I wouldn't worry too much about this. The Baltic Dry Index hasn't really been a usable indicator for many years now.
Originally it was a brilliant insight. Most numbers can be fudged, but it was super expensive to have ships sitting around empty so the index was hard to game.
What made it even more useful was that it is one of the very few leading indicators of the global macro economy. Most indicators that work are lagging, which means they tell you that something has already happened.
Since hte index measures both demand for shipping and supply it can be pushed down by either. The general consensus is that the current lows is actually due to over supply by the shipping giants like maersk.
That is not the consensus. The consensus is a massive decline in commodity prices (oil, metals, etc) and a decline in demand for exportable finished goods is crushing global trade. Indicators are everywhere:
WPI, PPI, CPI and oil prices have all fallen significantly.
I don't want to get political but a deflationary spiral is something governments globally should be working to correct, yet priorities seem to be elsewhere.
I agree there is alot of room for interpretation, but I'm very happy to stand behind and put my money behind my assertion that the Baltic Index isn't a useful indicator anymore.
The BDI's indication is supported by the decline in rail traffic, the decline in imports/exports in/out of China, and corresponding declines for the BRIC nations. Its supported by the recent (and growing) closures of mines and mills globally. From Janet Yellen, Michael Pettis, Zhou Xiaochaun... all acknowledge this decline. You're in a very, very small minority.
What's your take on the Fed raising rates next month? I've seen a lot of consensus that rates are going up next month, but I don't see how they can with various economic indicators showing that the global economy isn't on solid footing.
Perhaps we'll be stuck with ZIRP for a bit longer :/
1. Wealth demography. Wealth is held by older people seeking safety not growth/risk.
2. Capital stagnation. Capital is being stockpiled by central banks and large corporations. The former seeks to rectify structural problems in spending and banking sectors. The latter seeks to avoid tax liability.
3. Small businesses abandoned. Developed nations, the US in particular, have focused resources on the largest institutions and institutions serving the poorest. By comparison small businesses are ignored creating more risk for large institutions, and incrasing the ranks of the poor.
4. Global instability. Declines are almost always preceded by alarming world events causing capital flights that expose imbalances in economies. Yes, the solution is to not have imbalances, but aside from that utopian ideal, restoration of a stable world order opens the door to economic risk taking and then prosperity.
> Central planning interest rates will probably never be over 3-4% again
Not until we see a large scale war. Nothing raises interest rates like a bond-funded war campaign. A war would also increase aggregate demand, R&D spend, and decrease the domestic labor force.
It's a sad fact that it takes violence/discomfort to galvanize and restore discipline to a nation and its leaders. Not unlike the disruption of old industries by the new. Except in war, you break bones and bodies whereas in startup land you break laws and customs.
Nothing makes them irrelevant like expanding radioactive deserts, huge clouds of fallout, and festering zones of bacterial contamination.
I don't think we want a large scale war. Technology benefited a lot from previous wars - without WWII and the Cold War computing and telecoms would be a few decades behind - but technology has changed the risk/benefit profile to make war unfeasibly destructive.
The irony is there's a lot that could be done. We need clean energy, more support for small businesses of all kinds, desalination, infrastructure replacement, and possibly a hugely increased space program.
But current economic models are fiscally constipated - possibly terminally - and improvements are unlikely until they're replaced.
Question ;
Considering the projected growth in world population and the huge amount of poor people in the world. How can growth be over? Or are you thinking mostly about the west?
Also, you're assuming more people = population growth; that's like Snapshat saying they're profitable because they have tons of users, but no revenue. You need a properly functioning economy as well as people to have growth (you need more than that, but that's all I included for simplicity sake).
It appears that the Fed is just in the business of managing perception. As weird as it sounds they want to get the checkmark for saying they raised the rate (e.g. 25 basis points) while at the same time sending a clear message that any other move upward will be a very slow process. I'm not sure you can have it both ways forever.
There's a big difference between Fed governor's acknowledging something, as they often do (see: biotech valuations, startup valuations), and the Fed governor saying it's something the macroeconomy needs to worry about. Can you link me to where they said it was actually a significant risk, above any of the other plethora of risk factors out there?
I agree that it isn't useful anymore, simply because once an index has been shown to 'lead' it will be made part of future models which well then either 'track' or 'lag' but no longer lead. But that does not mean a very low BDI isn't a problem.
Except that even with commodities getting cut in half or losing up to like 3/4 of their value, we are still in a slightly inflation positive environment. What does that tell you about the state of the underlying economy?
Furthermore, you're making the classical economic fallacy of reasoning from a price shift. Oftentimes, from experience, commodity shipping volume increases in times of turbulence, as there are more arbitrage opportunities from the more volatile diffs between grades.
Inflation positive? WPI, PPI, CPI and oil prices have all fallen. Where are you seeing any relevant signs of inflation? Remember growth in M2 is offset growth in bank excess reserves sequestered at the Fed.
n=2 and anyone else who regularly shops for groceries in North America. Wealthy silicon valley types who post here are almost comically out of touch with the real world sometimes.
You're mistaking changes in growth rates with the growth rates themselves... CPI is, and has been, positive for years now. Remember, you're not a macroeconomist and probably wouldn't be able to debate that last point if I tried to even make sense of it.
edit: Just in case, if you are going to post anything about ShadowStats, or the Fed lying about numbers, there's nothing to even argue. It's hilarious that people think they get to choose their own definitions of inflation, when it's a fairly strictly defined thing. Just because your grocery bill "inflated" ≠ the economy is experiencing inflation.
BDI goes up when bulk shipping capacity is tight. That's interesting, but the reason BDI was an obscure index until the 2008 crisis is that it isn't a good indicator of the health of the world economy.
Except for that one time: The BDI crashed super-hard because nobody could get a letter of credit. It was the canary in the coal mine for the subsequent general seizing-up of credit due to the derivatives-driven crash.
Commodities are cyclical. There's been a long boom. The party is over for oil and metals. The inefficient will fold up; the strong or smart will hunker down and wait for the inevitable upturn.
From the 'how it works' section of the Wikipedia page...
"Every working day, a panel of international shipbrokers submits their view of current freight cost on various routes to the Baltic Exchange. The routes are meant to be representative, i.e. large enough in volume to matter for the overall market."
So three [chaps|chapesses] in London think of a number presumably based on some kind of average volume figure and price.
I'll have to find a list of obscure indices and do some visualisations. Might make Maths lessons a bit more interesting...
The big-mac index [1] is another unorthodox one that has gained a lot of attention for actually being a very rigorously updated price-level guide between different nations.
I'd predict that we're going to see a depressed Baltic Dry for the foreseeable future, and it will likely never reach the 2007/8 era highs again. As we continue to see slowing global demand for coal/oil and growing demand for renewable energy, bulk shipping volumes will continue to stay low.
Seems like we should expect the real economy to slow in many (but not all) ways as sustainability becomes a more primary goal for many individuals and companies. I believe this may be a big part of the global recession.
Mining and shipping large quantities of coal and iron large distances is just an inherently unsustainable practice.
Economic indicators as well as other fundamental aspects of the economic era may need to be replaced with more up-to-date concepts.
Most HN partipants rely on brick and mortar businesses, directly or indirectly, as first or second order revenue sources. The Baltic Dry Index is telling us that an unprecedented slowdown in global trade is occuring, the impact of which will be felt by tech firms building and selling logistics solutions, payment platforms, inventory systems, accounting applications, financial modeling software and so much more. The VC community is paying close attention to the global economy, which will impact their willingness to invest. I enjoy reading about undocumented Python regular expression libraries as much as the next guy, but a deflationary spiral spinning unabated is going to impact all our lives far more and very soon.
It's not unprecedented, the previous time this happened a global crisis was about to get underway. This is what makes (or rather, maybe made) this particular index so interesting, the fact that it doesn't lag but gave a warning ahead of time. Of course once that happens everybody will adjust their models so this won't repeat. But the previous recorded drop in this particular shipping index was a harbinger of some pretty bad news.
The duration of this decline is unprecedented. In 2008 indicators bounced back in months. This decline started in late 2013 early 2014 and appears to be increasing in intensity.
This is mildly concerning to me: I work in ecommerce! This apparently means that less raw materials are flowing around than ever, and, eventually, fewer goods will be produced and sold.
Not exactly - three years ago the shipping demand hit an all time high. Large container companies began building new never-before-seen super cargo ships which can carry an enormous amount of cargo. These ships rolled out of the production line earlier this year and have had a very heavy impact on shipping. The slowdown in the Chinese economy compounded this, as China is one of the largest users of shipping.
As the Chinese economy picks up and global trade values continue to rise with growing populations, this effect should decrease and you should see shipping prices rise. Compounding this is that smaller shipping companies are being merged into larger ones as the low prices make their business unsustainable.
So you can also expect this index to spike rapidly in the future as consolidation occurs.
Originally it was a brilliant insight. Most numbers can be fudged, but it was super expensive to have ships sitting around empty so the index was hard to game.
What made it even more useful was that it is one of the very few leading indicators of the global macro economy. Most indicators that work are lagging, which means they tell you that something has already happened.
Since hte index measures both demand for shipping and supply it can be pushed down by either. The general consensus is that the current lows is actually due to over supply by the shipping giants like maersk.
More reading:
http://www.economist.com/blogs/economist-explains/2015/03/ec...
http://www.forbes.com/sites/timworstall/2015/02/05/why-you-s...