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Baltic Dry Index Rolls Over
The Baltic Dry index, which is the closest proxy for China's bubbleliciousness, has dropped to one month lows, and continues accelerating its drop to the downside. The dry bulk shipping sector, which was the bubble of late 2007 and early 2008, does not appear poised to make a repeat appearance just yet. As concerns over commodity overstocking in China, and Australian extraction concerns courtesy of the recent supertax, keep investors awake at night, is CNBC's "favorite" index about to retrace its 2009 lows? Furthermore, if the recent Afghanistan raw material discovery is even close to scale, the next big "thing" in Asia will be the Railroad Dry index, as construction of the world's biggest railway hub in Kabul is likely already underway. Throw in a few nuclear power plants, a couple of smelters, discover some bauxite and soon Afghanistan will eclipse Australia and Brazil as the premier commodity production center in the world. Is it time for Jim O'Neill to rebrand the N-11 index, formerly known as the BRICs, to the A index?
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Baltic Dry, I think that was the name of the drink I ordered at the bar the other night. By the way the Dow Is up today. You forgot to mention the TED spread and the IGASUUY index ( I gave a shit up until yesterday index)
"Dow is up"
Not any more...
Yeah, interesting, nearly 30 million volume on the negative right at the close. lol
Tyle,
Could you change your fonts on the graph? The scales are not legible.
Also, it would be great to see this in perspective since 2007.
Many Thanks.
Go nuts
http://www.bloomberg.com/apps/cbuilder?ticker1=BDIY%3AIND
http://stockcharts.com/charts/gallery.html?$BDI
Thanks guys.
I know this is off topic for Tyler's post here. But, I found an interesting article on HFT. http://highfrequencytradingreview.com/
I bet this will go down just like LTCM: they'll have to start reaching farther and farther for correlated spreads (i.e., lower and lower correlation). Until the correlation is about as close as my dog's farts to EURUSD. All the while, leverage will have to be increased in order to "maintain" margins. Leverage will be their undoing.
Or maybe that's stating the obvious. I catch on slow.
It the ETF universe it's called leveraged decay. IF you want to see it in action just go look at FAZ/TZA and FAS/TNA pairs. High volume, low/high price pairing and with the X3 leverage they play in each other's collective pools of cash. Not only robbing from each other, but because the leverage is set at X3 capital is built into the fixed trade value that if the ETF loses a penny it's losing it X3 the rate.
I've actually been thinking about this. The entire market is being gamed as a single leveraged ETF. Only way all the squgglely lines in the NASDAQ/DIJA/SP all seem to move like a flock of birds.
So in layman's terms it's like watching a bad drunk with a particularily stupid gambling system. They need to keep doubling down even if they are winning at the table. Not because of greed but because the drunk needs a bigger and bigger drink to keep playing. Eventually the drunk gambler either dies of booze poisoning or misses a hand and goes broke.
Nice comment. I like that idea of it all being gamed like a leveraged ETF. It's gotta crack hard when it does. I'm trying to look at the HFT world to see where/how the break's going to begin. They seem to feel like they have it all wired for now.
Dear ZH:
China has a bubble yes, but it's a managed bubble.
Middle kingdom, 6000 years, blah, blah, blah -- stop the occidental hate.
Sincerely,
Kissinger & Associates
"stop the occidental hate."
It's ok. It's a managed hate.
Occidental is western... oriental is eastern, no?
For Septics, China is in the west.
My thought here is if indeed the Chinese let their currency rise will that not increase the value of companies and investments? Not to mention their war chest of 2.5 trillion. How would that affect inflation? Would it quell it or make it rise?
In their own currency yes but what good it that. Also war is extremely deflationary even though i have heard the contrary. Capital equipment and labour in the form of canons, jets and bullets evaporating into thin air. DEFLATIONARY. The re-stockpiling on the other hand is clearly inflationary. That's why both sides of wars are funded by the same bankers.
That is clearly wrong. War is almost by definition inflationary.
During wartime, the monetary supply is usually increased heavily. At the same time, civilian production is changed to military, which means we've got more money chasing less goods = inflation.
And if you do a historic overview, war bonds have practically been the worst investment ever.
The use of current stockpiles of munitions is deflationary. It's a complete destruction of capital in it's purest form. Restocking I agree would be inflationary.
War bonds?? Who said anything about those? No, the true beneficiaries of war operate in the shadows.
More money, same amount of resources = inflation.
Less money, same amount of resources = deflation.
Same amount of money, less resources = inflation.
Same amount of money, more resources = deflation.
Munitions isn't a consumer product, but even if they were, they would lead to less resources anyway, i.e. inflation. I have no idea how you get the weird idea that more money, less resources = deflation, but given you add that "shadow" rubbish, I fear you've read it in some stupid, factually incorrect book, such as "Web of Debt".
Go browse the web about it. There are more links on this than I care to mention.
Hey idiot, understand what I wrote before criticizing it. We're talking about EXISTING stock piles that are completely destroyed. NOT the replenishment. Want an example? Go out and cancel your insurance and burn your car down to the ground. Now tell me, is that a complete destruction of capital? How will you now service a loan on a non existing asset apart from debt default (DEFLATION)? Even if your car was paid in full, your net worth has been reduced. I'm not talking about you going back out, getting a loan (inflationary) and buying yourself another car.
Where the hell are you getting the "more money" shit from? The argument here is no money because it's already been spent on the war chest and now NO capital equipment because it has been completely destroyed. You are assuming that the war chest will be completely replaced with newly printed money.
Look, you fucking moron, this was your original sentence.
"Also war is extremely deflationary even though i have heard the contrary."
You think war is deflationary. You're wrong.
Here, in the name of James Grant:
"War is inflationary. It is always wasteful no matter how just the cause. It is cost without income, destruction financed (more often than not) by credit creation. It is the essence of inflation."
Good, that is all YOU should need to convince yourself. You are FINANCING it but in the comments above IT HAS ALREADY BEEN PAID FOR. No credit creation you fuck. Now get mommy to change your diaper before you shit yourself again.
Wars are funded by printing. Or, in the case of the Romans, a reduction in silver content.
Here are another couple of quotes you can prove wrong in your revolutionary thesis about wars being deflationary:
"Political leaders always have tended to take the view that in time of war the nation must do whatever is necessary to succeed, and the financial repercussions can be dealt with later. Johnson was only following the pattern that had been adhered to by his predecessors: Lincoln during the Civil War, when inflation in the Union from 1861 to 1865 was 117%; Wilson during World War I, when prices rose from 1917 to 1918 by 126%; and Roosevelt during World War II, when prices rose from 1941 to 1945 by 108%."
Professor Fischer also provides an interesting perspective on war-related inflations in the 20th century:
Professor Fischer had some interesting things to say about the Korean War:
Most wars are funded by printing but in our example they weren't.
PS. thanks for the quotes. I lean't something today.
Ozi you are wrong, no matter how much you guys are going to be dicks to each other, what you said was wrong. Hey maybe you just made a miss print I don't know but this is wrong.
"The use of current stockpiles of munitions is deflationary. It's a complete destruction of capital in it's purest form. Restocking I agree would be inflationary."
Using up capital is inflationary. Creating capital is deflationary. Why do you think workers do not like immigrants while businesses do? Because immigrants lower the cost of labor (deflationary). Any time you make something you are easing the cost of the market to do something because you have added your labor already into the market, it has been priced in.
War is the worst form of capital destruction, which is why it is inflationary. If capital is being destroyed and being used up excessively then it is harder to get and i.e. cost more.
Gotcha. If I understand you correctly, it's like the ultimate version of Bastiat's broken window? That would make a lot of sense. Just burn down the whole earth and promote growth! Inflationary, of course, but growth (GDP) nonetheless.
Yes. Imagine destroying half the worlds capital, and killing off half the world population. It would be almost impossible to get anything that you didn't have direct access to.
Yes I've heard similar arguments before. It's like burning every house down until yours is the last standing. Your asking price has obviously increased. Is that inflationary? NO, it's capital destruction. As I've said above, inflation has absolutely nothing to do with the supply of goods but more to do with the availability of credit.
I'm sorry but I'm going to have to disagree with you within the context of this thread.
First and foremost, forget about the how wars have been fought in the past. We have prefaced the entire subject with a certain country having an existing war chest to the market value of $2.5T.
Assume it deploys the lot and is met with complete destruction and defeat. So what just happened? Capital in the form of equipment, resource and labour has completely evaporated, never to return again. Money that was spent as savings and not credited into existence as debt has also been destroyed "deflating" the money supply (actually the money supply was reduced building assets). Now assume that the army no longer replenishers it's munitions and therefore new credit creation is not required. Where is the inflation?
Less stuff in the market (pulled out by gov't) = inflationary.
Less stuff period (because it's destroyed) = inflationary.
More money created = inflationary.
Deflation is lots of stuff being dumped onto the market for pennies because people can't afford to buy them right now. Also, rounds of ammunition are not capital, except perhaps when I have to point them at thugs to keep them away from my business.
You're getting depreciation mistaken with deflation and appreciation mistaken with inflation. Cause and effect. Money supply through credit demand is the cause of inflation and deflation. That's it. Price inflation and deflation has more to do with supply and demand (appreciation and depreciation respectively). The common connection is the loose monetary policy (possibly low interest rates) that allows more people with more money to chase the same amount of goods. On the other hand, debt default (deflation) which may lead to credit retraction prevents debtors from accessing money and therefore less money chasing more goods.
So deflation has nothing to do with the amount of stuff but more to do with how much credit is available to purchase it. Also, everything can be regarded an asset if capital expenditure has been utilized through equipment and labor to add value. So ammunition can be regarded as capital depending on the use, as you stated for example.
nm, misunderstood ya
Tyler, didn't I read a article in december that the BDI in 2010 would not be a right representation of the drybulk rates?
So why care?
The BDIY is still an average proxy for spot freight rates (I personally prefer looking at the TC Avgs separately). However given the huge expansion in the supply side of the balance sheet that will take place in 2010 and 2011, freight rates will be less of a meaningful proxy for world industrial activity/demand. That being said, I dont think that you can completely discount the fact that rates have sold off.
In an age where economies can be made and destroyed electronically, who needs to haul anything anyway??
Barry would agree.
You see, we're replacing old technology like "production" and "things" with a new smart economy based on green tech.
Taxes, fees, ZIRP, stimulus spending, Entitlements, infinite pensions, and other redistributionist transfers can comfortably be done from a nice central office with no need for messy things like "markets", "capital", or "goods".
It's a central planner's dream!
Don't forget the rail shipping volume has also rolled over. Check out the individual carrier graph loads as well as their 'Recession Watch' chart at the bottom of the page.
http://railfax.transmatch.com/
Afgans will never get it together to make their lives better. The country only allows men to think. Not much you can do with only the reptilian part of the brain working.
First year of extraction of iron ore-2051. For gold, not until 70,000 people die fighting for the mine.
http://www.youtube.com/watch?v=1wiRhVzsXFM
Rusty Shorts,
Thank you very much for the link. Today had been a really dog day. It was so bad the flees left. I hit that link and laughed through the whole thing. You saved the day Rusty Shorts, thanks.
Is not close to 2009 bottom.
Now, the Moody's story....
2009 bottom BDI was around 1500
Interestingly, the BDI was dropping quite strongly also in June-July 2009. That's when the manipulated ramping up of the S&P started, in my opinion...
So, be careful in drawing conclusions from the current drop in BDI - also because the last top is probably not priced in yet (meaning there might come a small rally soon)
This time the speed of the fall is more pronounced than in the last few times during 2009 and 2010...
Well... Brazil is fucked. VALE is fucked. China (and India) will get all the iron ore it needs by railroad.
PS.: What is the stock symbol for "TransTibetan Rail & Co" of CEO Dalai Lama?
They will also get to the NG they need. The US on the other hand has to liquify...or not. ouch.
No, wait, China's exports were supposed to be up a whopping 50% last month
.....although containers into Long Beach were only up 18% y-o-y and the relative weakness of the EUR to the RMB makes it unlikely it was any better there.
Are you suggesting the Chinese fibbed about the export number? LOL
I know, China has never lied or mitted any important information regarding their department of commerce.
It's not like it cost them anything to lie through their teeth. They just need to leak the news story to practically anyone at Bloomberg then Digg.com and it'll be front page fodder in no time.
This is a key index. Railroad index, yep yep yep yep......
And whoda thunk the Af has resources....hmmm.......ironic? Noooo.....
Afghanistan's biggest resource is Opium/Heroin !
The Chinese buy resources in bulk and make them available to both state controlled and private industries. These industries can also buy on the open market. In general they will pay higher prices versus buying from government stockpiles. In the past few years of depressed commodity prices, there has been a massive stockpiling of resources by both the government and private entities including individuals. The bulk index drop is partially the result of higher commodity prices causing the government to taper off purchases and slow recovery in the markets China sells into.
It is interesting that the shipping crates, cable spools, pallets and other items made of plywood we have been getting from China for the past 4 years have been made out cabinet grade plywood. It is amazing to see beautiful blemish free veneer plywood being cut up to make shipping crate and pallets. This is an example of the stockpiles the Chinese government has. You order cheap plywood and they ship you what is in the government warehouses for the same price. Sometime about 4-5 years ago China must have bought a huge consignment of furniture grade plywood.