atans1

A worrying economic signal?

In Banks, Economy, Shipping on 10/02/2012 at 9:46 am

Investors are in the mood to take more risk in return for higher rewards. They are in “risk on” mode.

Recently, the Baltic Dry Index has fallen to a 25-year-low (since then it has risen by 1.9%) prompting concern that history is about to repeat itself. In the past, say 2008, a weak index foretold a recession, or at least an economic slowdown.But this time there been some special factors at play, according to conventional wisdom. The boom in the Baltic Dry seen before the financial crash and recession was in large part the result of a shortage of ships, which pushed up the cost of carrying freight. There are now far more ships with greater capacity and, because it has taken time for the vessels to be built, the extra capacity has become available when ship owners least want it. A, short-term factor, has been that the Chinese New Year holidays fell early this year, depressing trade in Asia.

Still a 2.9% fall in German industrial production in December suggests that the index might have collapsed due to both increased supply of shipping and weak demand. Germany is the world’s biggest exporter and the hefty slump in output at the tail end of 2011 coincided with the intensification of the crisis in the euro zone. Remember, too, that Germany exports machines to make goods to China.

Update on !0 februart 2012 at 7.05am:

Imports into China fell by 15.3% In January, and this cannot be all due to the Chinese New Year holiday factor. Exports dipped 0.5% from a year earlier hurt by sluggish demand and factories being shut during the Lunar New Year.

This resulted in a trade surplus of $27.3bn which was a six-month high.

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  1. the demand side has also been badly hit by bad weather in both Brazil and Aus, which has lead to disruptions in coal/iron ore mines. Honestly, the BDI would have reached these levels in 2009-2010 if not for the massive Chinese stimulus.

  2. I do my morning walk at west coast park twice a week. Recently, I noticed the containers are packed to the brink on the ship, not sure if this is a good sign of recovery in singapore.

  3. Like I said, Golden Age ahead man. There will come a time when modern finance will fail and S’pore cease to be a sovereign nation. But that time will not be in the next 5-10 years. In the meantime invest like the PAPies and you’ll do ok. No worries man.

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