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Wednesday, September 05, 2012

Bear Trader: Mailbag: International Trading Indexes signal trouble

The Baltic Dry Index http://en.wikipedia.org/wiki/Baltic_Dry_Index "The Baltic Dry Index (BDI) is a number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides "an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain." BDI is based on what it costs per ship day in $USD to move dry bulk cargo. The index is a very sensitive read on international bulk products trade rate changes. Think of it as a reliable and sensitive indicator of the way the world economy is going raw material flow rate wise. Another useful shipping indicator is the HARPEX http://www.harperpetersen.com/harpex/harpexVP.do which is based on the cost of moving the standard twenty foot long intermodal shipping container over various routes by various sized container ships. This index tracks the rate of change of the volume of finished goods being shipped by sea. As you can see by examining these indexes the world economy has slowed markedly since Q1 2011 and is now bumping along the bottom with no sign of rebounding. Yesterdays FedEx guidance and earlier UPS guidance shows decline in the flow rate of goods over this same time period. You realize that if the Federal Treasury and Federal Reserve had not diluted the $USD since 2000 so that the 2012 dollar is now worth sixty cents in 2000 dollars that gasoline would still be $2.25 a gallon at the pump? That means that the rise in the price of gasoline is not caused by "peak oil" but by money dilution? That that money dilution was making the Consumer Price Index over the past thirty years indicate inflation, as you would expect, but that the way this was fixed was by repeatedly redefining the CPI? That the situation is now so bad that the Federal Reserve ignores Energy and Food prices in inflation rate measurement, calling the resultant number "the core inflation rate"? That this mis-measured inflation rate means that when GDP and other aggregates are reported over time in "constant dollars" that "constant dollars" are not being used at all; when you do correct, as well as possible, for constant dollars, you find that the United States has been in recession for the last twelve years, somewhat masked by insanely low credit interest rates, which resulted in debts we cannot repay now and will be even less able to cope with in the future. So Bernanke tries to borrow his way out of this fix. If you are head over heels in debt more debt is not going to help but only hurt. Boy, is this ever going to get ugly.

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