Do you know what the indicator of choice is when it comes to tracking global economic trade? Indeed, it has to be the Baltic Dry Index (BDI). The index tracks global shipping rates. A higher index would mean more demand for ships and hence, more global trade.
Recently, the index jumped as much as 9% in one single day. Infact, the index is up a huge 40% since the end of April. Now this is something really strange. Normally, the index should move in perfect lockstep with stock markets. This is because both the stock markets as well as the BDI rise and fall with the level of economic activity. But what has happened in the last few days has turned this logic on its head. The global stock markets have taken a huge beating and investors face an uncertain future. But not the BDI. This index has gone from strength to strength.
What gives? Apparently, the rise in BDI has been attributed majorly to the jump in rates of one particular type of ship. And these ships are nothing but capesize vessels. It should be noted that capesize vessels are amongst the largest in the world. And they are supposed to be the vessels of choice for transporting metal ores and can also be used as oil tankers.
Thus, looks like there is more metal and oil floating in the seas globally. And if this is indeed the case then are the buyers hungry for products or sellers are getting desperate to unload. Looking at the economic scenario globally, appears more to be a case of the latter than former. However, we cannot be 100% sure. We may have to wait for some time before the real story is out.
'We are doomed'
Who else can say this but the famous contrarian investor and author of the famous gloom, boom and doom reports, Dr Marc Faber. Speaking at the conference in the US, Faber gave his perspective on the financial crisis and his take on the future. While he did raise a lot of pertinent points, the one amongst the few that was important from an investing point of view was his observation the US Fed will keep interest rates at zero in real terms for as long as possible and hence, cash and long term bonds will be a bad place to hold one's money and hence, equities and precious metals would be a sound place for wealth preservation. He also observed that everybody should have 50% of their money in the emerging world as these are not saturated and are growing rapidly.
As usual, he came down heavily on the US administration and commented that the lifetime achievement of Greenspan and Bernanke is really that they created a bubble in everything…everywhere. According to him, during the crisis of 2008, the financial system went bust but did not die. However, the next time it happens, the nations will go bust and ultimately, the world will go to war. Honestly, we couldn't have ended on a more bitter note.