat itself. Only 165+/- to go on the big board. Woo Hoo!! Then we can get on with reality for the rest of July.
That purple line looks like a tail trying to wag the dog (the green and yellow lines).
does n't stop europemna markets shotting to the moo n today though
The market is only up because AAPL said they were going to fix the iPhone issues. Come on guys, you think they care about the ISM or BDIY? They only care that the sheeple are buying iPhones with reckless abandon!
Just in case you missed this a few days ago -
iPhone4 vs HTC Evo
http://www.youtube.com/watch?v=FL7yD-0pqZg&feature=youtu.beClassic! I'm an Android user myself. The iPhone movement is the epitome of being a sheeple. If Steve Jobs got on stage with a black turtleneck and jeans and talked about selling iPoop for $300, there'd still be lines out the door for it.
+++++++++++ Apple can suck my cock!!
"It prints money"
"I don't care"
ROTFLMAO!
And on the BDIY, I'm dipping my toes in some shippers, EXM mostly. 2185 is "support" on the BDIY from a technical perspective. We SHOULD get a modest bump or consolidation higher. If we go much lower, I probably average down.
Again, I'm of the belief that we'll see QE 2.0 some time before the end of this year, and Ben will inflate the heck out of everything known to man.
How does the proverb go?
"Buy when there's blood in the street" ?
Proverbs 20:12
http://www.youtube.com/watch?v=jdLDkhO49WQ
From Week 26 Cortez Report
The Dry market is facing the 6th consecutive week of daily downfalls.
"This week all the Baltic Dry indices are for once more in the red all 5 Baltic Indices have rather seriously declined with w2w percentage losses of 3.3% for the Capes and 20% for the Panamaxes! And we are still not facing in its entirety, the overcapacity threat with the massive newbuilding order?book still pending over our heads.
This downfall is not caused by increasing number and capacity of ships but by the decreasing supply of cargoes, it is caused purely because there are no cargoes out there to fix. The increasing Iron/Ore contract prices with 1st July to have brought new agreed prices in force which make it wiser to consume domestic produced iron/ore rather than imported, together with a softening in final product Steel prices have lead to the sharp drop in Cape daily earnings, with no immediate signs of any recovery. "
http://cotzias.gr/reports/weekly/Cotzias_2010_Week_26_Report_02_Jul_10.pdf
Ozzi home prices can remain purely speculative a little longer as long as more fools are found to 1) buy and 2) finance. Cash purchases from China and India will hurt the high end. Common sense will smack the rest.
The difference between the US and Ozzie housing bubbles is that someone yelled fire in the US. In Australia, the theater is burning but no one has yelled fire yet.
That's a damn good analogy. And the risk in Australia of a housing price collapse is so massive and so dire, those who are currently smelling the smoke are not going to be believed (deliberately) by the masses for some time......denial will rein a little longer yet.
But not much longer....
BDI is confirming an inventory spike. In other words, stimulus driven demand. But this brings into question the premise of using GDP to recognize recession.
This current trend is fundamentally different than the BDI drop 2008. A reluctance in corporate capital investment.
But why?
It is interesting that the classical concept of demand, in its unadulterated form, reveals the true weakness of the economy. The effects of additive structural flaws driven by failed government policies. This brings to light the rediculous notion of a jobless recovery.
The result of government waste in its many forms. The failure of our political system in proper oversight of the nation.
We ask the question: Do we have the political will to find a solution? or even the will to clearly identify the problems?
----------
Is this perhaps the beginning of a deflationary spiral?
If so, where is the FED response? and why the delay?
What is the next course of action? What assets will the FED buy now? Is it politically even possible?
----------
I guess stated another way, politically there is a lot riding on the administration's summer of recovery. If there is going to be market manipulation we should see it in action.
What will the administration say, if recovery is only subsidy?
Mark Beck
the obvious solution is for the Fed to buy up all shipping metrics included in this index so that we think that everything is fine! Do not underestimate the power of the force!
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