WEEK36 - Dry Cargo Market “Highlights” – 03-September-2010 - 10-September-2010

This week was a market warm‐up. The Baltic Dry index is only a notch away from breaking the mostly psychological barrier of 3,000 points. In general, all 5 indices were “green” for week 36, with the Capes having an uncertain fluctuation only to finally close marginally higher than last week, while Panamaxes were the size segment with the most positive weekly gains, continuing on the momentum that they generated from previous week 35. The other two smaller sizes, the Supra’s and the Handymaxes, were positive this week contrary to week 35 that they were recorded as negative. It is worth noting that we are already counting the 10th consecutive positive run for the BDI, and what is also interesting as a pattern, is that after July 15th 2010 the Baltic Dry Index has produced two sets of consecutive increases, the firsts one lasted 12 days and then we had 2 negative days, while the next set lasted for 14 days and then again counted 2 negative days, to bring us here where we are looking at 10 days… and counting…! It seems the BDI has formed a behavioral pattern…!!

In the table above we see the changes that occurred during the running year. We have recorded the year’s High’s and Low’s and the percentage changes of these H&L’s, compared with today’s values. At a quick glance we see that the BCI, has regained 145% from the lowest point of 15 Jul 2010 (when it bottomed out at 1640 points), while the BPI has regained 75% since its lowest point of 12 Jul 2010 (when it reached 1941 points), and the generic dry index the BDI has regained 76% since its lowest annual point of 15 Jul 2010 when it had leveled at 1700 points). Our optimism is made greater as we see that most of these gains representing 2/3’s of July’s losses have occurred during a traditional seasonal idle month of August. China is the leader of the rebound, and we can feel some sort of confidence that we can expect the freight markets to sustain their present reasonably good levels and very possibly improve on them.

The overall U.S. economic situation remains uncertain, and using Fed Chairman Ben Bernanke’s own words, we can say the markets continue to perform with “unusual uncertainty”. Prior to that, he had announced the Fed would trim down its balance sheet which had tripled in assets following the Panic of 2008. It had printed massive amounts of money and used that to purchase U.S. Treasuries and mortgage backed securities. Those treasuries and securities were coming due. Was that a wise move, or will there be unforeseen consequences later on this decision of further stimulus, further manipulation and interference with the normal market climate? Some analysts share the “crazy” idea of sovereign default, bankruptcy, and a bubble in the U.S. Treasury market, and while the U.S. government’s debt is 53 percent of GDP, one of the lowest ratios among developed nations, its debt as a percentage of revenue is 358 percent, one of the highest. For comparison purposes, Italy has one of the highest debt‐to‐GDP ratios, at 116 percent, yet has a debt‐to‐revenue ratio of 188. Investor concern that the U.S. may fall back into recession has grown in recent weeks as data missed economists’ estimates. A Citigroup Inc. index of U.S. economic data surprises fell to minus 59 last week, the least since January 2009 while the number of unemployment claims unexpectedly shot up by 12,000 to 500,000 in the week ended Aug 14, Labor Department figures showed Aug. 19.

China as we have stated repeatedly these past 2‐3 weeks, has imposed their own game rules in the iron/ore pricing agreement, and the country’s size and import appetite on its own have such great weight that they can and have brought the per tone prices to the desired levels. The positive Chinese trade data show us impressive resilience despite the weaker growth in the U.S. and Europe and positive investor confidence is rising, as domestic demand is holding up even as Beijing continues its campaign to cool the economy. We still share our concerns over the rising real estate prices in China that should lead to even stiffer government actions to slow the industry and that will hurt stocks among real estate developers this year and also affect our seaborne trade. China’s housing market hasn’t yet turned into a full‐blown real estate bubble as the government has proved to be some steps ahead proactively. Good news is that Real estate prices in China rose 9.3% in August from a year earlier,
according to a government survey of 70 leading cities. Although prices were still on the rise, it was the fourth consecutive decline in the year‐on‐year rate of increase from a near five‐year high of 12.8% in April. As long as China can cap the rate of increase in prices to allow incomes to catch up and allow other factors to even out, we believe that the bubble may never overinflate, and China’s monetary policy officials could, for instance, allow interest rates to rise.


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