frenchee
16 years ago
Why Shipping ETFs Could Sink or Swim
February 05, 2009 at 1:00 am by Tom Lydon
Container shippers are continuing on a trend all their own, but during the global slowdown many question if they are adding to their own demise, and compromising the performance of related exchange traded funds (ETFs).
Low Prices. The shipping industry at large could add to their own destruction as smaller companies get pushed out and global trade weakens. The idea is to keep the freight rates down until 2010, spurring trade business and keeping shipping part suppliers and products in business. John W. Miller for The Wall Street Journal reports that these large vessels are as big as a football field and carry things ranging from electronics to produce to automobiles.
Global Trade Drop. Shippers are eager to fill their vessels full with cargo, so in an effort to do so, they offer lower rates than usual. With overcapacity and a drop in trade, the bottom recently fell out on shipping rates. The rate for shipping a container from Asia to Europe has fallen to around $300, one-tenth the cost of a year ago, even as some shippers cancel regular runs; some ships will even take cargo for free.
The shipping industry runs the risk of running themselves underwater, so to speak, if the shipping industry cannot support the smaller players and continue to fuel business.
Market Technician
16 years ago
http://shipping.capitallink.com/
Nice charts here frenchee, has Baltic Dry Index, but one must sign up to login (free)... I particularly like their market summaries... every shipping company you can think of is here w/ their respective pages, charts, news, etcetera.
enjoy :)
drys page: http://shipping.capitallink.com/company/stock_chart.html?ticker=DRYS
frenchee
16 years ago
Forget unemployment. Inflation. Consumer confidence. Personal Incomes…
You can even ignore the ever-popular gross domestic product (GDP).
Most of the indicators that the market relies on to forecast the future are worthless in this type of environment. The truth is the data coming out of the traditional economic indicators isn’t current. By the time it’s being reported, the information is already weeks or even months old.
If you want to know when the global slowdown that’s erased $28 trillion in wealth (so far) will finally reverse course, pay attention to the obscure Baltic Dry Index. And nothing else. Here’s why…
What Is The Baltic Dry Index?
Despite the name, the Baltic Dry Index has nothing to do with markets in Lithuania, Latvia or Estonia. Instead, it’s all about the cost of shipping major raw materials. Like iron ore, coal, grain, cement, copper, sand and gravel, fertilizer, even plastic granules.
The value for the index is determined by the London-based Baltic Exchange, which traces its origins back to 1744. Each day, the exchange canvasses hundreds of brokers around the world for price quotes on moving goods. For instance: Shipping 100,000 tons of coal from South Africa to Japan, or 50,000 tons of iron ore from Australia to China. It then aggregates the quotes to form the Baltic Dry Index.
Basic economic principles of supply and demand explain the significance of the index…
The supply of cargo ships is tight and inelastic. It takes roughly two years to build a new cargo ship. And the high cost of each prohibits docking ships during slow periods. In other words, a change in cargo rates does not change the number of ships in operation. So even the slightest changes in demand for shipping raw materials results in a change in the index.
And because the index tracks the cost of shipping raw materials - the precursors of economic output - instead of intermediate or finished goods, it provides a precise and rare measurement of the volume of global trade at the earliest possible stage.
A sharp move up, means global trade is increasing. Conversely, a sharp move down, means it’s decreasing. Since global economic activity ultimately influences the equity markets, sharp moves in the Baltic Dry Index often predict and precede similar moves in the equity markets.
4 Reasons to Favor The Baltic Dry Index
Of course, there are other reasons to favor the Baltic Dry Index over other leading indicators, including:
No room for speculation. The index is not tradable, which means the only people booking cargo ships are those with actual cargo to ship. That makes the Baltic Dry Index, as economist Howard Simons put it, “totally devoid of speculative content.”
Not subject to revisions. Unlike almost every other piece of economic data, the Baltic Dry Index is not revised on a monthly or quarterly basis. The price is the price. And it’s completely reliable.
An inability to be manipulated. Governments, both here and abroad, love to “massage” economic data, especially inflation figures. Obviously, it’s difficult to base investment decisions off incomplete or “mostly” accurate data. But because of the way the Baltic Dry Index is measured, that’s simply not possible. Again, the price is the price. And it’s completely reliable.
Real-time, daily updates. We all know markets shift fast. And in turn, we need indicators able to reflect those sudden movements. At best, we only get weekly updates for other leading indicators. And all are backward looking. The Baltic Dry Index represents the only indicator with “real-time” updates. And such frequency dramatically increases its relevancy and value.
In light of the above, it doesn’t take a market maven to predict what direction the index’s been heading lately - practically straight down. Here’s the thing. The Baltic Dry Index started plummeting in early June, before the global equity markets went into a tailspin, proving its predictive abilities.
So if you’re looking for a clear indication of a market bottom, forget about any other leading indicator or popular convention. Just look for the Baltic Dry Index to start trending noticeably higher.
Good investing,
Lou Basenese
Source: The Baltic Dry Index: The Only Economic Indicator Worth Tracking Right Now
frenchee
16 years ago
Biggest Bubble of Them All' Is Globalization: Chart of the Day
By Michael Patterson
Oct. 24 (Bloomberg) -- The 90 percent tumble in the global benchmark for commodity shipping costs since May exceeded the Dow Jones Industrial Average's plunge during the Great Depression, signaling globalization is ``the biggest bubble of them all,'' Bespoke Investment Group LLC said.
The CHART OF THE DAY shows the rise and fall of the Baltic Dry Index, a measure of freight costs on international trade routes, along with three other bubbles during the past decade identified by Bespoke: The Nasdaq Composite Index of technology stocks, the Standard & Poor's Supercomposite Homebuilding Index and the CSI 300 Index, a benchmark for Chinese equities.
The Baltic Dry Index's drop from its peak just five months ago surpassed all of those, along with the Dow's 89 percent retreat from 1929 to 1932, according to Bespoke.
``The Baltic Dry Index had a meteoric run since the start of the decade, as it became one of the key symbols of the `globalization' trade,'' Paul Hickey, co-founder of the Harrison, New York-based research and money management firm, wrote in a report yesterday. ``It now appears that like any `new thing,' the globalization trade went too far.''
The Baltic Dry Index fell yesterday for a 14th straight session as the freeze in money markets curbed traders' ability to buy cargo on credit.
The Nasdaq plunged 78 percent from 2000 to 2002 as investors concluded high-priced Internet stocks weren't supported by profits. The S&P index of homebuilder shares has dropped 82 percent from its 2005 peak as the U.S. suffers its worst housing slump since the 1930s. China's shares have fallen in the past year as slowing economic growth and new regulations prompted traders to shun stocks that had climbed to the most expensive valuations among the world's 20 biggest markets.
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