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Palouser
Senior Advisor

Baltic Dry Index flop

The BDI proved again to be a fickle indicator of prices. It's now obvious that increased carrying capacity tanked the shipping margins.

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3 Replies
hardnox604008
Advisor

Re: Baltic Dry Index flop

Hi P,

 

I disagree although capacity is certainly the greater part of it and the BDI is obviously a lot more sensitive to the marginal change than the overall economy.

 

But it is clear now that the world economy is not strong and about the only story going is the historic buildout in China with 70% of the economy now said to be based on capital and infrastrucure spending. The internal consumer demand story there is a big flop.

 

All we've proven here is somehting that shouldn't have needed to be proven- that if the world's biggest economy puts $trillions of non-interest bearing dollars on the balance sheets of banks, asset markets are going to get bid up. Unfortunately they still haven't learned that commodities will act as the damper on any small amount of real growth that is engendered.

 

When the asset markets all exploded with the QE teaser in August, the story was that US GDP growth would surge to at least 4% in Q 1 '01. Looks like we might have gotten 1.5% and Q 2 looks weaker although the fallout (sorry) from Japan is adding to that problem.

 

Big shellout coming in the risk speculation very soon- might start monday since God (Goldman) came out last night with a sharply reduced GDP forecast.

 

Best,

 

h

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Palouser
Senior Advisor

Re: Baltic Dry Index flop

It is obviously true the economy isn't strong, hasn't been, and won't be for some time. The Great Recession was a huge whacking. On the other hand, since almost 70% of the economy is consumer based, and wages have been stagnant for years, the idea of rampant inflation strains the imagination.  The flip side of that is owning US bonds and getting a tax break from that income is big leverage under the current inflation scenario for the wealthy.

 

No doubt there are people looking for the greater returns that are much more risky in terms of commodities and risky paper using margins. They hope to profit but, they may not. I think they are aware of that.  I say, let them play their games. From a domestic point of view I'm not worried. Let the players arbitrage. I'll play the seams by raising a crop and marketing it.

 

The game will evolve in time. I don't think I will be too greatly affected. I DO wish the games in DC would stop. I don't see any serious attempts at solutions yet. And I'm still waiting for investigations and trials of many entities that were involved, testimony from former regulators and criminal prosecutions of such as Moody's rating company. Fraud needs to be punished.

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dobrmf
Contributor

Re: Baltic Dry Index flop

Don't hold your  breath on those fraud prosecutions Palouser, I spent ten years with the co-op credit guy in the office next to mine (I was the grain merchandiser) and I would have needed a personal computer ro track all the fraud the credit mgr assurred me that was going to be prosecuted, however I did not even need any fingers to track all the fraud that was prosecuted, (and these guys were not even politically connected) BTW I agree whole heartedly it's just business as usual for the ratings agencies WTF

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