Saturday, January 7, 2012

BALTIC DRY INDEX


The Baltic Dry Index (BDI) is a number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index tracks worldwide international shipping prices of various dry bulk cargoes. The Baltic Exchange traces its roots to the Virginia and Baltic Coffeehouse in London's financial district in 1744. It matters because its considered an excellent barometer of the health of world commerce. Can it be manipulated? YES...but in the past it appears to have been quite accurate especially during the 08 collapse.

Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand).

The supply of cargo ships is generally both tight and inelastic — it takes two years to build a new ship, and ships are too expensive to take out of circulation the way airlines park unneeded jets in deserts. So marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly. e.g. "if you have 100 ships competing for 99 cargoes, rates go down, whereas if you've 99 ships competing for 100 cargoes, rates go up. In other words, small fleet changes and logistical matters can crash rates..." The index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as building materials, coal, metallic ores, and grains.

Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel, and food, the index is also seen as an efficient economic indicator of future economic growth and production. The BDI is termed a leading economic indicator because it predicts future economic activity.

Because it provides "an assessment of the price of moving the major raw materials by sea," according to The Baltic, "... it provides both a rare window into the highly opaque and diffuse shipping market and an accurate barometer of the volume of global trade -- devoid of political and other agenda concerns."

Another index, the HARPEX, focuses on containers freight. It provides an insight on the transport of a much wider base of commercial goods than commodities alone.

BE AWARE FOLKS that other leading economic indicators — which serve as the foundation of important political and economic decisions - are often measured to serve narrow interests (imagine that;-), and subjected to adjustments or revisions (shocking!). Payroll or employment numbers are often estimates; consumer confidence appears to measure nothing more than sentiment, often with no link to actual consumer behavior; gross national product figures are consistently revised, and so forth. Unlike stock and bond markets, the BDI "is totally devoid of speculative content," says Howard Simons, an economist and columnist at TheStreet.com. "People don't book freighters unless they have cargo to move." I agree with this quote to some extent but that does not mean they can't manipulate it...so always be suspect and use it as one metric only. Just realize that its past has been very reliable and worthy of your examination! We are under the current assumption that a SLOW and STEADY recovery is in place BUT the current BDI chart shows a precipitous drop..

Examination of the BDI charts show marked deterioration and paint a disastrous picture of the world economy. Is it a tell that refutes the recent hype to recovery?? Well I think you must agree it bears watching if it falls through support in green....watch out below. The PTB are going to throw everything they have to keep this from breaking support.

http://www.balticexchange.com/default.asp?action=article&ID=19

http://en.wikipedia.org/wiki/Baltic_Dry_Index





Please watch the second half of the Keiser Report video....very telling

12 comments:

  1. OK, might have to write this in stages.
    Warm winter up here so far, so winter activities have been limited.

    A Snapshot of a Kodak family

    As a write this, I suppose you can take out the work "Kodak" and insert a different USA company's name in its place. Our once great companies are dying or being transformed and the families that are a part of them are being forced to adapt.

    First some Stats:

    George Eastman started Kodak around 1880. It was said he liked the "K" sound, and thus the name Kodak was completely made up.

    1981: Sales surpass 10 billion
    1982: Homegrown employment 60,400 (Peak) with the city of Rochester population at that time around 227,000
    1985: Global employment peaks @ 145,000
    2010: Global employment now only 19,000.

    1975: Kodak invents the first digital camera. It only took Blank & White pictures & weighed 13 pounds. Despite objections from scientists, the research was slowly pursued--perhaps a fatal decision.

    My father grew up on a small farm but moved to Rochester for college. During college, he became employed by Kodak, worked there his entire life, and retired with a full pension & health care. Back then, a college degree was unnecessary. Many joined Kodak right out of high school and all the training you ever needed was provided by Kodak. Kodak was an industrial giant, and provided well for its families. A father's salary was enough back then. I had a stay-at-home mom until my teens.
    My earliest Kodak memories was going to one of the Kodak Park buildings during the winter for annual show. Hundreds of people with their kids in tow would file in and ride up the escalator to the theater. Very likely, the very first escalator I saw and rode was there. There were so many people, that nearly every stair would be filled with parents & children. We would funnel into the theater. There were cartoons first and then the main feature. We went yearly, and it was always enjoyable.
    Then of course, the was then annual Kodak Summer Picnic with lots of food & games. My mother would turn us loose, and then looks for us hours later. It was a carefree time.
    My first exposure to stocks was Kodak. It was a nightly ritual. My father would sit & watch the TV for Kodak's closing price. Sometimes, one of us kids would watch, and then tell him..."It's up a quarter point, or, it's down an eight". Exposure to fractions came early.
    My mother eventually joined Kodak in the Copy Products division. Kodak was designing and building copiers to compete with IBM. She worked on the assemply line, but later became a secretary. She too retired with a small pension.
    Back then, Kodak was into multiple markets. It wasn't just film. Beside cameras, they made the super 8 movie projector, the carousel projectors, copiers, medical equipment, etc. as well as R&D. Initally all made on site, within numerous buildings, in the good ol' USA.

    Well, I'm getting paged. Stay tuned for Part 2.

    ReplyDelete
  2. great story doc.....I have not cheated and read up on kodac until part 2.....but just so depressed thinking how it represented what our manufacturing "used" to be.....I remember Paul McCartney talking about his education from his wife's father....who was an Eastman and tutored Paul on the ways of earning/keeping/ and INVESTING money ..... Paul credits him with making him fabulously wealthy

    ReplyDelete
  3. I can't believe it. I had part two all done, and then accidently closed your web page.

    We, here we go again.

    During those times, Kodak would offer summer jobs to college students. Typically, a student could work there one summer during their 4 years of college. Kodak paid $5.00/hr which was excellent pay at that time (mid-1970's). Contrast that with my usual summer job pay of $2.25/hr, Kodak's pay was more than double. So, these jobs were highly sought. Well, I applied and eventually got picked--I believe during the summer between my 2nd & 3rd years.

    So, I was off the Kodak's Elmgrove Manufacturing site--I believe a 140 acre site. I found this picture on Google and I hope this link works. As you can see, there are many interconnected buildings.

    http://www.actionmaps.com/maps/custom-a.pdf

    There, I was assigned to an area that did Electronics and Tool & Die type work. The job started off slow, but eventually they found work for us.
    I would help doing simple Tool & Die projects that were set up for us. This involved cutting aluminum pieces to make parts. Also, I assembled a testing devices that were used to test Kodak flash cameras. The device would power the battery compartment of the camera, and then a worker could press the camera's button to see if it would flash. Much of the time, we were sent to fetch part throughout Elmgrove, so I really got to see a lot. I made some friends and we always managed to "get lost" on our way getting parts. There were huge presses constantly hammering out parts, people (mostly women) soldering circuit boards, and sort of metal cutting equipment such as lathes, and rows and rows on people (mostly men) talking on their phones. They were constantly in meetings. The boss that was supposed to supervise me was always "in a meeting". The last 1/2 hour of each workday was clean up time. The floor and machines were covered with aluminum shavings soaked in cutting oil. Then, we would fill out our job sheet on how many hours we worked on a particular task. Just getting out of Elmgrove to go home was a project. You had to go through security to make sure you weren't stealing anything. The line was long.
    The best job I got was working along with another student on Kodak's Instant camera which was to compete with Polaroid cameras. An Kodak engineer supervised us, and he was just a wonderful, high energy, alway optimistic-type guy. One of those light-up-the-room type persons. I won't go into all the details, but basically the film (picture) would pass through rollers that were slightly studded with metal bumps. These rollers would squeeze and thus dispense the chemicals along the film to develop it. It was thought that bumps of different sizes and shapes and different pressure between the rollers would alter the picture's image quality. They needed someone with some computer knowledge. I learned "Basic" in high school and "Fortran IV" in college. For you youngsters, those were computer languages needed to work with main frame computers. No Bill Gates back then. Needless-to-say, it was a great experience.
    As you probably know, Polaroid successfully sued Kodak for patent infringement and Kodak's Instant camera program was shut down.

    With Kodak's progressive demise, the Elmgrove site was eventually shut down--I believe in the 1990's. Now, there are some stores there. But, that's what we need in this country--more stores.

    I could write a bit more if you want.

    ReplyDelete
  4. Ok...Part 3

    That was the only time I actually worked for Kodak. It was back to school and then different summer jobs.

    Of my siblings, only my oldest sister chose a career at Kodak. The college she went to had an association with Kodak for Internship-type programs. So, after college, she went right to Kodak, working with main frame computers (still no Bill Gates). My sister is smart and graduated at the very top of her class. She was the "go to" person when you needed help with homework. I think it was that smartness that helped her survive.
    It was difficult back then to ever see that Kodak would have problems. I got my start in medicine via Radiology. As you know, back then all Xrays were done on film--Kodak film. With our growing and aging population, it would seem that the need for film would grow forever. We would go through boxes and boxes of film--and large pieces of film. Studies like UGI's, Barium Enemas, and angiography required lots of film. Boxes of Kodak film were piled high and then Kodak chemicals to process the film.

    The first news I heard of problems with Kodak was I believe in the early 1980's. My brother had a friend that became a financial analyst and worked for Kodak for a short time. Apparently, this friend had access to the financials and saw thing he didn't like. I never spoke with this guy directly, but my brother relayed that unless Kodak somehow changed, there would be trouble in the future.

    As an aside, I remember reading things about GM. I read that there were analysts that predicted back in the late 1970's that due to policies set in place at GM, that GM would fail decades later. This eventually came true. I suspect this was true for Kodak--the "writing was on the wall", but nothing or not enough was done.

    I do remember my father saying that things were slowing down and he accepted an early buyout. My sister struggled on.

    As for me, like I suspect most boomers, I worked hard and built my own little world. There were opportunities and I took advantage of them. Life was great.
    I am not sure exactly when I became aware--I don't remember swallowing a red pill. I suspect that it was during the 1990's. A favorite phrase of mine during that time was that the problems with the United States is that political power is "too balanced". I was becoming aware that it really didn't seem to matter if we had a "red president" or "blue congress",...the results were the same. Each party could completely stymie the other, while the people suffered. I was already aware of fiat money from reading investing-type books.
    But, I suspect what really woke me up was the cries from my sister. I would call her & ask how things were going, and she would say "it's bad,...really bad". Whenever Kodak would announce layoffs, the poor girl would be on "pins & needles". Yet, to this day, she has survived ever cut, and still works there. She and her husband have managed to raise a family and save for retirement. None of her kids ever wanted anything to do with Kodak.
    Well anyway, my sister would call and ask "should I do this or should I do that?" It was difficult to answer her and be truthful. Afterall, I have knowledge about the markets, business, etc and the terrible things that can happen when companies are torn apart. But, finally I had enough and wrote a multipage letter to her, it took weeks to write. In that letter, I exposed the dangers and the completely screwed up world we are living in. It was a real rant, but I think researching for that letter and writing it really woke me up and I began to see "the real world." My quest for the truth and possible solutions for our problems continue to this day.

    Well, paged again--I will try to finish in part 4.

    ReplyDelete
  5. I guess in conclusion all I would add is that maybe it is best for Kodak to go through some type of bankruptcy restructuring. It has been dying the death of 1000 cuts, and maybe it would be best to just fix it once and for all. It is difficult for me to see the stock price at a mere 37 cents. I am not sure what would happen to the pensions, but maybe they will be OK. Kodak does make great products and they do have talented people. Maybe they can be a strong company again.

    This "K-Winter" stuff and the pending collapse of fiat currencies is scary. But, it seems to me we have no choice but to go through it. I would like to hope us boomers (if anyone reading this is a boomer) will help the younger generations.

    If this story helps anyone out there understand what is going on, then my time was well spent.

    ReplyDelete
  6. Great piece Doc......and well written....a lot of us have similar experiences and feelings that make us feel very isolated with our family and friends and rest of the public.......its always good to be able to read someone else's experience...

    ReplyDelete
  7. Doctrader,

    I really appreciated your perspective on Kodak. After reading your story, i couldnt help but go back in time and remember the leading companies of the past. It is really sad to see some of these iconic american companies of the past, basically get steamrolled. I guess the likes of Sears may be on the verge of facing a similiar fate down the road. I wonder if 50 years from now, someone will be writing about there perspective on microsoft, apple or google.

    ReplyDelete
  8. Doctrader - like Xerox - Kodak was slow to adopt new technologies. Still there are a couple of Kodak spinoffs (1990s I believe) that are doing quite well. There is Eastman Chemicals and Sterling Drugs which were once a part of Kodak.

    ReplyDelete
  9. Kli - to what extent in your opinion is the subatantial increase in shipping capacity in 2011 affecting shipping rates?

    ReplyDelete
  10. Glad you enjoyed it.

    Inlet, yes those companies were part of Kodak.

    I think what has happened is that as our US companies became large, they became too unwieldy. They saw the changes coming, but just couldn't adapt.

    I remember reading once that Bill Gates always wanted to surround himself with young professional people. It was these young people that could see the changes that were coming first and had the energy and imagination to create.

    Perhaps that is why Corpocracy exists. Corpocracy-type companies must eliminate or prevent any competition or they too will fail.

    Note: Where I wrote "IBM" in my piece, I should have wrote "Xerox".

    ReplyDelete