Maritime Global Net: Precious Shipping Expects Dry Rates Crash
Obviously, when you binge buy and compress imports of a single commodity, carried mainly by capesize ships, into a very short space in time, you tend to create two issues at the same time. Firstly, you tend to push up freight rates due to the time-compressed/explosive demand growth for that ship-sector. And more significantly, you create queues at loading and discharging ports which tend to reduce availability of spot ships driving prices even higher.
Based on the congestion at Chinese discharge ports and the present increased level of iron ore imports the index could actually cross 5,000 points. We think that congestion should clear up once this binge buying of iron ore abates or more new Capes are delivered from the ship-yards than the demand can absorb. Once one or both of these events take place, congestion will vanish very quickly with the BDI crashing down as quickly as it has advanced.
Commodity inflationistas much keep this in mind.
John Mauldin: The Paradox of Deficits
I think the bond market is looking a few years down the road and saying that $1-trillion deficits are simply not capable of being financed. And if the debt is monetized, then inflation is going to become a very serious issue.
When you run deficits that are 4-6-8% or more than nominal GDP, at some point things simply back up. Can we ride along for a few years? Certainly. Japan is getting ready to see its debt-to-GDP ratio rise to almost 200%. But everybody can’t do it all at once.
Call it the Paradox of Deficits. We have been running a large trade deficit in the US for years, because the people (China, Japan, and the Middle East) who wanted to sell us “stuff” were kind enough to turn around and invest the money in our bonds. This in turn created Greenspan’s conundrum, as it helped keep down US (and global) interest rates. Combine that with a massive increase in leverage, a few bubbles, and we now arrive at a true crisis.
A bit dated, but nevertheless worth the time:
Partial transcripts available at the R-Squared Energy blog.
A few charts worth noting:
Historical diamond price chart, graph 1949 to 2009
The late 70s / early 80s chart mirrors the bubble in gold prices.
2005 - 2006 IDEX Polished Price Index (100 = June 2004)
(100 = June 2004)
(100 = June 2004)
From a peak of 130 in August 2008 down to 108 now.