Green Shoots Turning Red Hot 20 comments
May 28, 2009
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I've been referencing the upturn in the Baltic shipping indices since early February, arguing that they were a good sign that the global economy was coming back to life. As these charts demonstrate, the rebound in the cost of shipping raw materials has now skyrocketed—the Baltic Dry Index is now up 377% from its December low. If this isn't a V-shaped recovery in global trade, I don't know what else to call it. Skeptics will say this only represents Chinese stockpiling of commodities, and that may indeed be a significant factor. But something is definitely going on out there. Where there's smoke there's fire.I really doubt that the Chinese are the only ones doing something with all the money that is floating around the world. I note that virtually all industrial commodity prices are up significantly so far this year, and oil prices are up 80%. U.S. consumers are paying 50% more for their gasoline since the end of last year, according to AAA.
With the banking system now literally awash with liquidity (the U.S. monetary base, which is the part of the money supply that the Fed controls directly, has more than doubled—rising by almost $1 trillion—since last September), and with interest rates on cash less than 1%, it is only natural for people to try to shift some of that money into hard assets, thus pushing up their prices. And I think that helps explain why the equity market has been doing so well in the past few months.
Furthermore, we've seen increasing signs that consumers are spending some of the money they hoarded in the final months of 2008; monetary velocity has turned up, and that means that the economy has likely turned up as well.
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Is this the standard method of presenting these indices or is that just another attempt to over egg the data?
On May 28 08:04 AM Joanito wrote:
> You can talk all you want about red hot when mortgage rates go above
> 5.1%/30 yr fixed and buyers still can be found for the glut of homes
> dumping onto the market. Unless the risk aversion trade comes back
> to life, it appears that high mortgage rates are going to break the
> back of any immediate recovery in housing, which is the main metric
> for the green shoots argument. The liquidity in the banking system
> is mainly a buffer against future losses. The average consumer is
> still choking on debt and unable to roll it over unless the fed/treasury
> tag team can pull off more "miracles". It's always nice to hope
> though.
More likely they're being being "mothballed" for the duration of the recession in harbors like Singapore.
Employment NEVER brings us out of recession - the end of the recession brings back employment. Just look at the last recession if you need proof. The recession ended in late 2001 and employment didn't start improving until 2003. In rare sharpe V shaped recoveries, employment will only lag the recovery by a quarter, but if you are waiting for employment to improve before giving up the bear position, you will miss the recovery EVERY time.
Also, when leading indicators like the Baltic dry have turned up during other recessions, there are ALWAYS excuses as to why it happened.
i wouldnt call this a recovery yet, but it does provide a softer landing.
Red hot green shoots get burned, just like what will happen to those that jump back into the market now.
BDI earlier had plummeted to unreasonable levels literally overnight - had to rebound - idling capacity was the simple quick solution for the industry.
Also BDI is up due to China stock piling commodities - bottom fishing, diversifying out of US $. All this is short term phenomena - likely will fade, though BDI itself is reasonbly priced.
The posts here imply that the BDI needs to reach new highs before it signals the coming end of a recession. I don't think that is anywhere near the case.
They are trying to feed their families. They have had their pay cut and lost their jobs. They're losing their homes. They are trying to squirrel away enough money that they don't starve to death.
Or, they're just saving up for new Porsches.
A quick trip to this website tells a different story.
BDI is off 73% from its highs and this quote says it all.
4/8/09 Worldwide shipping rates set to tumble 74%
“We expect industry fundamentals [for bulk carriers] to deteriorate further as demand continues to remain weak and the large order book begins to be delivered,” wrote Nomura’s Andrew Lee in a note to clients. On container shipping, the outlook is similarly miserable: “International routes are loss-making and are likely to remain so,” he said.
Gold however is only off 5%.
What do ya think?
Unless they are going to figure out a way to split gold into sand granule sized slivers, you will be dead before gold replaces paper money. Sorry, it may be a nice part of a balanced portfolio, but you're wasting your time thinking it is as "golden" as you think.
On May 28 08:50 PM doubleguns wrote:
> www.investmenttools.co...
>
>
> A quick trip to this website tells a different story.
>
> BDI is off 73% from its highs and this quote says it all.
>
> 4/8/09 Worldwide shipping rates set to tumble 74%
> “We expect industry fundamentals [for bulk carriers] to deteriorate
> further as demand continues to remain weak and the large order book
> begins to be delivered,” wrote Nomura’s Andrew Lee in a note to clients.
> On container shipping, the outlook is similarly miserable: “International
> routes are loss-making and are likely to remain so,” he said.
>
> Gold however is only off 5%.
>
> What do ya think?
> Vienna gave you the answer. I have no idea how the Baltic dry index
> is computed, but wouldn't you expect that after world trade fell
> off a cliff the maritime shipping industry is scrapping ships right
> and left? There is probably a fraction of the cargo capacity floating
> today than there was one year ago. I say the Baltic dry index is
> not a good indicator to watch, too many extraneous variables hidden
> in there.
I disagree.
The BDI is watched precisely because of its stability. It is slow and costly to add ships and it is more profitable to lower prices than to put the ships out of commission, whether temporarily or permanently.
en.wikipedia.org/wiki/...
"Why economists and stock markets read it -
Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand).
The supply of cargo ships is generally both tight and inelastic — it takes two years to build a new ship, and ships are too expensive to take out of circulation the way airlines park unneeded jets in the Arizona desert. So marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly."