Drop in Shipping Indicates Slowing Global Economy

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


The Baltic Dry Index, a measure of international shipping rates for dry bulk cargoes, hit new lows for the year on Monday June 28th. The index has dropped sharply in the last month and is indicating that global manufacturing activity is experiencing a major slowdown.

Shipping rates are very dependent on market demand (it takes a long time to build a large ship and to increase the supply of shipping capacity) and will rise and fall sharply in response to it. The Baltic Dry Index (BDIY:IND) is a daily record of costs to ship goods such as building materials, coal, metallic ores and grains. Oil and natural gas are not included in the index. Many of the products that are included are used as inputs somewhere in the manufacturing pipeline.

Shipping activity for 2010 peaked so far on May 26th when the Baltic Dry Index reached 4209. Yesterday, a little more than one month later, the index stood at 2447 - a 42% drop. Until this week, the low for the year had been 2501 on January 25th.  Not only is shipping at a new low for 2010, but the high for this year was less than the high reached on November 23, 2009. On that date the index was 4423 and as of now that was the post Credit Crisis peak. This compares to the all-time high of 11,793. It looks like we won't be reaching that level again anytime soon.

Lower highs and lower lows paint a picture of a weakening trend for shipping. The next key level for investors to watch is 2163. This was the low in activity on September 24, 2009. If the index breaks below this, returns to the incredibly lackluster levels in the spring of 2009 are possible. It is not likely though that we will be returning to the all-time low level of 663 from December 5, 2008. At that time, global economic activity was literally frozen and was at a severe depression level. Even in a fairly steep double dip recession, there should be more shipping activity than that.

Disclosure: None

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

U.S. Dollar Down, Everything Else Up

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

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The trade-weighted dollar hit a new yearly low overnight falling to 75.10 at one point. It only decisively broke important support at 76.00 six trading days ago (there were short breaks before that signaling what was coming). While there is minor support at 74.00, this is not likely to hold very long. A test of the all time low of 71.50 is almost inevitable at this point. It may take a couple of months before this happens. Expect a bounce when it does. How long the U.S. dollar will be able to hold at that level remains to be seen. Eventually, new all time lows will be reached.

The decline in the dollar is causing almost everything else to rise. This includes gold, silver, the stock market, food commodities and now oil. All of these price movements can be traced to the huge money printing operations of the U.S. central bank. Markets move first, then consumer prices second. Expect noticeably rising CPI starting with the report for December. The current rise in oil, which hit $80.05 a barrel for light sweet crude early this morning, has insured the inflation numbers are going to start perking up soon. The rally in grains currently taking place is also going to start impacting food prices sometime next year.

Oil's performance is impressive considering it is taking place against seasonal headwinds and the interference with energy trading that the CFTC conducted this summer. While the CFTC drove 200% long oil ETF DXO out of business, it left the 200% short oil ETF DTO alone. It seems that only leveraged long positions cause excess volatility in energy trading, but leveraged short positions don't. U.S. investors are left with non-leveraged ETFs such as OIL and USO as their only means to invest in oil at the moment. How long the oil rally lasts is still an open question. Higher priced oil definitely upsets the authorities and now that their summer attempt at price controls has failed, you should assume that plan B will appear at some point in the future. Also watch natural gas prices, just as silver usually moves after gold, natural gas can follow oil. Their price ratios are still incredibly out of whack (in theory oil should be 6 times the price of natural gas, it was priced well over 20 times during the summer).

Oil is still far away from its all time high of $147 a barrel (although it will be getting back to that level), while gold keeps hitting new highs. The close of spot gold at the end of the afternoon session of Globex yesterday was $1064.50. To hit another all time high, $1070.40 has to be taken out. Spot silver closed at $17.86 yesterday and needs to break and close above important resistance at 18.00. It has been above $18.00 briefly twice so far (the inverse pattern of the U.S. dollar breaking 76 twice briefly before a major break took place). Once it breaks this level, silver will test its 2008 high around $21. It is only a matter of time.

NEXT: What Earnings Are Telling Us

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.