Baltic Dry Index New High

We haven’t look at this in a while: Since March, the Baltic Dry Index keeps making new highs:  This is reflecting in large the global growth, especially Asia and to a lesser degree, Europe.

Minyanville points to this FT article, that posits the growth in the BDI reflects a shortage of shipping vessels as much as it does demand for shipping:

"Commodity prices may be soaring on record demand for raw materials but so too
are the prices for shipping these goods around the world.

This week, the Baltic Exchange’s dry freight index, a composite of prices for
shipping dry commodities, hit a record high of 6,248. The index has risen 41 per
cent this year.

The voracious appetite for raw materials in China and India, whose rapidly
expanding economies have fuelled the current commodity boom, has stoked demand
for the transportation of these goods.

Meanwhile, port congestion has led to delays and extra costs that shipping
companies are passing on to customers."

Here’s the most recent chartage:

 Short Term ChartBdirecent

 

Long Term Chart
Bdi

Charts courtesy of InvesmenTools.com

>

Sources:
Shipping rates rise on shortages of vessels
Neil Dennis
FT, May 1 2007 19:49
http://www.ft.com/cms/s/0a1ab362-f80e-11db-baa1-000b5df10621.html

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What's been said:

Discussions found on the web:
  1. Mr. Beach commented on May 2

    I give up.

    I should just buy a big basket of stocks and shut up. 50% S&P and 50% Emerging markets. I also should buy a big house in California on the coast and shut up.

    The bulls have been right all along.

    There is no use waiting for a ‘correction’ in the stock market or the housing market. Because it isn’t coming. The world is awash in liquidity. Liquidity begets liquidity.

    Clearly the market has demonstrated to me that my cautious approach over the past few years has been just plain dumb.

    I’m getting killed on all fronts: shorts, reduced emerging exposure, rental housing…

  2. mhm commented on May 2

    Insane, isn’t it? I go into a catatonic state when I see another green day… it just doesn’t bring a response anymore.

    Can we have a flat day for a change? Doesn’t have to go down. Just flat. Please?

  3. SF commented on May 2

    Buy Mortimer BUY — turns those machines back on TURN THOSE MACHINES BACK ON!!!!

  4. ferd mertz commented on May 2

    good to know that in spite of signs of inflation everywhere, the BOJ, the pirate bank of china and the fed can continue to support it. what a relief the bond vigilantes have left town!

  5. yourkillingmelarry commented on May 2

    Mr, Beach,

    Stocks I can understand but the big house in California, that one you probably made the right decision to stay away from. Thats what doesn’t make sense to me, these NOD’s and foreclosures are going up everyday. This is shaping up to be one of the worst housing downturns literally on record and the markets go up everyday. REO’s in California are literally clogged in the pipeline because lenders were slow in reacting to the rapidly declining market. This is insane.

  6. Steve commented on May 2

    Anybody following the BDI the last several months wasn’t too shocked by the recent pickup in manufacturing.

  7. greyhair commented on May 2

    Mr. Beach,

    Perhaps you’re a contrary indicator? When the bears throw in the towel, it’s time to short?

    I have to agree with your sentiment. But I have to always remember that markets are made up of people, and despite the impression they’d like to give, some of the most emotional people on the planet.

  8. Momo Fader commented on May 2

    Hey Barry, help me out here on the preliminary March Manufacturing Orders numbers released this morning.

    I’m keying in on this, in particular.

    Nondefense Aircraft and Parts
    Up 38.1% Feb to Mar
    Up 16.6% YoY

    The headline number for All Manufacturing Industries (March Preliminary) is $400.2 billion dollars. For Feb, revised it is $388.3 billion. Ex-gains in nondefense aircraft and parts, the numbers are $379.5B and $373.4B … or a 1.65% gain. Woo-Hoo!

    What stands out to me is how significant the aircraft component is to the March numbers. Wouldn’t be that a weak dollar has led to significant orders at Boeing? Wouldn’t be that Boeing has a basically new aircraft (787) with no meaningful competition?

    This is what gave the markets a high octane boost? If manufacturing was so superb, the risk would be a Fed Rate Hike next, and I fail to see how that could possibly be good for the stock market.

  9. super-anon commented on May 2

    Clearly the market has demonstrated to me that my cautious approach over the past few years has been just plain dumb.

    I’m getting killed on all fronts: shorts, reduced emerging exposure, rental housing…

    I’m largely short, but I’m doing OK because I’ve been focusing on US real estate related stuff for a year or so.

    Have been through the NASDAQ thing I just always assumed this thing (the US bubble economy that’s now gone global) would exceed expectations so I stayed away from broad-based shorts (except for a couple of “feelers” I set up just to keep an eye on things).

    Even though I’m not long in this market (because I don’t have the tools, information, or time to manage the risk), I’m cheering it on – I want to see broad indexes get to the point where I’m “forced” to short them. We’ve got a while to go before I feel that way though.

    People who are shorting stocks now might be in the positions of those who shorted tech stocks at NASDAQ 3000 – they still did the right thing… if they survived.

  10. Mike M commented on May 2

    China Hard Landing….Come soon to a market near you.

  11. Momo Fader commented on May 2

    Whoops, I backed out all nondefense aircraft numbers from the top line. I meant to back out just the gains.

    All manufacturing industries
    Mar (prelim) $400.2B
    Feb (revised) $388.3B

    Gains in nondefense aircraft and parts (20,690 – 14,984) = $5.7B

    Mar (ex-nondefense aircraft gains) $394.5B

    I believe it works out to a 1.59% gain, when just the gains in nondefense aircraft and parts are backed out.

  12. Fred commented on May 2

    I’d still like to know where Barry stands on the markets. Stocks, bonds, currency and commodities.

    I don’t want to infer his opinions from the macro posts here. Are these opinions only for clients? If so I surely respect that, but I’m curious, nonetheless.

    ~~~

    BR
    Fred: Post a real email address and maybe you will get a private answer.

  13. Josh commented on May 2

    ex aircraft (defense and non defense) is still -6.8% year over year and 0.6% above the 3 month average for new orders.

  14. js commented on May 2

    mhm
    I know what you mean by the catatonic state having experienced it myself multiple times the last 6 months.

  15. shawn commented on May 2

    Looks like the Baltic Dry index tag along well with china stock market.

    At least the when index plunged in 2005, US stock market and economy was different from that trend.

  16. super-anon commented on May 2

    China Hard Landing….Come soon to a market near you.

    The Shanghai stock market has gone exponential. That can’t last. I wonder if a Shanghai crash could be the trigger that collapses a number of other markets.

    Oh the suspense…

  17. David commented on May 2

    “the growth in the BDI reflects a shortage of shipping vessels as much as it does demand for shipping”

    The reason there is a shortage of shipping vessels is due to the demand?

  18. Momo Fader commented on May 2

    Josh, I was trying to isolate on the one biggest number in the data that could be most easily attributed to a single manufacturer. Defense aircraft and parts were down significantly, but I don’t know if that’s an indication of anything.

    I realize there is more to nondefense aircraft manufacturing in the USA than Boeing, but how much?

    So the weak dollar is helping Boeing get orders for their 787. Does that really bolster the economy to such a degree that the DJIA and Nasdaq should rally 1%?

  19. Winston Munn commented on May 2

    Do not panic – there’s a big drain coming tomorrow from the Fed.

    Interesting they closed shop on the 3-year bond; surely it wouldn’t be to try to force down the yield on the 2-year bond, would it?

    The market is just following Einstein’s understanding that energy cannot be destroyed – that it has to go somewhere. You remember all that inflation that the Fed doesn’t acknowledge but everyone feels? Well, now you know where that unreported inflation energy is going. And when the market’s upward drive hits the speed of light squared….well, you know what happens then.

  20. S commented on May 2

    Welcome to the speculative/euphoria phase of the cyclical bull within the secular bear. The “smart money” is so glad to see Joe Sixpack and the foreigners finally show up.

  21. Fred commented on May 2

    Joe sixpack is nowhere near this market. The drive by media has scared them away. I’ve spoken with many retail brokers and the phones are DEAD. Daytraders are a different story. Foreigners would be foolish NOT to buy our stocks, given their inflated currencies.

  22. lloyd commented on May 2

    “Anybody following the BDI the last several months wasn’t too shocked by the recent pickup in manufacturing.”

    Steve, the BDI has little to do with US manufacturing. The dry bulk ships are headed to China. I’ve heard of 2 month waits for ships to get filled outside of Aussie ports. These ships aren’t headed to the US. In fact, if you look at rail road volume, components such as iron ore are down YoY.

  23. lloyd commented on May 2

    “The reason there is a shortage of shipping vessels is due to the demand?”

    David, the China buildout is beyond massive and why not? If money is free, they might as well build factories and destroy profit margins. I bet the Olympics has a lot to do with this build-out. Another reason for the shortage of ships is due to shipyards turning away dry bulk ship business for the more profitable LNG, LNG and containership builds. Of course, Chinese shipyard capacity is ramping up and new dry bulk ships will floud the market next year. Just like VLCCs will this year and containerships have done. Hey, money is free…order a ship!

  24. Eclectic commented on May 2

    Barringo,

    Know what?…

    This market is sayin’ you can take’ye Baltic Dry Index and stick it up’ye Baltic Dry Ass.

  25. Eclectic commented on May 2

    Hey Winston,

    Did I overwrite?

  26. Eclectic commented on May 2

    And, BTW:

    To all you motor truckers out there in Big Pic-su-burbia:

    To those of you who criticize CNBC for being overly optimistic… you are blind, deaf and dumb… not to mention as full of crap as a Christmas goose.

    You are blind to your own biases. Anybody that can’t perceive the warning tones that, on balance, have generally overtaken CNBC commentary lately just haven’t been paying attention.

    It’s human nature to discount what you disagree with and focus on what you agree with. CNBC is lining up, almost nightly, commentators with rather dire predictions for the economy and markets.

    Get off their asses!… The fools are in your mirrors.

  27. super-anon commented on May 2

    You are blind to your own biases. Anybody that can’t perceive the warning tones that, on balance, have generally overtaken CNBC commentary lately just haven’t been paying attention.

    How about being blind to the data:

    India’s 5% earnings yield (which is the reciprocal of the price-earnings ratio, which would be 20 times in this case) compares with a bond yield of 8.2%. Thus, India’s equity risk premium is minus 3.2%…

    China’s 2.8% earnings yield compares with a 3.6% bond yield, for a negative equity risk premium of minus 0.8%…

    The U.S market equity risk premium was well below average at 1.6%, with an earnings yield of 6.2% against a bond yield of 4.7%. Japan’s 2.2% earnings yield just beats out a 1.7% bond yield, the lowest in the world, for a 0.5% equity risk

    …if asset prices revert to their fair value over seven years, GMO’s expected returns from risky assets (small-cap stocks and emerging markets) not only is paltry — just 2.1% — but it actually is less than the expected return from low-risk assets (cash and Treasury Inflation Protected Securities) at 2.3%.

  28. wunsacon commented on May 2

    >> Hey Winston,
    >> Did I overwrite?

    LOL, Eclectic. Couldn’t you come up with at least one metaphor to describe this market?? ;-)

    Mr. Beach, “I feel your pain”.

  29. ManhattanGuy commented on May 2

    Mr Beach – I have been telling you all bears.. this market will kill you if you are short. A correction is in due course, but until then stay long. We still haven’t had a climax run yet.

  30. Eclectic commented on May 2

    You know… I think I got this just backwards:

    “It’s human nature to discount what you disagree with and focus on what you agree with.”

    ..hmmmm?… It’s hard to work with double negatives. It’s like taking a picture and then not recognizing the negative.

    I think that would be (at least in the case of bias related to perception) that it is human nature to f-o-c-u-s on what we disagree with, and d-i-s-c-o-u-n-t what we agree with.

    Yep-tHaT’s iT!… That’s why everyone has such a case of the red ass for CNBC. We can’t perceive when their emphasis shifts to warning mode.

    In other words, we can’t see what we a-g-r-e-e with because it doesn’t get our attention. We already agree with it.

    Wunsacon, you mean a “Baltic Dry Ass” ain’t metaphor enough for you?

    All joking aside… Hat’s off to you steadfast Bulls… You’re right – You’re winning – You’ve paid your dues. I think I’ll set back and watch you enjoy your success.

    How you want that steak?…. medium?… well?… Will you be using the facility all night, or you want me to come back and lock up at 1 am?

  31. Donaldo commented on May 2

    Mr Beach, I feel your pain. It almost feels like this is the time the last bear will throw in the towel. But then again, maybe not which means the market will go even higher. I hate to say this but it does seem like the bulls have been right all along. Memo to bulls: no need to gloat. As Todd harrison likes to say, if you don’t stay humble, the market will do it for you.

    The last few days have made me realize one more thing. If you follow all the economic data, read about the liquidity sloshing around the globe, the elevated levels of inflation etc, it’s hard not be be cautious about investing in the market in general. But if don’t understand anything about the market, don’t follow it closely but blindly follow the maxim that in the long run markets go up, you’ll come ahead of those of us who worry. So I guess there are two kinds of investors these days:

    1) Bears and the
    2) Rich (and stupid, but that’s beside the point).

    Unfair and sad but true!

    You know what? The dow is going to 15k by the end of the year!!! Err…did I just throw in the towel.

    PS:Barry, my email address is real. So you can send me your thoughts on the market in a private email :)

  32. Eclectic commented on May 2

    Oh, and here’s a shout-out to all you sweet Lady Bulls (I suppose that’s something of a contradiction in terms) in congratulations for your success:

    http://tinyurl.com/3dgndo

    Now, can I getcha anything?… Don’t hesitate to ask.

    More champagne?… Why, of course… back in a jiff.

  33. j d ess commented on May 2

    Electic: Are you high?

  34. j d ess commented on May 2

    er, Eclectic, i mean…

  35. Eclectic commented on May 2

    Donaldo, everthing about this blog for the last couple of days is a picture of capitulation to success.

    If that’s a generalized theme change that’s evident on the Big Pic, even if only temporarily, then what do you suppose the attitude of the general investing public is?

    Now, remember… as I write this, Virgie Arthur is on Greta, on Fox, giving us additional insights into the life and death of Nicole. Yes… she liked Larry, and no, she didn’t like Howard.

  36. Samuel commented on May 2

    The relationship of the BDI to the dollar index is interesting.

  37. Eclectic commented on May 2

    jd ess,

    No, but thanks for the concern.

  38. Winston Munn commented on May 2

    I’m not throwing in the towel and going long until hyperinflation kicks this Puffer Fish into high gear.

    Meanwhile, me and my puts are still waiting for Boomslang to strike.

  39. ac commented on May 2

    Yawn, what is so “impressive” about this market rally? Not a while lot in the US. Pretty flat overall.

    This is a global boom, not a US boom, that looks to be at its peek. My guess 2008 is the crest globally and beginning of the decline into a global recession. Can you guess the factors? I see 3 main factors and that doesn’t include the 2 main banks in Europe in tightening phases to curb the inflation problems. That will hurt by 08.

    Interesting that the US isn’t the main dog unlike the 90’s. We are in the coolerroom taking a break. Ah, distilled water.

  40. Winston Munn commented on May 2

    Tongue-in-cheek press, Detroit, May 2, 2007.

    “In order to combine its resources and attack both slumping car sales and losses on subprime mortgage lending, GM announced today a new incentive: Buy a new car, get a free garage in which to park it.
    (Available only to Detroit residents where car prices exceed home prices.)”

    From: http://www.economicpolicymonitor.com/
    “GMAC Financial Services today reported losses of $910 million in the first quarter of 2007 from ResCap, its home loan division.”

  41. Winston Munn commented on May 2

    Tongue-in-cheek press, Detroit, May 2, 2007.

    “In order to combine its resources and attack both slumping car sales and losses on subprime mortgage lending, GM announced today a new incentive: Buy a new car, get a free garage in which to park it.
    (Available only to Detroit residents where car prices exceed home prices.)”

    From: http://www.economicpolicymonitor.com/
    “GMAC Financial Services today reported losses of $910 million in the first quarter of 2007 from ResCap, its home loan division.”

  42. dryfly commented on May 2

    GM is in a race to the bottom… a race with themselves… and they are winning.

  43. BCS commented on May 3

    Admittedly, I’m a little tipsy, but I read the post above:
    “Now, remember… as I write this, Virgie Arthur is on Greta, on Fox, giving us additional insights into the life and death of Nicole. Yes… she liked Larry, and no, she didn’t like Howard.”

    I had to reread it twice, to figure out why someone was posting about an OJ story on Greta’s Fox show. I have competely tuned out the normal (read nonfinancial) media so the names mean nothing to me. I saw “Greta” and “Nicole” and immediately assumed. Yes, I realize it is about the recetly deceased train wreck, now.

    I am long the market (have been for a while), but own a condo in downtown San Diego. Hence my drinking. Trying to figure out how to get out of one or both positions. Drinking feels right, but not really getting me anywhere. Cheers.

  44. ManhattanGiuy commented on May 3

    Eclectic, Winston – Don’t overanalyze the market. The more you analyze, the more wrong you will be. Stay with the trend. The trend says market is going higher followed by a big meltdown.

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