The Consumer is Probably Dead

Yup, looks like the consumer is probably dead.

Credit Crunch: Baltic Dry

“Letters of credit and the credit lines for trade currently are frozen. Nothing is moving because the trader doesn't want to take the risk of putting cargo on the boat and finding that nobody can pay.” -Khalid Hashim, managing director of Precious Shipping, Thailand's second-largest shipping company

Yesterday in Baltic Dry, Amazing Plunge, I marveled at the absolute collapse of the index and also thought that there was no way demand for dry commodities had dropped so significantly so quickly.

The real story is that credit has dried up and letters of credit aren’t being honored so the stuff quite simply isn’t shipped. This has caused shipping rates as measured by the index to cliff dive.

There is a very real risk that various economies will start to face stresses in this time of ‘Just In Time Delivery’ as very small stock piles vital commodities quickly get vacuumed up by normal industrial demand.

The credit crunch is everywhere...

Watch the Baltic Dry Index for signs of life. This will help determine if and when the credit freeze starts to thaw.

Shipping Lines Say Tight Credit Cutting World Trade (Update2): “Pacific Basin Shipping Ltd., Hong Kong's biggest dry-bulk carrier, and Precious Shipping Pcl. said demand for moving coal, iron ore and other commodities will fall because banks are guaranteeing fewer loads.

The lack of letters of credit, in which banks guarantee payment for merchandise, could become a "big issue'' for world trade, according to Klaus Nyborg, Deputy Chief Executive Officer at Pacific Basin. Tighter credit has contributed to this year's 80 percent drop in the Baltic Dry Index, a measure of commodities-shipping costs. About 90 percent of world trade moves by sea.

"This can have a significant effect on demand because you won't see the same volume of cargo moved,'' Harold L. Malone III, senior vice president at Jefferies & Co., said at a Marine Money conference in Singapore. "You have to figure out other ways to get trade done.''

The Baltic Dry Index dropped 8.5 percent to 1,809 points yesterday, the lowest since August 2005. Pacific Basin dropped 6.5 percent to HK$4.75 in Hong Kong and Precious Shipping declined 5.5 percent to 12.1 baht in Bangkok.”

List of Water Transportation Companies:

DAC
DRYS
DSX
DWT
EGLE
ESEA
EXM
GNK
NM

Baltic Dry Index: Amazing Plunge

I'm sniffing around commodities, looking for a BOUNCE. Nothing more.
From 12 000 to 2 000 is simply amazing. Demand did NOT fall off that fast.

Related Posts:
Baltic Dry, Commodities, Bubbles
Baltic Dry Index: Smashed, Global Demand

Iceland Melts, 77% Single Day Drop

Although I don’t know for certain, I’m going to guess that a 77% single day drop for an entire index is the largest single day drop for an index ever anywhere…

Looks like Iceland just melted.

So if you thought 8% - 10% down days were bad, you ain't seen nothing yet.

Icelandic Stocks Drop 77% as Trading Resumes After 3-Day Halt: “Iceland's benchmark stock index plunged 77 percent, the biggest decline on record, as trading resumed after a three-day suspension and the nationalization of the country's largest banks.

Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf collapsed this month with debts equivalent to as much as 12 times the size of Iceland's economy. The three banks accounted for about 76 percent of the ICEX 15 Index's value prior to the nationalization.

The OMX Iceland 15 Index fell 2,317.23, or 77 percent, to 687.39 as of 11:48 a.m. local time. Five of the 13 other stocks in the index didn't trade, while the five that did account for about 7.1 percent of the index's value.

Trading was halted since Oct. 9 after the measure lost 30 percent in nine days as the country's financial system collapsed. Iceland's delegation started talks in Moscow today to secure an emergency loan of as much as 4 billion euros ($5.47 billion) from Russia.

The country should seek aid from the IMF and later apply for European Union membership and adopt the euro, Foreign Minister Ingibjorg Solrun Gisladottir wrote in Morgunbladid on Oct. 13.

Among the stocks that did trade today, Alfesca, a maker of salted fish products, dropped 0.85 krona, or 16 percent, to 4.6 kronur. Icelandair Group Holding hf, the country's largest carrier, retreated 0.7 krona, or 4.5 percent, to 14.8 kronur. Marel hf, an Icelandic meat processing company, added 1 krona, or 1.4 percent, to 72.7 kronur.”

Rip Your Face Off Rally, Major Accumulation Day

On Friday last week I said Relax, Still Building Longs. In the comments shortly after the open I posted:

“Added on the open. HOLY CRAP! I left a stain in my pants, but I hit the “BUYBUYBUY” button.

Closed my eyes, pulled all stops and waited.

The cheering in the pits is wild.”

Some of the fills in the panic dump were ridiculous. QLD @ $25.88, SSO @ $30.90.

I went into the weekend all out long and without hedges. Granted, I drank a helluva lot more than usual all Thanksgiving weekend and I was more than a little nervous. I had to ‘sneak away’ from family events on Monday quite a few times to check the markets, but I stayed long.

Monday was the FIRST major accumulation day in a long long time. This bounce is for real.

This should not come as a surprise after about SIX major distribution days almost back to back. The weak hands have been flushed out. The forced, panic liquidation has taken place. The way is clear for a 'rip your face off' rally'.

Prices could easily bounce to the 50% and even 61% Fibonacci retracement levels before backing off.

I expect volatility to fall from nosebleed levels 'back' to the low low level of 30. (Haha.)

All risky assets will rally wildly while this occurs.

I will be scaling out of one quarter of my long positions on the open today. I’m thinking about thirty minutes after the open as the retails guys come in on the back of yesterday’s rally.