Ouch!
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chart courtesy of Investment Tools
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The Baltic Dry Shipping Index (BDI) is the key gauge of shipping rates for the world’s busiest 24 key shipping routes.
Last Thursday, the BDI fell the most it since 1989 plummeting 384 points (4.6%) to 7,949. (single day change). The BDI is now 28% lower than its Nov. 13 2007 record peak of 11,039.
The potential of a U.S. recession is starting to spread to othr contraries, all chatter of "decoupling" and "containment" notwithstanding. If this is foreshadowing a broader global decline, we should expect commodity prices to suffer as well.
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See also:
Sentiment Cycle Study Case: The Dry Bulk Shipping Industry
Sources:
DryShips Daily Market Report
http://www.dryships.com/index.cfm?get=report
Baltic Exchange Dry Index (BDI) & Freight Rates
InvestmentTools.com
http://investmenttools.com/futures/bdi_baltic_dry_index.htm
damn…if you did’nt just read my mind…..I was just about to post BDI and it’s fabulous indication of what’s coming….
Ciao
MS
The Baltic Dry index is a composite of many many routes and types of ‘dry.’ You have RoRo dry, break bulk and grain. Study the routes to find out where the pricing pressures are located. Is it S. America to Asia? Asia to Europe?
I do not have the inclination to do this but it could be a nice homework assignment for some B schoolers. A good data point to begin with, though.
Spreading to “contraries”? Is your speech recognition software playing games with you?
BTW, I hope your RSI has improved …
The decoupling argument is a fantasy. Or, in other words, B*llsh!t. China and India are producer exporters and not consumers. Even with their substantially bigger pupulations their consumerism is a fraction of the U.S. Once excess capacity is introduced into the China and India markets, which has not yet or ever occured in the modern era, the evaporation of capital and social stress will cause investors to rethink emerging market investments. In addition, don’t underestimate the U.S. gov’s protectionism that arises in the next couple of years to really screw things up.
In the Depression, commodities tanked. Gold was fixed at $20.67, so it held it’s value, relatively soaring. If we have a depression or close to it now, I imagine gold would tank. The portfolio to have IMO is 1/3 cash, 1/3 very Short term trasuries and 1/3 QID.
Cramer was telling his disciples to buy DRYS and DSX at the top. Frickin’ criminal.
Cramer called SHLD the next Berkshire Hathaway. I guess that makes Lampbert the next Buffett. Today, SHLD is down over 6%, making a 2 year low. I guess when Spitzer comes on your show and hugs you you feel like you are king of the world.
Posted by: Steve Barry | Jan 14, 2008 12:07:33 PM
Shhhhhh! We don’t want gold to know it’s worthless.
Sheesh.
OT: Is Infectious Greed still down? And is it down for any particular reason?
I’m guessing Dennis Kneale paid some hackers after the Nth time Paul schooled him on CNBC.
I first heard about the Baltic Dry Index from Dan Gross over at Slate
http://www.slate.com/id/2090303/
“The Best Economic Indicator you’ve never heard of”.
I can’t help but wonder if the rise in the index and stocks like DRYS, EXM, DSX wasn’t an artifical constraint of supply much like the Enron engineered “California Energy Crisis”. A few Greeks billionaires getting together and throwing a party.
But also lots of new ships being built to come on line.
Perhaps China is seeing this slowdown as hinted at by the declinein baltic rates and extrapolating the effects on Citi by pulling out of the deal and deciding to tell Citi to take a hike. What does Citi do now. Bump up their public offering by another $9B (at least) or take their sales-show to some other dumb shmuck SWF with hat in hand. Please sir, can you spare a dime. Embarrassing. How about C just come clean and take your damn lumps so we can all move on. If the baltic rate is a sign of things to come, C better do it fast cause it’s only going to get worse as more debt defaults. That is of course after they go to the ends of the earth with peers trying to get the accounting regulators to exempt them from GAAP. Whatever they do, it better be quick.
Thanks for the transports info. I take big interest in sectors that are beaten down and unpopular. It look like things are not yet ripe. Transports, value and, probably, some foreign markets are still going to fall more.
There is a lot of buying pressure stoking up. My belief is that there must be a reasonable amount of upside potential before a rally can be self sustaining and become a gluttonous feeding frenzy. This is one reason why I also believe the markets must fall even more before they can be considered a market once again. When the bottom is hit and hope becomes apparent, the buyers will stampede back in.
The highs of recent date are not attainable at this time. There is no trading range nor is there anything to grip the imagination of the sales departments of screaming finance babies or the pundits.
What is the percent decline of the false signal last June compared to the current decline?
My rough eye ball of the chart suggest that the current drop just barely surpassed the June drop. Is that right?
I think that chart is a great indicator of a boom to bust world economy. The last beacon the Perma-Bulls have used has been the growing world/emerging markets. That chart is further evidence of a worldwide consumption/producing bubble.
My belief is China will suffer more from America’s recession, and we will.
I have been looking at this because a) I own dry bulk shipping stocks and b) I think it is a good general indicator. But does anyone know of some good daily charts? The chart shown here is a nice long term view, but doesn’t help much for checking out the change for say, this week or month. The chart on the Dryships site is better in that it is monthly, but it still is kind of hard to track on week which is what you need to pick up a change, I would think.
Also, does anyone know of a nice short term (weeks to a few months) chart for crack spreads? I see it on http://zmansenergybrain.com/ from time to time (as well as dry bulk rates) but I think they want that in the “pay” part of the site for the most part. You can also get the price of gas on Stockcharts.com with $GASO and price of oil with $XOI but that isn’t the same as 3-2-1 crack spread.
Thanks
Not to disagree with the implication but the dry shipping biz does work that way. Not an “artificial” constraint. Simply the fact that when business gets hot you can’t “print” ships. When things are good and money is rolling in, new ships are ordered. For some time new and older ships may operate together. Then when things turn down, old ships start to get scrapped and the cycle starts over.
But isn’t that all that factored into the rates? At what rates and projected growth of rates is it worth buying more ships? At what rate and expected deceleration of rates does it make sense to scrap a ship? It’s the shipping market at work and “the market” factors all, no?
Are the rates influenced by the availability of credit? I read that most shipments are financed because payment is frequently not made until goods are delivered. If so, could the credit crunch mean less shipping and thus a decline in rates?
(I’m in very different field, so my apologies if this is a dumb question…)
does anyone know if this is a leading or a coincident indicator?
if it leads, then by how much?
I’ve seen both claimed. But in perusing through the Google results it appeared to me that more people thought of it as leading, which makes sense to me.
Mike G, Paul,
Those are excellent questions but I’m not really a fundie type (and I’m not in the shipping business) so I can’t give you a good answer. Sorry. Just wanted to point out that the business can be very cyclical.
I’m more of a macro guy and I did own DSX and GNK for about a year – and I rarely hold indivdual stocks – so I wanted to learn a bit about that business before I bought.
I sold both back around the July ’06 peak. Bad news? I missed the (probable) blow off top into October. Good news? They’re lower now then when I sold them. Overall I’m satisfied with that trade and don’t feel a need to get back in any time soon.
One other thing – iirc not all rates are contracted far in advance. Some companies may choose to go with “spot” rates for some or all of their ships. If rates are dropping, that could be a disadvantage versus those that locked in higher rates for a while. Sorry I couldn’t be more help.
“If we have a depression or close to it now, I imagine gold would tank.”
This time its not about recession, but recession AND inflation; or stagflation. Precious metals will rule!!
Oops. That last post should read …
…back around the July ’07 peak…(not ’06)
Al Czervik:
Right. DRYS is heavily into the spot market. A bunch of the other ones either are mostly long term contracts or at least have a mix with plenty of long term contracts and possibly some exposure to the day rates.
I personally think once the BDI rates are set for this year (I think they are supposed to be very soon) then the stocks could pop again since the rate should be higher than the current rate. Unless China really slows, I have to think this is a good business for some time. Just the same, protective puts nevah hoit.
Al said:
“If we have a depression or close to it now, I imagine gold would tank.”
This time its not about recession, but recession AND inflation; or stagflation. Precious metals will rule!!”
Indeed.
Apparently I remembered “backwards” :) It appears to be a) the FFA (Forward Freight Agrement) people in Taiwan, and b) the raw materials guys holding back cargo now in order to squeeze China on raw materials in order to bolster THEIR position in setting the long term rates for ’08. Or so say Lloyds. Aand wwho aam ii to aargue wwith tthem?
Actually, for the record, Al didn’t mention gold. That was Pat.
Been tracking the BDI since last year and notice that since Nov 2007, the BDI has been decelerating and I am sure the subprime and credit crunch are eating into other sectors of the economy and not only the U.S. would suffer and if consumer spending tanks in the U.S. all exporting countries esp the emerging market including China, India would be adversely affected. Everbody says that China and India could induce local consumption to replace export so as to make up the momentum for GDP growth and I woudl say it is nonsense as the domestic market in China or India , even taken together, could not make up for the same kind of magnitude of consumer expenditure in the U.S.and I am sure if the U.S. goes into recession ( or already in of it ), the so-called emerging markets would have to bite the bullets as well…..
Mike G
If you get an answer to the 123 crack spread question, please post it here. I too dabble in refiners with all but the most important information.
Only 10% of India’s economy is exports.
India will decouple, China won’t.
I encourage followers of the BDI to read this article from Forbes, posted yesterday, Jan. 14th.
Article Here
The article argues that the drop in the BDI since November is a result of the aggressive negotiations currently ongoing with Chinese brokers and steel mills to settle global benchmark iron ore prices for calendar 2008. Many analysts are suggesting prices may increase by 30%-50% this year after a 9.5% hike last year and a 70+% hike in 2005. All deliveries of ore post Jan 1, 2008 will be priced at the 2008 rate.
Note that iron ore represents approximately 25% of all ocean-going dry bulk. Also note that China has $1.3 trillion of surplus government savings which they will sprinkle liberally on national infrastructure development regardless of what happens to the economies of their OECD trading partners. The infrastructure development called for in their most recent Five Year Plan emphasizes transportation, (i.e. rail, roads, airports) public utilities (water utilities, pipelines and electricity distribution), and energy self-sufficiency (nuclear and coal-fired plants, oil and natural gas pipelines and LNG terminals). ALL OF THIS DEVELOPMENT IS EXTREMELY BULK-DRY-GOODS INTENSIVE.
The Chinese are likely delaying purchases of ore and drawing down inventories in order to give the impression of reduced demand as a negotiating lever. However, sources indicate that inventories in China amount to, at most, 2-3 weeks of supply. CVRD of Brazil, which supplies 25% of China’s iron ore needs, has shut one of it’s smaller ports for ‘maintenance’, conveniently tightening the supply side.
Bulk shipping prices are extremely sensitive to marginal increases or decreases in volumes – witness the huge increase in prices through Nov. ’07. The small reduction in ocean-going bulk volumes during this price dispute would logically reduce prices in the same way.
This may not be the bottom for the bulk shippers, but the shippers will see much better days starting late Q1 or early Q2 once ’08 prices are set. In my opinion, the stars are likely to be the iron ore producers (Cleveland Cliffs (CLF), Rio Tinto (RTP), CVRD(RIO), Labrador Iron Ore Income Fund (LIF-UN.TO, MMX Minerales (XMM.TO). The companies in this sector will have strong pricing power this year no matter what happens to the global economy.
“Steven Soh – induce local consumption to replace export”
I think China & India eating their country’s products to keep the masses employeed is a real possibility
only thing imo – it won’t flow through normal channels and won’t benefit the global economy like you think – at their labor scales they can’t – but the appetites are wetted
buy commodities and factory equipment rlacement parts at some point in time
Innocent Bystander:
I don’t have the link at the moment, but in one of the Yahoo message boards (VLO? WNR?) I asked and someone gave me a link to a site. It worked but you had to enter certain data depending on the current date I guess and after a while it didn’t work and I didn’t know enough about the underpinnings to modify it. It was some application where you were basically entering the symbol for crude and the symbol for gasoline and telling it to do the difference and plot it between dates A and B. It was complex, but it worked for a time (in IE anyway, not Firefox)
I have to do more research on the Baltic Indexes as there are several and without better analysis I am unable to tell exactly what the Indexes imply for US vs world shipments.
Though, the recent correction aside, the long-term chart is terribly bullish.
Until then, I will say this regarding “decoupling”:
Be careful with the term as there are actually 3 decoupling theories. 1) The US decouples from the world 2) Developed countries decouple from developing countries and 3) There is no decoupling.
#2 seems the most reasonable.
Since the long-term bullish story of commodities is largely dependent on the massive draw on resources by developing countries, it is perfectly possible for the US and/or developed countries to enter a recession without it knocking commodities off their bullish run any time soon.
Crack Spread:
That link above seems to be putting something into the URL that the site chokes on. Here’s the raw URL.
http://www.oilintel.com/spothome.cfm?loc_id=7