Friday, August 7, 2009

Baltic Dry Index has Worst Week Since October 2008 - Blame China. Precursor to Loan Growth Slowing?

I continue to be amazed how the Chinese are dominating so many markets - if they say jump, the market jumps. If they back off, said market usually crumbles. [May 13, 2009: Commodities - It's China's World: We Just Live in It] [Mar 23, 2009: - Chinese Stockpiling Spurs Copper Price Rally] [Feb 9, 2009: China and the Baltic Dry Index - What's Really Going On?]

Looks like this week was "break time" as the Chinese backed off on iron ore and coal. Since market participants are using the Baltic Dry Index as a "health of global trade" proxy (when in reality it has become a ward of the state of China) I wonder why no one is talking up the worst week in nearly a year? Ah yes, that would not fit into the mosaic of recovery... shhh.... I had to sneak this off the back pages of BDI lost almost a fifth of its value in a week - have you been seeing that on CNBC? Just wondering? ;)

Remember, good news is to be trumpeted, and bad news (or anything perceived as such) is to be ignored. ;) But lest you worry, with the index down so severely THIS week when it invariably rebounds it won't be ignored - it will be a lead story for 'reasons you need to buy stocks' on certain financial entertainment TeeVee stations.
  • The Baltic Dry Index, a measure of shipping costs for commodities, had its worst week since October as Chinese demand for shipments of coal and iron ore slowed. The index tracking transportation costs on international trade routes today slid 135 points, or 4.6 percent, to 2,772 points, according to the Baltic Exchange. That took its weekly drop to 17 percent, the most since the end of October.
  • “The Chinese have backed off and it’s starting to show in the number of shipments this month,” a Cape Town-based official at Island View Shipping SA, Africa’s biggest commodities shipping line, said by phone today. “Iron ore and coal seem to be slowing down.”
  • China’s record coal and iron ore imports in the first half helped the index to advance as much as fivefold this year, reversing some of the record 92 percent collapse in 2008. Demand rose after the country’s government announced a 4 trillion yuan ($586 billion) stimulus package.
  • The Baltic Dry Index has slumped 35 percent from this year’s high on June 3.
I am going to repeat what I said earlier today again - China's market started moving up before the rest of the world late this winter. China is coming off its worst week since February 2009. If China does not bounce next week let us begin to think about the implications - even if these questions are not convenient to the bull case. Now is this slowdown on imports at all related to the signs we are getting that loan growth is potentially ratcheting down after a massive sugar high in the 1st half of 2009? Or just a temporary respite as the Chinese negotiate on iron ore prices. Too soon to tell. But right now I am reading every article I can on the loan growth of China in 2nd half 2009. The story seems to change by the day but it is the most important variable in the world right now - their Super Keynesian policy has been the driver for much of the world's surge. I can't see them taking away the punch bowl already but don't lose track of it.... we're starting to get some interesting cross currents.
  • China Construction Bank’s President Zhang Jianguo said new loans will fall by about 70 percent in the second half compared with the preceding six months, helping the nation’s second-largest bank avert a surge in bad debt.
  • “We noticed that some loans didn’t go into the real economy,” Zhang, 54, said in an interview yesterday at the bank’s headquarters in Beijing. “I feel that some industries are expanding too rapidly. For example, housing prices are rising too fast, and housing sales are growing too fast.”
  • Zhang’s comments add to evidence that Chinese banks may curtail credit after they advanced a record $1.1 trillion of new loans in the first half, almost equivalent to India’s gross domestic product last year.
  • Excess capacity in some industries and a property bubble has led to increased risks for banks, Zhang said.
  • The central bank said on Aug. 5 it would use “dynamic fine- tuning” and guide “appropriate” loan growth. The statement suggests the central bank will tighten monetary policy, said Galaxy Securities Co. chief economist Zuo Xiaolei. Construction Bank said last month it plans to follow the government’s monetary policy.
As always we're usually early here on Fund My Mutual Fund... ahem. [Feb 16 2009: Is China Pulling an Alan Greenspan?]

Now the Chinese are asking the same questions we proposed 3 months ago [May 27, 2009: How is China Spending their Stimulus Money; and How many Loans will go Bad?] We already know much of this money is going into the stock market [Jun 29, 2009: China Business News - $170B of Bank Loans Funneled into Stock Market], and now real estate - instead of the 'real economy'. Now the Chinese are looking in the mirror and admitting as much. Many of these loans rushed out will go bad over the coming year(s) - I am sure we will never hear the full story. Just as in the US we have a sugar high in China in the near term; when we'll look back sometime in 2010 I believe we'll see it much more clearly.

[Jul 28, 2009: China Warns Over Asset Bubbles]

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