Thursday, February 12, 2015

Baltic Dry closed at 559 last Friday that’s down nearly 50% in 12 months!

The Shipping News: Brutal. As per usual

Baltic Dry tracks cargo rates for moving "dry" commodities like iron, grain and coal. The index is seen as a very good predictor of global growth.

Those who see the Baltic Dry as an indicator have one very strong proof point: it plummeted through the summer of 2008, presaging the global recession that officially kicked in later that year. 
Now, if you believe in history repeating itself, then get ready: the Baltic Dry closed at 559 last Friday. That’s down nearly 50% in 12 months and nearly 30% year-to-date, and the lowest level it’s tested in 29 years.
 

DYI Comment:  Over the past ten years there has been an increase in the number of bulk and container ships built.  However, this does not explain the shipping rate costs from around July of 2014 til the spike in November of that year followed by a precipitous drop.  That drop is what has most economists concerned about as I find it highly unlikely that the ship building industry just launched so many new ships that it dropped this index.  The price of  copper is very telling as this metal is used in almost everything that is built world wide.  Prices have been dropping significantly.

  
The fall off in price coincides with the Baltic Dry index as well; what we have here is a global economy that is slowing.  World wide recession?  So far no.  Unfortunately evidence is mounting in that direction as Australia has just experienced a sudden drop in employment.

From Down Under: Australia

Unemployment in surprise jump to 6.4pc

Australia's unemployment rate surged to 6.4 per cent in January, making its surprise fall to 6.1 per cent in December short-lived.

The Australian Bureau of Statistics said on Thursday that the number of people employed fell by 12,200 to 11.668 million in January, against market expectations of a fall of 5,000.

This took the official unemployment rate to 6.4 per cent from 6.1 per cent in December, while the participation rate remained steady at 64.8 per cent of the population.

CommSec chief economist Craig James agreed.

"On the basis of the continued softness of the job market, there seems no barrier to the 

Reserve Bank cutting interest rates again at the March board meeting," he said.

"Simply, Australia is growing at a far slower rate than its potential."

DYI Continues:  Economic imbalances created by massive amounts of credit are creating malinvestmet world wide such as in Eaton Square England where a two bedroom penthouse flat is the same asking price for a villa on 60 acres of land.

London house prices: Napolean's 74-bed mansion is up for sale - at the same asking price as a luxury apartment in the UK capital

The historic property, in the Piedmont of Italy, is set in 60 acres and boasts 13 bedrooms, 9 bathrooms and a private chapel with seating for 30 people.
 
The property also has two dining rooms, two kitchens, ten reception rooms and a guest house.There are beautiful formal gardens and terraces along with a vineyard which, if restored, could produce around 100,000 bottles of wine per year.The owners have now put the villa and its grounds on the market with Mayfair estate agency Beauchamp Estates.It is available for £3.8m - the same price as a two-bedroom penthouse that Beauchamp has for sale in Eaton Square, London.
DYI:  Italy of course is clearly in recession if not close to a depression and England has gone mad with the use of debt.  This will not end well for England and as other countries end their credit super cycles.  The possibility of world wide recession grows by the week.  So far the U.S. has been the lone wolf of growth.  The U.S. economy came out of recession in June of 2009 then began its slow growth recovery (of sorts).  Now the economy is long in the tooth with imbalances that will have to be worked off as exampled with the fracking industry that has been powered by massive amounts of debt.  Many will go bankrupt with unemployment leaping in that industry here in the U.S. and Canada.

With a sky high stock market it is not time to "party on" but to be very defensive waiting for better values ahead.  Dividend yield under 2%(S&P 500) and the Shiller PE10 over 27 this is clearly for an investor a market to have very little in the way of stocks or none at all.

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  2/1/15

Active Allocation Bands (excluding cash) 0% to 60%
85% - Cash -Short Term Bond Index - VBIRX
15% -Gold- Precious Metals & Mining - VGPMX
 0% -Lt. Bonds- Long Term Bond Index - VBLTX
 0% -Stocks- Total Stock Market Index - VTSAX
 0%-REIT's- REIT Index Fund - VGSLX
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DYI

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