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Guest Post: Baltic Dry Index Signals Renewed Market Decline

Tyler Durden's picture





 

Submitted by Brandon Smith from Alt Market

Baltic Dry Index Signals Renewed Market Collapse

Much has been said about the Baltic Dry Index over the course of the last four years, especially in light of the credit crisis and the effects it has had on the frequency of global shipping.  Importing and exporting has never been quite the same since 2008, and this change is made most obvious through one of the few statistical measures left in the world that is not subject to direct manipulation by international corporate interests; the BDI.  Today, the BDI is on the verge of making headlines once again, being that is plummeting like a wingless 747 into the swampy mire of what I believe will soon be historical lows. 

The problem with the BDI is that it is little understood and often dismissed by less thoughtful economic analysts as a “volatile index” that is too “sensitive” to be used as a realistic indicator of future trends.  What these analysts consistently seem to ignore is that regardless of their narrow opinion, the BDI has been proven to lead economic derision in the market movements of the past.  That is to say, the BDI has been volatile exactly BECAUSE markets have been volatile and unstable, and is a far more accurate thermometer than those that most mainstream economists currently rely on.  If only they would look back at the numbers further than one year ago, they might see their own folly more clearly.

Introduced in 1985, the Baltic Dry Index first and foremost is a measure of the global shipping rates of dry bulk goods, mostly consisting of vital raw materials used in the creation of other products.  However, it is also a measure of demand for said materials in comparison to previous months and years.  This is where we get into the predictive nature of the BDI…

In late 1986, for instance, the BDI fell to its lowest level on record, then, began a slow crawl towards moderate recovery, just before the Black Monday crash of 1987. 

Coincidence?  Not a chance.  From 2001 to 2002, a similar sharp collapse in the BDI preceded a progressive drop in the Dow of around 4000 points, ending in a highly suspect (Fed engineered) illegitimate recovery.  In 2008, the index fell to near record lows once again just before the derivatives and credit crisis hit stocks full force.  To imply that the BDI is not a useful measure of future economic trends seems like an astonishingly ignorant proposition when one examines its very predictable behavior just before major financial downturns. 

This is not to suggest that the BDI can be used as a way to play the stock market from day to day, or often even month to month.  MSM analysts rarely look further than the next quarter when considering any financial issue, and that is why they don’t understand the BDI.  If an index cannot be used by daytraders to make a quick buck in a short afternoon, then why bother with it at all, right?  The BDI is not an accurate measure of the daily market gamble.  It is, though, an accurate measure of where markets are headed in the long run and under extreme circumstances.

Over the course of the past month, the BDI has fallen around 65% from above 1600 to 726.  Mainstream economists argue that the BDI’s fall in 2008 was a much higher percentage, and thus, a 65% drop is nothing to worry about.  They fail to mention that shipping rates never recovered from the 2008 collapse, and have hovered in a sickly manner near lows reached during the initial credit bubble burst.  By their logic, if the BDI was at 2, and fell to 1, this 50% drop should be shrugged off as inconsequential because it is not a substantial percentage of decline when compared to that which occurred in 2008, even though the index is standing at rock bottom.  Yes, the useful idiots strike again… 

Looking at the rate and the speed of decline this past month, it’s hard to argue that the current 65% drop is meaningless:

Another subversive argument against the BDI is the suggestion that it is not the demand for raw materials that is in decline, but the number of shipping vessels out of use that is growing.  A smart person might suggest that these two problems are mutually connected.  An MSM pundit would not. 

In 2008, many ships were left to wallow in port without cargo, but this was due in large part to two circumstances.  First, demand had fallen so much that too many ships were left to carry too little raw materials.  Second, credit markets had sunk so intensely that many ships could not find trade financing necessary to take on cargo.  In either case, the BDI still falls, and in either case, it still signals economic danger.  The only way that the BDI could signal a major decline in shipping demand artificially or inaccurately is if a considerable number of ships under construction were suddenly released onto the market while there is no demand for them.  There have been no mass increases or extreme changes in cargo fleets this past month, or at all since 2008, which means, the BDI’s decline has NOTHING to do with the number of ships in operation, and everything to do with decline in global demand.

What is the bottom line?  The stark decline in the BDI today should be taken very seriously.  Most similar declines have occurred right before or in tandem with economic instability and stock market upheaval.  All the average person need do is look around themselves, and they will find a European Union in the midst of detrimental credit downgrades and on the verge of dissolving.  They will find the U.S. on the brink of yet another national debt battle and hostage to a private Federal Reserve which has announced the possibility of a third QE stimulus package which will likely be the last before foreign creditors begin dumping our treasuries and our currency in protest.  They will find BRIC and ASEAN nations moving quietly into multiple bilateral trade agreements which cut out the use of the dollar as a world reserve completely.  Is it any wonder that the Baltic Dry Index is in such steep deterioration?

Along with this decline in global demand is tied another trend which many traditional deflationists and Keynesians find bewildering; inflation in commodities.  Ultimately, the BDI is valuable because it shows an extreme faltering in the demand for typical industrial materials and bulk items, which allows us to contrast the increase in the prices of necessities.  Global demand is waning, yet prices are holding at considerably high levels or are rising (a blatant sign of monetary devaluation).  Indeed, the most practical conclusion would be that the monster of stagflation has been brought to life through the dark alchemy of criminal debt creation and uncontrolled fiat stimulus.  Without the BDI, such disaster would be much more difficult to foresee, and far more shocking when its full weight finally falls upon us.  It must be watched with care and vigilance...

 


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Mon, 01/30/2012 - 10:07 | Link to Comment SheepDog-One
SheepDog-One's picture

Surely Bernank will just print some shipping in 15 microseconds.

Mon, 01/30/2012 - 10:35 | Link to Comment HedgeAccordingly
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BDI has been dead since 2008 october .  http://hedge.ly/zUFiks

Mon, 01/30/2012 - 10:50 | Link to Comment The Monkey
The Monkey's picture

Treasuries smoking everything again this morning.

Tyler - you've been wrong about USTs buddy. Rally may have another 40 - 90 bps to go on the 30 year. Then they will sit close to the lows for a long, long time.

Will be many years before you see 5% again on the 30 year UST.

Mon, 01/30/2012 - 11:11 | Link to Comment squale
squale's picture

"The Monkey".. how do I contact you directly?

Mon, 01/30/2012 - 16:04 | Link to Comment akak
akak's picture

He can be found at the Great Ape House at the Chicago Zoo, along with a number of other jabbering, poo-flinging monkeys.

Mon, 01/30/2012 - 21:36 | Link to Comment The Monkey
The Monkey's picture

You can't, but I'll gladly share my opinions here on ZeroHedge. Groupthink doesn't bode well for anyone. This is a great blog, I just happen to be on the other side of the inflation and precious metals argument. Otherwise, I'm as anti-Federal Reserve / bailout regime as the next guy.

I can see some folks take issue with that given all my downvotes.

Mon, 01/30/2012 - 21:41 | Link to Comment akak
akak's picture

Let's just say that your post above sounded more than a little .... Robotic.

Tue, 01/31/2012 - 01:05 | Link to Comment The Monkey
The Monkey's picture

Hey, I love ZeroHedge, but no one is perfect. Gold has been trucking along okay, maybe I will totally miss the boat as it soars to $10k.

Fri, 04/06/2012 - 07:02 | Link to Comment jaffa
jaffa's picture

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Mon, 01/30/2012 - 11:46 | Link to Comment SheepDog-One
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The only game in town now is to scratch and claw at that .25% interest rate, from here on out.

Mon, 01/30/2012 - 12:29 | Link to Comment TruthInSunshine
TruthInSunshine's picture

The Bernank's y shaped recovery is on track.

y's bottom is far deeper than L's - and in fact, is a black hole (with a false signal of  recovery to lull suckers into their slaughter).


*Some who are confuzled by The Bernank have thus far only been able to envision what appears to be a perplexing Z or X shaped recovery. They are prone to such exploits because they naively believe The Bernank is well-intentioned and trying to put a floor under the quicksand that the middle class have encountered, when in fact, The Bernank poured that quicksand in order to sacrifice the middle class (and what was a 2/3rd's consumer consumption economic model) on behalf of the Money Masters.

Mon, 01/30/2012 - 13:56 | Link to Comment Astraea
Astraea's picture

Does anyone actually believe,still, anything that any of these liars, chets and thieves say?    Has 9t not been obvious for years and years that they say whatever they like, often saying the exact opposite of what they say at the begining of a sentence to what they say at the end.     They actually do that - all the time.     I do not understand why anyone takes any notice of any of them      They treat us all like complete dimwits - and I suppose a lot of us behave like dimwits.    The whole of the US Congress sits and pretends to listen and take in what this liar or that liar says about "The Economy" but they obviously do not even hear what is said because they do not notice it is literallly gobblygook or that the man says different things, contradicting himself.     No wonder he always has athat supercilious look on his lying face.    

Have they no shame?   NONE?

 

Mon, 01/30/2012 - 10:39 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Somehow 'Weak Bottom Line" and Shipping have a very ominous ring to them together. It signalled demand destruction in 08, it probably signals end of globalization as we know it now.

Plus, you cannot have all manners of merchant traffic snarling up key WAR LANES at a time like this, eh?

There are games to be played, bombs to be dropped. Even the oceans are just is not big enough for the Big Boys Vs. Rest of the world.

So I'll ask again....

Anyone reading this brave enough, courageous enough, open-minded enough, sharp enough to actually try and DO something about this Oily grip around our collective throats?

Anyone?

 

ori

Killing the OIL Paradigm >>> watershed-day-may-this-pour-through-a-million-pairs-of-eyes/

Mon, 01/30/2012 - 11:02 | Link to Comment Freegolder
Freegolder's picture

Hello Oh Regional Indian.

Here is the first paragraph from your post on your blog:

'Today, with the New MOON in Aquarius, begins the Year of the Water Dragon. Astrologically, the North Node, also called the Head of the Dragon, represents the area in our charts where we can exercise the most amount of free will. This means that 2012 is a year that our conscious choices rather than fate, will determine outcomes.'

Just thought I'd share that with ZH readers to save them the time of visiting your blog. Or should that be visi-ting?

However, perhaps you could start a daily horoscope update here on ZH instead? You know, take a well known figure (the Bernank perhaps?), find out his birth day, and give him a free horoscope reading?

All mumbo-jumbo of course, but you do seem to have fun doing it.

 

Mon, 01/30/2012 - 12:31 | Link to Comment Oh regional Indian
Oh regional Indian's picture

You can go Fondle your Freegold now Freegold.

All the way to kingdom Come.

ori

Mon, 01/30/2012 - 12:38 | Link to Comment blindfaith
blindfaith's picture

 

 

Humm...before you discount mumbo-jumbo, you might consider that 9 or 10 astrologers said over a year before the "Arab Spring" it was going to happen in 2011.

One man's mumbo-jumbo is anothers religion.

Being critical of something you have never investigated is a sign of modern thinking...congratulations.

Mon, 01/30/2012 - 13:13 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

how do you know he never "investigated" "astrology"?

L0L!!!  oroe-like thought patterns, here, sherlock! 

or has everyone who considers it mumbo-jumbo never "investigated" it?

oreo's astrology is one thing

his spamming is another

even a fan of this "regional" turd might recognize he is shitting on zeroHedge constantly with his trademark spamming and compulsive string-jumping to get his daily quota of "clicks"

constant, unmitigated troll-like behavior is indicative of what, BiCheZ? 

anybody?

huh?

people can spam here.  they just goto the bottom of the page and run their "ads" there or make a relevant reply as opposed to thousands of string-jumping "reply"s

we handle disrespectful trolls and true asswipes here, all the time

oreo is a cream-puff, really;  i would advise him to listen to slewie;  slewie can handle this toy-boy oreo, too.  he knows it, i know it, and the readership knows it.  so he needs to stop the trolling and do his spamming in conformity w/ the other fuk-bots and "columnists" on these strings.  we all know this.  wtf's the matter with this pathetic loser?

Mon, 01/30/2012 - 16:58 | Link to Comment JPM Hater001
JPM Hater001's picture

Watch the Scole Experiments and you may start doubting you know anything.

Sometimes the things we need to wake up from are much deeper than you think.

Just havent figured out how I explain that next one to my wife.  Accepting the collapse was hard enough for her to take.

Mon, 01/30/2012 - 20:55 | Link to Comment StychoKiller
StychoKiller's picture

How do you wake someone up that's pretending to be asleep?

Tue, 01/31/2012 - 01:43 | Link to Comment Theosebes Goodfellow
Theosebes Goodfellow's picture

Uhm..., I use dynamite. Works every time. Makes 'em jump like hell.

Mon, 01/30/2012 - 13:01 | Link to Comment blindfaith
blindfaith's picture

 

 

By the way Freegolder..."represents the area in our charts where we can exercise the most amount of free will. This means that 2012 is a year that our conscious choices rather than fate, will determine outcomes.'...

this, by odd considence happens to be the same thing the Myan's calandar also predicts...not that the world is going to end as so many uninfomed seem to have bought hook, line, and sinker...and koolade.

Mon, 01/30/2012 - 10:44 | Link to Comment VanillAnalyst
VanillAnalyst's picture

Well, on the upside, if the BDI drops are actually due to a decline in the number of ships used, we should be able to easily transition into Kevin Costner's post-apocalyptic Waterworld, as more vessels are available for the smokers. Bernanke can be that guy sitting in the little dingy in the oil tank.

 

Long cigarettes, boose, and ammunition.

Mon, 01/30/2012 - 10:52 | Link to Comment Global Hunter
Global Hunter's picture

thumbs up for a waterworld reference, I'd give you a second if you've watched the whole thing (if I could).

Mon, 01/30/2012 - 11:06 | Link to Comment YC2
YC2's picture

Supply has crept upward for years, esp due to the long lead time on ships commissioned during the price spike, though there are no recent dramatic increases.  The price of shipping is in a bear market due largely to this massive oversupply, and its going to trend down more aggressively to negative changes in demand in general.  IE the bid side is thin.  It is this supply driven bear market that makes taking price drops and attributing them to demand makes some sense, but really it ignores what is by far the overall driver of market direction in shipping currently.

Tue, 01/31/2012 - 02:25 | Link to Comment dubbleoj
dubbleoj's picture

You are correct.

Supply has not only crept upward, it has leapt upward in the last few years. Just last year alone 60 super container ships (with capacity over 14,000TEU) were odered. This year new deliveries will increase supply by 12%. Delivered TEU capacity will be 766,000ish, with only 120,000TEU being scrapped.  And this is just container vessels, total deadweight tonnage in all shipping is going through the roof. This will continue for the next two years as stupid owners keep buying stupid ships and dont scrap enough. Shipping companies have been waging a market-share war, lowering the hell out of prices to kill off the small guys, while the huge companies have been living off their cash reserves. Its been working. 

Sure consumer demand is down, shipping portfolios are being offloaded by tons of banks making it hard to secure financing, whatever, all valid. I firmly believe in the BDI's value as an economic indicator, but to say that supply currently has no effect and is not creating an imbalance means you have no idea what is going on in the shipping industry itself.  Micro does affect macro.

Remember that WTI/Brent spread that was bigger than Bernanke's asshole last year? Most people assume it was due to the glut at Cushing combined with slack demand in the US, pushing prices DOWN. Whats going on now? Enbridge bought that pipeline from Conoco and started reversing its flow back to the Gulf, which (coupled with other political nonsense/market manipulation) has cut the spread by more than half. 

Vague economic assessments without clear insight into the actual actors in an industry leads to misinformation. 

Mon, 01/30/2012 - 12:46 | Link to Comment blindfaith
blindfaith's picture

 

 

The trash and garbage pile floating in the Pacific Ocean is now about 1/2 the size of the USA.

In a few more years we won't need no stinking boats, we'll drive the stuff back and forth.  Or Burlington Northern will build a floating railroad to Asia and make Flaglers railroad look like a sideyard idea.

And, besides, in a few years we will be heading to the moon and everyone knows boats can't fly.

Mon, 01/30/2012 - 13:46 | Link to Comment fuu
fuu's picture

Someone didn't watch Starblazers as a kid.

Mon, 01/30/2012 - 22:35 | Link to Comment LongBalls
LongBalls's picture

Who needs ships anyway. Half that cheap crap is floating for free on the Pacific. It should arrive in a few weeks.

Mon, 01/30/2012 - 10:10 | Link to Comment AC_Doctor
AC_Doctor's picture

This can't be blamed on the Chinese New Year.  Maybe we can just load up 50 cargo ships with rubber dog shit from China and ship it to Wal-Mart for a little weekend boostie...

Mon, 01/30/2012 - 10:27 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Hopefully....it won't even contain any poison.

 

 

Mon, 01/30/2012 - 16:20 | Link to Comment akak
akak's picture

Melamine --- it's not just for breakfast anymore!

Plastic rice: it's what's for dinner.

Lead-coated pacifiers: when you positively, absolutely need to poison your child overnight.

 

Ni hao ma?

Mon, 01/30/2012 - 10:29 | Link to Comment Dr. No
Dr. No's picture

"Your this close Mavrick to flying a cargo plane full of rubber dog shit out of Hong Kong!"

Mon, 01/30/2012 - 10:34 | Link to Comment francis_sawyer
francis_sawyer's picture

Yes Sir!

Mon, 01/30/2012 - 10:12 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

'It must be watched with care and vigilance...'

Waterfall. How much longer will the Chinese New Year excuse hold?

Mon, 01/30/2012 - 10:37 | Link to Comment SheepDog-One
SheepDog-One's picture

Ancient Chinese secret...no shipee rubber dogshit to Americans of Walmart on Chinee New Year.

Mon, 01/30/2012 - 10:14 | Link to Comment JPM Hater001
JPM Hater001's picture

Good bye blue sky...good bye...

Mon, 01/30/2012 - 16:12 | Link to Comment creviceCaress
creviceCaress's picture

Did you ever wonder why we had to run for shelter when the
promise of a brave new world unfurled beneath a chemtrail sky?

 

..that blue sky?

Mon, 01/30/2012 - 17:20 | Link to Comment JPM Hater001
JPM Hater001's picture

The exact same one.

My wife loves me.  She got me front row tickets to Roger Waters Performing The Wall in St Paul in June.

Best brithday present ever...

Mon, 01/30/2012 - 10:14 | Link to Comment Zero Debt
Zero Debt's picture

And idle containerships are up 85% Year-On-Year....

http://www.thaibsaa.com/news/world-shipping-news/921--idle-containership...

 

Mon, 01/30/2012 - 10:26 | Link to Comment juggalo1
juggalo1's picture

This pisses me off so much.  Container lines are coming with price increases because they are losing money.  So F$%^ing what?  Demand is flat to down, supply is going up, means prices go down.  Suck it up.  Until a few of you bastards go bankrupt, no GRI for you!

Mon, 01/30/2012 - 10:36 | Link to Comment francis_sawyer
francis_sawyer's picture

Well as it CLEARLY demonstrates in the photo... The BDI is low because the ships seem to have the nasty habit of keeling over and dumping the containers off the port side...

Mon, 01/30/2012 - 10:43 | Link to Comment fuu
fuu's picture

Fail boat!

Mon, 01/30/2012 - 10:15 | Link to Comment MFL8240
MFL8240's picture

From your clown!  State of the Union, 

 

Although unemployment in the country remains high at 8.5 per cent, the president said the economy was recovering from the two-year recession.

 

Where sir clown?

Mon, 01/30/2012 - 10:16 | Link to Comment paloma
paloma's picture

BDI reflects rates and not tonmiles or cargo activity. Rates are collapsing due to oversupply of ships. Classic cycle. 

 

Mon, 01/30/2012 - 10:20 | Link to Comment SheepDog-One
SheepDog-One's picture

Sudden 'oversupply' of ships just in the last 2 weeks caused it? 

Mon, 01/30/2012 - 10:28 | Link to Comment _ConanTheLibert...
_ConanTheLibertarian_'s picture

Yeah, amazing huh. There should have been a giant tsunami because of all the new ships thrown in the water...

Mon, 01/30/2012 - 10:29 | Link to Comment Watson
Watson's picture

I did read somewhere that newly built ships are mostly delivered in January.

Doesn't explain the earlier falls however (unless the total amount of deliveries are known in advance).

Mon, 01/30/2012 - 12:27 | Link to Comment Non Passaran
Non Passaran's picture

Of course, see Freegolder's post in reply to OrI: the free will is at its lowest just before the moon enters whatever, so shipbuilders simply have NO CHOICE but to deliver ships in January.

Mon, 01/30/2012 - 10:37 | Link to Comment chindit13
chindit13's picture

You know it's bad when new bulk carriers are being christened with a bottle of Boone's Farm Apple Wine instead of Dom Perignon.

Mon, 01/30/2012 - 12:24 | Link to Comment LFMayor
LFMayor's picture

I find your taste in vinyards apt and delightful, but a man who knows how to tie a real gutter drunk on partakes only of Cisco Red.

Check out Bumwine or Ghettowine dot com for a laugh sometime.  They held "judgings" and have testimonials, too.  Reminds me of some of the 7-11 supplied drunks I went on in the Navy.

Mon, 01/30/2012 - 12:53 | Link to Comment blindfaith
blindfaith's picture

 

 

I think Sly Fox vineyards has some choice swill for launching Ponzi schemes so why not boats?

Dig those harbors deeper, make those canals wider, make the loses greater...kool investments abound.

Mon, 01/30/2012 - 10:25 | Link to Comment Ahwooga
Ahwooga's picture

Also the lag time from highly levered finance deals to fund a long-term building project like a bulker. Add into this the conversion of old single-hull VLs and you have a glut of supply. However to blame the current decline entirely on supply is in my view naiive and without further investigation into current charterparties and spot demand the number is mostly irrelevant. The historical comparisons are holding though, and until they dont I will be highly suspicious of any "market and economic improvement" and will continue to be on the fringes in small size. The BDI doesnt lie (at least not yet...)

Mon, 01/30/2012 - 10:26 | Link to Comment _ConanTheLibert...
_ConanTheLibertarian_'s picture

Either you didn't read the article or you are in denial.

Mon, 01/30/2012 - 10:35 | Link to Comment Dr. No
Dr. No's picture

the only way that the BDI could signal a major decline in shipping demand artificially or inaccurately is if a considerable number of ships under construction were suddenly released onto the market while there is no demand for them.  There have been no mass increases or extreme changes in cargo fleets this past month, or at all since 2008, which means, the BDI’s decline has NOTHING to do with the number of ships in operation, and everything to do with decline in global demand.

 

It really wasnt that long of an article to read...

Mon, 01/30/2012 - 10:18 | Link to Comment fuu
fuu's picture

It vaporized.

Mon, 01/30/2012 - 10:39 | Link to Comment francis_sawyer
francis_sawyer's picture

+1

You SOLVED it fuu!!!

The MF Global money was in those containers falling off the port side in the photo...

Mon, 01/30/2012 - 11:03 | Link to Comment JohnG
JohnG's picture

Damn.  So was my gold.

Mon, 01/30/2012 - 11:32 | Link to Comment fuu
fuu's picture

My silver as well. <cry>

Mon, 01/30/2012 - 11:59 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

awwww....! 

tough maritime losses 4 both au  L0L!!!

forunately (pour moi), slewie had the "market foresight" to buy 100 insurance "contracts" on his gold, and 1000 on yer silver!

<twirls virtual 'stache>   heh, heh, heh...

Mon, 01/30/2012 - 12:04 | Link to Comment fuu
fuu's picture

Chillin like a villain.

Mon, 01/30/2012 - 10:18 | Link to Comment The Count
The Count's picture

Most economists are total idiots. I am also an economist. Maybe and idiot, maybe not. Most economists simply come up with "analysis" that confirms the company's management stance or the governments agenda. Otherwise my fellow geniuses would have foreseen the the financial crisis here and in Europe, right? CPI. Food and energy? Way to "volatile"...must not use that data...BDI? Whoa, big guy. No way we are going to use that data either. 

Mon, 01/30/2012 - 10:46 | Link to Comment Global Hunter
Global Hunter's picture

I don't see why food, energy and shipping prices would have any correlation to the overall economy (sarc).  

Sometimes it is surreal to be alert isn't it?  I don't think anything could be any more basic or fundamental to a society's well being and thus economic health than affordable food, energy and shipping costs (add in shelter, clcothing and clean water) and establishment economists simply overlook the most important materials required for a society to survive let alone thrive.  

Mon, 01/30/2012 - 10:20 | Link to Comment the not so migh...
the not so mighty maximiza's picture

Revelation 18:11  in da house

 

http://bible.cc/revelation/18-11.htm

 

Mon, 01/30/2012 - 10:44 | Link to Comment francis_sawyer
francis_sawyer's picture

"The merchants of the earth will weep and mourn over her because no one buys their cargoes any more--"

Yes indeed... it's a SAD DAY when people stop buying rubber dog shit...

Mon, 01/30/2012 - 10:51 | Link to Comment Global Hunter
Global Hunter's picture

Ship wubbar dog poo to you even cheaper, shipping company pays us lots of american paper fiat to fill container, this alone will add growth to both our great nation's 2012 GDP.  Soon we will stop shipping rubber poo and just fill container with American fiat dollars and ship it back to stoke our iron furnaces.

Mon, 01/30/2012 - 10:21 | Link to Comment The Fonz...befo...
The Fonz...before shark jump's picture

Think of the fuel and energy savings from all these idle ships...that's bullish right?

Obviously sarc....

Mon, 01/30/2012 - 10:24 | Link to Comment Mitch Comestein
Mitch Comestein's picture

Chinese new year my balls.  You are telling me that a communist country shuts down because of a holiday.  You would have been sent to the gulag for that in Russia and never heard from again.  Stop working...only in America.

Mon, 01/30/2012 - 10:26 | Link to Comment SmoothCoolSmoke
SmoothCoolSmoke's picture

I'm as bearish as they come.... but one thing about the BDI puzzles me.  BDI is currently where it was in March '09 (SP 666).  But the SP is currently at 1300. So, if the SP went to 666 now....BDI would go to 360?  Whoa, that would be a low (and seemigly unlikely) #! 

Mon, 01/30/2012 - 10:32 | Link to Comment Quintus
Quintus's picture

I would argue that the financial markets are now so utterly disconnected from the real economy that any previous relationship between the SP and BDI is now meaningless.  

Ben can make the SP dance like a performing dog if he wants (and he does) but that isn't going to move a single containerload of real product, other than containers of paper stock to the Mariner Eccles' print room.

Mon, 01/30/2012 - 10:47 | Link to Comment WonderDawg
WonderDawg's picture

That, or the S&P is lagging and will soon catch up quickly and leave everyone's head spinning.

Mon, 01/30/2012 - 11:07 | Link to Comment _ConanTheLibert...
_ConanTheLibertarian_'s picture

The truth is usually somewhere in the middle...

Mon, 01/30/2012 - 10:50 | Link to Comment Watson
Watson's picture

I take your point about the financial markets, but you may want to think about:

1. Back in 2009 the view was that the collapse in banks could bring down the rest of the economy, just through not having a payments system anymore. So the effect on the S&P should not just be to set all bank shares set to zero, but also many other company shares reduced.
But now, everyone knows that whatever happens inside C, BAC etc., the payment system will be preserved. So that secondary effect is no longer present.

2. Actually, ex-financial services, I'm not so sure that the US is in such bad shape. Yes, it would be nice if more jobs were created, but would you have thought, even a few months ago, that there would be signs of manufacturing coming back to the US? The US did quality manufacturing (remember HP in the old days) long before the Japanese...and with enough effort it could be brought back.

Mon, 01/30/2012 - 12:21 | Link to Comment Raging Debate
Raging Debate's picture

I share the sentiment. Unfortunately, more confidence destroying politics are to come before elections... I don't know the impact yet or could even fully opine but I intend to follow and measure it to some degree. I am ready for real-time measurement system and will begin building one. Consulting sounds like a good racket right now, as I am traditionally in consumer marketing acquiring customers/patients for clients and that isn't happening at the rate I would like. The marketing and publishing pieces already built however, do make for decent samples.

Here is to cautious optimism.

Mon, 01/30/2012 - 10:28 | Link to Comment agNau
agNau's picture

Spain Grounded!
Just like Spanair.
http://www.bbc.co.uk/news/business-16787761

Mon, 01/30/2012 - 12:09 | Link to Comment Stuck on Zero
Stuck on Zero's picture

I love this statement:

"The Spanish government is taking legal action and said Spanair could be fined 9m euros (£7.6m; $11.9m) over the collapse."

Should they also fine people for dying?  Are governments any more ludicrous than this?

Mon, 01/30/2012 - 10:30 | Link to Comment pine_marten
pine_marten's picture

We have a great indicator right here in small town America.  UPS trucks are as rare as hen's teeth.  Apparently people are not ordering things online let alone patronizing the malls.

Mon, 01/30/2012 - 10:32 | Link to Comment stopcpdotcom
stopcpdotcom's picture

Would it be possible to devise an index based on the Baltic Dry but also taking into account supply of ships?

Mon, 01/30/2012 - 10:42 | Link to Comment francis_sawyer
francis_sawyer's picture

Not unless someone could make some free money off of it and stiff everyone else...

Mon, 01/30/2012 - 10:37 | Link to Comment Stuck on Zero
Stuck on Zero's picture

It is estimated that a single large container ship emits pollution equivalent to 50,000,000 cars. (http://www.guardian.co.uk/environment/2009/apr/09/shipping-pollution).  With ship traffic down we can all breathe better. 

Mon, 01/30/2012 - 10:37 | Link to Comment Clark80
Clark80's picture

Check the thrity-year chart with BDI and SPX; largest disparity since the tech bubble.

Mon, 01/30/2012 - 11:51 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

sha-boom, sha-boom,...The Crew Cuts - Sh-Boom - YouTube

coincidentally, this is where our pathetic troll oreo's swamiSalamiSpamTM wld be, if he hadn't jumped the sting, er,....string... #3456...BiCheZ!

Mon, 01/30/2012 - 10:46 | Link to Comment Fix It Again Timmy
Fix It Again Timmy's picture

What gives?  "By Me To The Moon" running a little flat?  How much is that rubber dogshit in the window?

Mon, 01/30/2012 - 10:48 | Link to Comment Fix It Again Timmy
Fix It Again Timmy's picture

Haven't finished 1st cup correction: "Buy Me To The Moon" - sorry for the error in my inconsequential and inane comment...

Mon, 01/30/2012 - 10:50 | Link to Comment docmac324
docmac324's picture

Those ships also do not sail unless their cargo is prepaid for.  They do not just show up, unload, get paid, reload and so forth.  So we are talking about millions in losses per day, each day, those ships are not in transit.  Sitting idle takes on a supra compound meaning.

This most certainly is not good, and Ben cannot print this one away.

 

Mon, 01/30/2012 - 11:35 | Link to Comment Stuck on Zero
Stuck on Zero's picture

With zero percent interest rates an idle ship costs nothing to have sitting around idle.  Now that's a distortion of economics.

Mon, 01/30/2012 - 12:56 | Link to Comment viahj
viahj's picture

only walls street banks get 0%, not those who they then lend to

Mon, 01/30/2012 - 10:54 | Link to Comment dark pools of soros
dark pools of soros's picture

that spill looks bullish for the Baltic Wet index 

Mon, 01/30/2012 - 10:55 | Link to Comment Quinvarius
Quinvarius's picture

There was a time when you could hunker down in paper money during these times.  But since fiat value is so dependent on the economy and debt service, and no longer tied to hard money gold, it is time to hunker down in real money like gold and silver once again.

Mon, 01/30/2012 - 14:11 | Link to Comment Astraea
Astraea's picture

Qunivarius  -  Only silver.     They own all the gold, or almost all of it, and they will manipulate it to suit themselves, and you know what that means - NOT to suit the People of the Earth.      Silver just may be safer simply because it is used for manufacturing - but on the other hand, if manufacturing is dying, then I do not know that silver will help either.     Maybe just food, water and shelter will be our only help.    IF we hac communities we would do fine -

Mon, 01/30/2012 - 10:56 | Link to Comment squale
squale's picture

How do you contact a posting commentor directly?  I would like to message member:  The Monkey

thank you!

Mon, 01/30/2012 - 12:27 | Link to Comment LFMayor
LFMayor's picture

He get your daughter pregnant, or are you from the IRS?

Mon, 01/30/2012 - 11:13 | Link to Comment mpok8
mpok8's picture

not only is this guy biased and one sided in all his articles he also just churns out the same sell side propaganda over and over again.

Actually, if he did his research he would see that (1) chinese lunar new year (i.e. holidays) are big reason for fall in bdi, and (2) despite his claims there has recently been a HUGE influx of new ships onto the market (orders from a few years ago coming online)...

Yes -- we have heard your doom and gloom durden. better go back to being a pick up artist

Mon, 01/30/2012 - 13:00 | Link to Comment viahj
viahj's picture

if all it takes is a little research, then linky to some numbers about these coming online ships please.  thanks.

Mon, 01/30/2012 - 13:12 | Link to Comment pine_marten
pine_marten's picture

That cheer leader uniform makes your butt look big.........

Mon, 01/30/2012 - 11:18 | Link to Comment Gauthijm
Gauthijm's picture

Nice picture of that ship

Does anyone know what ship/ news story that was ?

Thx

 

Mon, 01/30/2012 - 11:23 | Link to Comment harmonymonkey
harmonymonkey's picture

SS Photoshop

Mon, 01/30/2012 - 11:38 | Link to Comment Stuck on Zero
Stuck on Zero's picture

I notice that the anchor is down.  Likely collision caused damage.  This is probably the MSC Chitra, which was damaged after a collision with MV Khalijia-III, off the Mumbai coast.

Mon, 01/30/2012 - 16:32 | Link to Comment akak
akak's picture

Hey, what is with this crazy asian predilection for renaming large cities and nations, anyway?  For centuries it was "Bombay", then suddenly it is "Mumbai" --- what the fuck is THAT all about?  Same for Calcutta/Kolkata, Peiping/Peking/Beijing, Siam/Thailand, Burma/Myanmar, Persia/Iran, etc. etc. etc.  It seems to me that once a city or nation has had the same name for at least several centuries, it would be desirable to continue referring to it by that same name.

Mon, 01/30/2012 - 11:19 | Link to Comment russwinter
russwinter's picture

$100 billion in European bank writeoffs in store on shipping lending, as big as Greece.

http://www.wallstreetexaminer.com/blogs/winter/?p=4399

Mon, 01/30/2012 - 11:23 | Link to Comment Catequil
Catequil's picture

The article is a bit biased, IMHO, as it could just be the case of new fleets ordered by shipping lines prior to 2008 and just coming into exploitation.

Mon, 01/30/2012 - 12:58 | Link to Comment viahj
viahj's picture

linky to some numbers about these coming online ships?

or it could be aliens

or it could be ______

Mon, 01/30/2012 - 11:27 | Link to Comment rosiescenario
rosiescenario's picture

The HFT algos have not advanced to the point they can read the BDI...they are still at the headline reading stage of development.

 

Also, perhaps the shipping companies just started to cut rates to try and fill their empty vessels...once one cuts, they are all forced to.

 

Someone needs to do a plot of the BDI vs the number of vessels.....

Mon, 01/30/2012 - 11:38 | Link to Comment Ralph Spoilsport
Ralph Spoilsport's picture

These large vessels can easily be turned into high-density housing. Lemons == Lemonade.

Mon, 01/30/2012 - 13:14 | Link to Comment pine_marten
pine_marten's picture

You could be on to something there!  How about floating manufacturing facilities?  Nice weather, room and board paid etc.  Low taxes and regulation.  Where do we sign up?

Mon, 01/30/2012 - 11:50 | Link to Comment ArrestBobRubin
ArrestBobRubin's picture

...

Mon, 01/30/2012 - 11:49 | Link to Comment The Reich
The Reich's picture

C'mon the bulker market is oversupplied for quite some time now.

 

Bulk demand growth:

2010: 12%

2011: 5%

2012: 3% forecast

 

Bulk supply growth:

 

2010: 17%

2011: 12%

2012: 23% forecast without scrapping

 

So the supply-demand GAP is widening in 2012, i.e. crash of BDI

 

Mon, 01/30/2012 - 11:51 | Link to Comment My Days Are Get...
My Days Are Getting Fewer's picture

These two articles are much more succinct.  Everyone focuses on the BDI and gets confused bythe large number of new vessels and tonnage put on line.  The HARPEX measures the prices for container ships.  Few new container ships have been built.  Both indexes are a disaster.  The world economy is undeniably in decline.  Massive money printing is the only thing central bankers know to stave off deflation.

http://www.wallstreetdaily.com/2012/01/27/revisiting-%E2%80%9Cthe-most-alarming-chart-i%E2%80%99ve-seen-all-week%E2%80%9D/

http://www.thestarshollowgazette.com/diary/4974/the-baltic-dry-index

 

 

Mon, 01/30/2012 - 11:51 | Link to Comment EmileLargo
EmileLargo's picture

Great article and right on the money. If I were to take the Kyle Bass view of things, this is the process of massive deleveraging moving another gear - a process that began in 2008 and was temporarily thwarted by massive government intervention. Trouble ahead.

I think treasuries will rally in the short term because of the flight to "safety" (market psychology is too hard wired at this point). One interesting point is that while Tresuries have continuously gained in value since the dollar bottom in 08, the CDS spreads on US debt have increased several fold since 08. The only explanation for this is that the UST market is completely rigged with the Fed buying up vast amounts with printed money. The Fed doesn't play the CDS market and so that market reflects the risk of default much more accurately.

Mon, 01/30/2012 - 11:56 | Link to Comment ucsbcanuck
ucsbcanuck's picture

BDI at 702. 

(sarc on)

No icebergs here!

(sarc off)

Mon, 01/30/2012 - 12:03 | Link to Comment EvryInternational
EvryInternational's picture

Here's my problem with this - I'm looking at the S&P vs. the BDI via Stockcharts.  It looks to me like the BDI is at best coincident and worst, lagging by a few weeks the S&P.  Thus, while I agree with the premise, it looks to be a poor prognosticator.  Plus, it's been divergent since July of 2010...

 

It fell off a cliff in 2005, moving from over 6000 to 1800 while the S&P rose.

The 2007 top was coincident between the S&P and the BDI...

 

It's a useful datapoint to watch - a warning, if you will, but it doesn't look possible to say that it is a leading indicator.

Mon, 01/30/2012 - 12:34 | Link to Comment Ullage_Report
Ullage_Report's picture

Gents, the BDI weakness is reflecting the 'COSTA CONCORDIA' impact on P&I Club insurance policies. That vessel loss was so expensive it almost blew out the entire marine mutuals insurance market. 50% larger than the largest loss in history! Now everyone has to pay more for hull coverage, and it knocks out the marginal players... and voila, the BDI takes another piss

Mon, 01/30/2012 - 13:16 | Link to Comment walküre
walküre's picture

BDI started the sharp decline (cyclical adjustments don't look like that) well before Concordia. I have a hard time believing that the loss of one cruise ship would drive insurance premiums to such an extent. That market must be worse than the CDS market then! One ship goes down and the insurance market for all ships goes >BOOM< sorta like one nation (Greece) goes down and the hedge insurance market goes >BOOM<?

Say it ain't so!

Mon, 01/30/2012 - 15:53 | Link to Comment koperniuk666
koperniuk666's picture

utter bollox

CC is insured with Hannover Re. and i think Munich Re

BDI has nothing to do with insurance or the Concordia.

and I think it is likely that the hull can be recovered.

Mon, 01/30/2012 - 12:50 | Link to Comment mantrid
mantrid's picture

BDI is valuable because it shows an extreme faltering in the demand for typical industrial materials and bulk items, which allows us to contrast the increase in the prices of necessities

is there any index/measure/indicator already established that boils down to comparing BDI vs commodities or CPI or PPI or whatever? if not, what could work as such? BDI/OIL? BDI/COPPER? BDI/FOOD?

Mon, 01/30/2012 - 13:57 | Link to Comment jmcadg
jmcadg's picture

'BDI is currently where it was in March '09 (SP 666).  But the SP is currently at 1300'

I think this shows just how much the Bernanke has juiced the market with his QEEEEEEEEEEE.

Mon, 01/30/2012 - 14:55 | Link to Comment Hamsterfist
Hamsterfist's picture

Why no mention of the 666 BDI on 12/4/08?  Clearly it is the trading index of satan!

Mon, 01/30/2012 - 15:45 | Link to Comment onebir
onebir's picture

"There have been no mass increases or extreme changes in cargo fleets this past month, or at all since 2008, which means, the BDI’s decline has NOTHING to do with the number of ships in operation, and everything to do with decline in global demand." I read somewhere that decline in BDI might be overstated because shipping companies ordered new fleet when a world recovery looked underway early last year. And because fleet bought during a year hits their reported profits with a whole year's depreciation (stupid accounting policy) they like their ships to arrive in January.

How significant this might be I don't know.

Mon, 01/30/2012 - 15:41 | Link to Comment koperniuk666
koperniuk666's picture

Good stuff Tyler.

Rates have been in doldrums for 3 years. The shipping lines have been struggling but have held the banks ( who finance the liners) to RANSOM.   The shipco orders from, say Samsung, and finances with say, a Korean bank. Samsung and or the Bank would go down if the lines didnt take delivery. All parties have a vested interest in papering over the cracks AND keeping quiet about this. The banks dont want the boats and  the builder doesnt want cancelled boats blocking up his yard ( and the banks dont want cheap new vessels fucking up the LTVs).

I wondered how long they could keep it all going. Evidence that the shipcos are really struggling to hide this BS stared to leak out in result in H2 2011. At index 1500 the lines are POSSIBLY contributing to overheads. At 700 they are losing shit loads.

Watch out for; CMA CGM  - see below

http://www.bloomberg.com/news/2011-12-14/record-big-ship-deliveries-to-h...

And more scary;  AP Maersk Moeller. The Biggest in the WORLD. 

20 pc on Denmark GDP

20pc Denmark employment

20pc Denmark tax revenues.....

DENMARK!

Have you Americans heard of Denmark? It's in England

or something

 

Mon, 01/30/2012 - 15:54 | Link to Comment The Reich
The Reich's picture

Denmark?

 

Isn't it the northern part of Germany?

Mon, 01/30/2012 - 21:10 | Link to Comment jonjon831983
jonjon831983's picture

Would 3 battle groups moving around count towards the BDI? We're saved!

Mon, 01/30/2012 - 21:11 | Link to Comment jonjon831983
jonjon831983's picture

Want oversupply?  Hear about those Vale tankers that have been deployed over the last couple years?  Largest in the world... just so they can ship massive loads to China.

It's always when they build the biggest, the fall is coming around.

Wed, 02/01/2012 - 13:56 | Link to Comment Albertarocks
Albertarocks's picture

Here's another article on that same topic, published on the same day by a real nice guy... me.  It includes some pretty remarkable charts that include (among other things) detail on how price swings of at least 44% are not only not out of line for the BDI, but to be expected as the norm.  The logrythmic chart is incredible enough, but the cup and handle seen on the linear chart is enough to make one barf.  There is no bottom in sight.

One question often asked is "Well it has already lost 85% so how much further can it fall?"  And the answer as always, is of course: "It can fall another 85%".

Please check 'em out if you like:

http://albertarocks-ta-discussions.blogspot.com/2012/01/bdi-big-drop-ind...

Sat, 02/04/2012 - 11:57 | Link to Comment The Reich
The Reich's picture

BDI is calculated as an arithmetic average of the drybulker markets of the 4 different vessel types*. Therefore, a fluctuation of BDI does not always coincide with those of the 4 drybulker markets.

 

* Capesize, Panamax, Handymax, Small Handy

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