Sep
26
Strong Winds from the Baltic, from Jeff Watson
September 26, 2008 |
We had an electrical storm here in Fla., and the power surge knocked out my data, main computer and backup. I was without power for a couple of hours and had to use my generator. I can't crunch any numbers and and am using a laptop only for quotes and it's acting sketchy. I'm burning up the telephone and my cellphone getting trades down. Why, of all days, would mother nature send me back to 80's technology. It looks like it's going to be a long night(and longer day tomorrow), the coffee pot is full, and I'm playing Wagner really loud on my Klipsch speakers because it's very apropos. I'm sure my neighbors won't mind as every light on the street is on….which is a major worry indicator as far as I'm concerned.
I'm expecting my computer guy to be over here soon to get me whole, but he's got big customers and I'm at the lower end of his schedule.
In the mean time I am trying to analyze the impact of the drop in shipping costs, but I don't have adequate computer resources. From memory, I haven't seen such a hit on the Baltic in years. I would think such a decline in shipping rates would have a positive impact on stock indexes, perhaps with a lag. Any suggestions would be welcome.
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Wagner. Apocalypse Now. I get it.
And here I was listing to Tiny Tim’s “Tip-toe Through the Tulips”. No wonder I’m trading like a girl.
But I think I’d change the words …
Tip toe, through the landmines
If the Fed finds,
You’ve been selling short
Financials
In the landmines, with me.
Lehman, they were dreamin’
of fifteen when,
$6.50 was it
Come tip-toe through the landmines with me.
Fannie … Freddie …
Fannie … Freddie …
Then Merrill, it went feral
Bought by BAC and
then went AIG
Come tip-toe through the landmines with me.
Point-7 bill’, there’s a big pill
fiscal Shamu
just as WaMu face-plants
Tip toe through the land-mines with me.
Cheers,
George
A decline in shipping rates is a sign the economy is slowing. Since the Baltic Dry Index is a worldwide index it is a sign the global economy is slowing. And worldwide, stock index’s have been declining too. Respectfully, I think you have it backwards.
With full understanding that international shipping is subject to free market forces and is a variable, shipping is also a part of the cost of doing business. Reducing the cost of doing business usually adds to profit margins, sometimes even in the face of declining revenues. Although one doesn’t put percentages in the bank, logic would dictate that an increased profit margin couldn’t necessarily be a bearish sign. When my computers and software are back up to speed, I will run some correlation studies unless someone here beats me to it.
Sure a drop in shipping rates (expense) means a boost to profits. It doesn’t take a rocket scientist to figure that out. But for the aggregate market a drop in shipping rates means commerce is slowing and that is bearish. Of course there will be exceptions of some companies whose business remains solid and a drop in transport costs boosts their margins, but overall their is high correlation between stock prices and shipping rates. It would be interesting to see if shipping bottoms before or after a market bottom though.
The current drop in BDI parallels the recent decline of oil price. Any model must include that variable, with an eye on cui bono. The previous big drop in BDI coincided with the Shanghai Composite. A more adventurous model can analyze pirate attacks and insurance costs, China vs US naval capabilities, their expenditures (ex. Number 9935 Ship Building Program) and control of ports and gateways such as the Panama Canal. Also of interest would be a look at salvage numbers coming out of Sonmiani Bay .
Anonymous,
I need to test the BDI to see what value it offers.
In general, the people who had the prescience to buy stocks and index futures on the morning of October 20, 1987(and every other panic) did so, and made money, despite a spate of bearish indicators. It is not Panglossian to want to keep your position in stocks when one considers the inexorable upward drift of the market.
When I used to export digital satellite television systems in the late 1990's, we used INCOTERMS 1990 to specify the basis of payment - standardized terms and conditions for international shipping responsbilities. On a few rare actions, we were actually bold enough to ship DDP (Delivered Duty Paid) - to the Client's door in his country - in this case Argentina. (and had to put up with an attempted shake-down by a corrupt customs agent). And we only did this to be able to control when the product would ship, and also the timing of when we would get paid.
But by far the most popular terms were FCA - free carrier. Essentially the buyer picks up (and takes title) from your loading dock and is responsible for the logistics and importing. The reason is that shipping on any other basis is risky for the seller, and the buyer is generally better positioned to handle the importation (being in-country). That was also the trigger for getting paid, because then when the product was loaded, you would get the pick-up documentation, trot to the bank to present your documents, and get paid against the Client's letter of credit. (When the buyer opens an LOC, they have to set aside funds, such that if the seller fulfills his obligations as indicated by specific documents, the buyer's bank must release the funds to the seller's bank no matter what. It's like a conditional certified cheque.)
I can't imagine this buyer-paying-the-logistics norm has changed much over the years, so if shipping rates have gone down, it's because buyers are not paying them. It suggests buyers are deferring or cancelling purchases, so I would tend to lean toward the economic slow-down argument.
What would be interesting is to canvass some customs brokers to see if the terms and conditions were changing. If sellers were taking on more shipping risk, that would be interesting, and would suggest a buyer's market.
Cheers,
George