Saturday, September 27, 2008 6:13:39 PM
Where we are in the global recession as related to the Baltic Dry Index (BDI)
I've mentioned that the BDI is a leading indicator of economic expansion and contraction. Shipping prices are very volatile, they are usualy the first to feel the impact of expansion or contraction in trade and the wild swings in the rates of shipping can signal when it becomes too costly to conduct trade.
Now keep in mind that BDI signals global impact of trade.
I think the BDI can show us where we are in the recession we are in now. I don't care for the metric that you need successive negative GDP to get a recession as GDP is a measure that is not free market based. It is more prone to manipulation.
It seems that 2009 might be the bottom of the current recession by a number of factors.
BDI - First BDI has not bottomed. It might be another few months of bottoming before businesses feel comfortable enough to take on credit and start expanding again.
Bailout - Its going to be at least 3 months before the bailout is capable of moving CDO off the books of financials and into taxpayer hands. Probably 6-9 months before enough is converted that credit expansion can start up again.
SPX - following credit contraction in step as compared to the 2002 recession. Makes me feel that markets have much further to go before a bottom is in place. A few more bank failures in the next 3-6 months along with slow consumer spending to spook investors out of stocks.
rising bond prices can represent that investors are seeking safety in less risky investments but can also represent that credit is scarce and the government is either unwilling to or unable to expand credit. When the credit contraction occurred in early 2000 the flight to quality started and did not abate until mid 2003 when well after the recession. Yield cannot determine bottoms in expansion or contractions because amidst a contractions bond investors are still skittish and are distrusting of any signs that the contractions are over. again the flight to quality was a mean s of preserving capital and safety. they are not going to be willing to take a risk at finding a market bottom so they wait out the storm. yield can signal a contraction early but not a recovery. lot to markets like BDI and S&P500 to signal a recovery.
I've mentioned that the BDI is a leading indicator of economic expansion and contraction. Shipping prices are very volatile, they are usualy the first to feel the impact of expansion or contraction in trade and the wild swings in the rates of shipping can signal when it becomes too costly to conduct trade.
Now keep in mind that BDI signals global impact of trade.
I think the BDI can show us where we are in the recession we are in now. I don't care for the metric that you need successive negative GDP to get a recession as GDP is a measure that is not free market based. It is more prone to manipulation.
It seems that 2009 might be the bottom of the current recession by a number of factors.
BDI - First BDI has not bottomed. It might be another few months of bottoming before businesses feel comfortable enough to take on credit and start expanding again.
Bailout - Its going to be at least 3 months before the bailout is capable of moving CDO off the books of financials and into taxpayer hands. Probably 6-9 months before enough is converted that credit expansion can start up again.
SPX - following credit contraction in step as compared to the 2002 recession. Makes me feel that markets have much further to go before a bottom is in place. A few more bank failures in the next 3-6 months along with slow consumer spending to spook investors out of stocks.
rising bond prices can represent that investors are seeking safety in less risky investments but can also represent that credit is scarce and the government is either unwilling to or unable to expand credit. When the credit contraction occurred in early 2000 the flight to quality started and did not abate until mid 2003 when well after the recession. Yield cannot determine bottoms in expansion or contractions because amidst a contractions bond investors are still skittish and are distrusting of any signs that the contractions are over. again the flight to quality was a mean s of preserving capital and safety. they are not going to be willing to take a risk at finding a market bottom so they wait out the storm. yield can signal a contraction early but not a recovery. lot to markets like BDI and S&P500 to signal a recovery.
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