Enzio's Clock

The Baltic Index shows the price of moving by sea dry goods like coal, iron ore, grain and other commodities, according to Aline van Duyn in today's Financial Times (FT).

Between May and December 2008, she goes on to say that it plunged by 94%.  Since this September, it has lurched by 90%+, outpacing even the price of gold.

So do we believe the "green shoots" team and "credit" the "growth is intact" account?  Hardly.

First, any Asian viewer knows that ships are sitting idle; instead of operating them, shippers are allowing their fleets to rest in harbours such as in Hong Kong's and Singapore's. Secondly, the reason for the recent surge has been because of inventory re-stocking, a theme that we have tracked for some time.  Fewer boats carrying inventories in dire need of replentishing may make for short-term price gains, but cannot provide a clear, long-term cyclical up-trend.

Finally, there is the matter of an excess supply of ships that is waiting to come on to the market. According to said FT, this year already has seen "...a record for new ship deliveries, approaching 34 m deadweight tonnes (dwt) of capacity.There remains more than 26m dwt still theoretically due in 2009.  A large number of these deliveries will slip into next year, and some orders and even shipyards might get scrapped. But with the total order book representing 60% of the existing fleet capacity, freight derivatives prices for 2010 and beyond imply lower freight rates in spite of the potential for increased trading activity."

I have italicized the last part for emphasis, as this goes to the heart of profit- and jobless recoveries: the world is going to suffer under an excess supply of capacity and thus of goods at least until 2011. So the Economic Time cannot improve.

You save money off this by not investing in stocks with bleak earnings outlooks, and you make money by shorting particularly shipping stocks.