"Nowhere To Hide" As Baltic 'Fried' Index Careens To Fresh Record Low

Tyler Durden's picture




 

Another day, another fresh all-time record low in The Baltic Dry Index as Deutsche Bank's "perfect storm" appears ever closer on the horizon. Plunging 4.7% overnight to 445 points, this is 20% lower than the previous record low in 1986 and as one strategist warns, "It’s a brutal start of the year, there’s just nowhere to hide on the market."

 

 

"This looks like a ripple effect from what happened back in August," adds Alexandre Baradez, chief market analyst at IG France, hopefully looking forward, "it might continue for a few weeks, but given China’s central bank fire power, it shouldn’t last for more than that."

But Deutsche's "perfect storm" looms...

The improvement in dry bulk rates we expected into year-end has not materialized. And based on conversations we've had with several industry contacts, we believe a number of dry bulk companies are contemplating asset sales to raise liquidity, lower daily cash burn, and reduce capital commitments. The glut of "for sale" tonnage has negative implications for asset and equity values. More critically, it can easily lead to breaches in loan-to-value covenants at many dry bulk companies, shortening the cash runway and likely necessitating additional dilutive actions.

 

Dry bulk companies generally have enough cash for the next 1yr or so, but most are not well positioned for another leg down in asset values

 

The majority of publically listed dry bulk companies have already taken painful measures to adapt to the market- some have filed Chapter 11, others have issued equity at deep discounts, and most have tried to delay/defer/cancel newbuilding deliveries.

 

The additional cushion, however, is likely not enough if asset values take another leg down; especially given the majority of publically listed dry bulk companies are already near max allowable LTV levels.

 

The move to sell assets in unison can lead to a downward spiral, where the decline in values leads to an immediate need for additional equity to cure LTV breaches.

Source: Deustche Bank

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Thu, 01/07/2016 - 15:37 | 7013105 Iam_Silverman
Iam_Silverman's picture

"At some point they have to stop the market slide to avoid margin calls.  Unless that's what they want."

Could be that all of those "in the club" are safely out now, and all of the rest are going to have to fend for themselves.

Thu, 01/07/2016 - 15:19 | 7012980 Yen Cross
Yen Cross's picture

 I think Kelly Evans is a pretty sharp woman. She know's what's going on, and asks good questions.

 I can see her holding back, at certain times, but she's pretty intuitive.

Thu, 01/07/2016 - 15:25 | 7013022 Jason T
Jason T's picture

bleeping shit!

Thu, 01/07/2016 - 15:26 | 7013035 RobD
RobD's picture

Forget that cabin in the woods or the reconditioned missile silo just go out and get a somewhat used cargo ship for cheep! Fill it with your preps and cheap bunker fuel. Anchor it somewhere warm near the equator away for the shit and ride it out. Brilliant!

Thu, 01/07/2016 - 15:38 | 7013113 Iam_Silverman
Iam_Silverman's picture

"Anchor it somewhere warm near the equator away for the shit and ride it out. Brilliant!"

What a wonderful idea for a screenplay!  I shall call the movie "Waterworld".

Now who should I cast as the star?

Thu, 01/07/2016 - 15:27 | 7013037 ah-ooog-ah
ah-ooog-ah's picture

Wi Tu Loh !

 

 

Sorry, promise not to use that one anymore after today.

Until SPX down below 1000 that is.

Thu, 01/07/2016 - 15:28 | 7013049 pashley1411
pashley1411's picture

Caused by global warming.   And guns.

Thu, 01/07/2016 - 15:29 | 7013052 RobD
RobD's picture

3:30 ramp time, lets see that hockey stick!

Thu, 01/07/2016 - 15:42 | 7013130 RobD
RobD's picture

Impressive ramp wow but will it hold?

Thu, 01/07/2016 - 15:29 | 7013059 surf0766
surf0766's picture

B-Cups where are youuuuuuuuuuuuuu

Thu, 01/07/2016 - 15:30 | 7013061 seek
seek's picture

Of course, trade in materials grinds to a halt when there's stacks of inventory and no one is buying finished product.

Thu, 01/07/2016 - 15:32 | 7013075 Goldbugger
Goldbugger's picture

And the Ship is just getting started.

Thu, 01/07/2016 - 15:38 | 7013110 NEOSERF
NEOSERF's picture

Someone just stepped into the market from the US PPT group...red phone in Jamie Dimon's office ringing all day?

Thu, 01/07/2016 - 15:39 | 7013114 NRGTDR
NRGTDR's picture

Time for the Fed to raise rates.

Thu, 01/07/2016 - 15:40 | 7013119 Mark Mywords
Mark Mywords's picture

Same ship, different day.

Eat ship and die, Baltic Dry Index!

Thu, 01/07/2016 - 15:43 | 7013132 E.F. Mutton
E.F. Mutton's picture

I bet they will sell their mothers to get the S&P above 1950 by close

Thu, 01/07/2016 - 15:53 | 7013184 Yen Cross
Yen Cross's picture

Lower highs, and higher lows..  You have a good argument.

 There's a multi year wedge, that might break out, or get rejected.

  Based on global debt, and lack of demand, inventory reductions, I think we need to clean the system.

 It's pretty apparent that retailers held back inventory this year, based on (YOY) sales. They knew it would be slow, and held back inventory.

 

 

Thu, 01/07/2016 - 17:21 | 7013752 dynomutt
dynomutt's picture

Time to ship the garbage over for "recycling" back to China and India.

Thu, 01/07/2016 - 18:23 | 7014093 Government need...
Government needs you to pay taxes's picture

One anecdote from the field comes from one of the independent truckers who brings me inputs.  He's stuck load-less near McAllen TX.  Every year for the past 7 years, he's been able to count on a return load (to upper midwest) of steel unloaded from a nearby Gulf Coast port.  This year, no ship came into the port with steel.  So I'm sweating my supply chain from that provider.  His load-board is unusually sparse for January, which is typically a tough month.

Sat, 01/09/2016 - 12:57 | 7022168 DeadCatBouncer
DeadCatBouncer's picture

The BDI has been falling for a long time and it shall continue to fall as the Excession accelerates.

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