Skip to main content

Baltic Dry Index -- what it is and what it does

Historically, the BDI has been one of the best measure of global trade growth or contraction.  Its an index with few problem because if the number of ships increases then the index may fall despite trade growing -- which is what happened in in the early 00.

The BDI is a measure of bulk shipping -- we are talking steel, minerals and other bulky items that are not moved by containers.  The BDI peaked at 10,000 in 2007 but also fell to near 600 in 2008 -- a function of the economic crisis -- Now for many economists, like myself it was a useful tool to ascertain economic health of economies, such as that of Canada, which are primarily dependent on the export or raw material.

In the 2008 crisis it lost a bit of its usefulness, for not only was there a economic crisis but there was also a known schedule vessel replacement cycle.   The bulk carriers have an expected lifespan of about 20 years, and the replacement cycle in 2008 coincided with the economic crisis -- making the index drop to an un precedent 666 level.  

While the US treasury has been tightening, for the first time in six years, the global trading economy has gone to the dogs.  Clearly there is now oversupply in the oil and gas sector, but that could be more a function if supply rather than demand.  What the BDI shows is that trade demands are at an all time low.  The BDI crashed to 400 over the last few days.  So the oil at $30/bbl is not only a function of a rise in supply, but also a function of a "fall" in demand.


BTW I've received a number of enquiries about a simple trade:  Buy 200,000 bbl of light sweet WTI oil today at $31.14/bbl and sell them forward with a delivery in two years --- the price is around $42/bbl.  Sounds like like an easy $10/bbl which would translate into a $2 million gross windfall.  Except for a few problems; credit, getting a vessel and keeping the oil in condition.  Oil left to its own device will naturally fractionates, so the vessel has to be able to "stire" the product.  Then there are the cost of storing... anyway, maybe a good trade but you need about $7 MM to make it work, for a gross revenues of $8.4 MM  which is a 9.4% IRR -- not bad, but is it worth that much trouble...





Comments

Post a Comment

Popular posts from this blog

what people get wrong about tariffs

 The issue is simple. What percentage of the economy is dependent on tariff goods? The truth, is that the US economy is far more closed than people understand. People genuinely believe that all manufacturing has ceased to exist in the United States all given to China on the altar of woke policy the truth can be further from That statement. Only about 15% of US GDP is related to foreign trade. Of that amount, slightly more than half is from Canada in Mexico. And half of that is energy. What that means, is that about 7% of US GDP is tariff dependent. The proof in the pudding, is how little money tariff generates. People think that 30 or 50 billion is a lot it’s not in an economy that has $3 trillion. The impact on the US economy will be less visible but not absent. Inflation hasn’t occurred yet first because tests have hardly started to bite, but more importantly it’s such a small percent of the economy. Now certain things are critical. The rare earth metals from China were critical....
Post a Comment
Read more

The end of Tesla?

 it takes a special kind of idiot, to think that he can antagonize his entire customer base, and think that it will not impact his business. When Elon Musk went to work for Donald Trump, and created the doge department, he antagonized every liberal, and these people represent 90% of his client base.That’s not a brilliant move. Now Elon Musk is worth hundreds of billions of dollar, so he shouldn’t care a great deal, however, he needs to care because of several other issues. The cyber truck has been a disaster, most have had to be recalled because of defective glue, it’s not a truck, it’s not a car, it’s noisy, relatively uncomfortable, but great as a development platform. What Tesla has learned in making car manufacturing more seamless is truly amazing. The problem was that Elon Musk was so pissed with the Democrats, and with Joe Biden, in particular because of some slight, which were just plain stupid too. By the way, that he decided to support with hundreds of millions of dollar, ...
Post a Comment
Read more

Demographics

 I am preparing a kind of family tree for our children so that they know where they came from.  In my family I am the only survivor, although my brother and sister died recently they were both in their seventies (a story I told already).    It was a fun process, but it provided more than that.  First, I married relatively young I was 26 when I married and nearly 30 when our first child was born.   I was looking at my ancestors.  On my mother's side, she had 6 siblings, Four died before the age of 30, two in war, and two from illnesses.  Only she and a single sister survived.   The two boys had a child each but they died in WWII, and the other sister died as an infant.   what is interesting is that every one of my mother's siblings had children in their early 20s.   I know that my mom was hardly 20 when my brother was born.    What is remarkable is that among our friends, we are the only ones to have fou...
Post a Comment
Read more