Commodity prices, especially oil, have taken a tumble recently.
The charter rate for ferrying bulk materials such as aggregate and iron ore is recorded by the "Baltic Dry Index". The Baltic Dry Index is an indirect measure of world trade growth:
It looks like either there is an oversupply of shipping or a fall in demand. It seems that the supply of shipping has fallen so the Index represents a fall in demand. World trade appears to be decreasing. Why?
My best guess is that demographics is deeply implicated. Population growth has been constant for the past decade but this is because longevity has been increasing to be exactly offset by falling birthrates. Old people are becoming a greater proportion of the global population and old people don't buy stuff. Another major factor is that banks are still re-capitalising ie: not lending.
it is interesting that the Baltic Dry Index predicts changes in commodity prices:
The fall in charter rates in 2010 was followed by a fall in commodity prices in 2012.
The Baltic Dry Index is generally a little ahead of other indicators, probably because there are delays in the system for the other indicators, for instance a fall in turnover will only be known outside a business at least a month after it occurs, at the absolute minimum, and will only be believed as a trend after a quarter or so, but orders for shipments need to happen all the time.
However, if you want to use the Baltic Dry as a tool for gambling it has a lot of noise, if you had sold up in 2005 because the BDI was falling you would have been very upset and if you bought in 2008 you would have gone broke. It is interesting that the BDI was not a good predictor of the 2008 crash because this was a banking rather than a trading crisis.
POLITICAL THOUGHTS click here to see the whole POLITICAL THOUGHTS magazine!
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| Commodity prices WorldBank/Financial Post |
The charter rate for ferrying bulk materials such as aggregate and iron ore is recorded by the "Baltic Dry Index". The Baltic Dry Index is an indirect measure of world trade growth:
My best guess is that demographics is deeply implicated. Population growth has been constant for the past decade but this is because longevity has been increasing to be exactly offset by falling birthrates. Old people are becoming a greater proportion of the global population and old people don't buy stuff. Another major factor is that banks are still re-capitalising ie: not lending.
it is interesting that the Baltic Dry Index predicts changes in commodity prices:
 |
| Courtesy On maritime transport costs, evolution, and forecast |
The Baltic Dry Index is generally a little ahead of other indicators, probably because there are delays in the system for the other indicators, for instance a fall in turnover will only be known outside a business at least a month after it occurs, at the absolute minimum, and will only be believed as a trend after a quarter or so, but orders for shipments need to happen all the time.
However, if you want to use the Baltic Dry as a tool for gambling it has a lot of noise, if you had sold up in 2005 because the BDI was falling you would have been very upset and if you bought in 2008 you would have gone broke. It is interesting that the BDI was not a good predictor of the 2008 crash because this was a banking rather than a trading crisis.
POLITICAL THOUGHTS click here to see the whole POLITICAL THOUGHTS magazine!
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