The Baltic Dry Index

Much of the focus in the news today is on the economy, and for obvious reasons, it's subprime mortgage this, credit crisis that, the CBC's The National and its slapdash analysis of our woes would make you think we're all getting pink slips tomorrow and an ice cream cone (CTV's National News does a better job at understanding and describing what is going on in the market). 

Much of the economic indicators that proliferate from our nightly news, like monthly employment numbers and housing starts, mark the goal posts through which our economy is kicked.  Any errant balls are wistfully reported on by journalists voraciously anticipating thousands clamoring for the newstands the next day, full of fear that their homes will soon be unafordable.  At times, it seems the journalist is the first to fall to mass hysteria and the last to admit it.  Thomas Jefferson said, "advertisements remain the only truth to be relied upon in a newspaper", of all the facts that come from our nightly news these day, this sadly remains true.  

It's best to take our own minds into our own hands, lest we be led astray by journalists.  A great economic indicator that is never quoted in the news and that may be of interest to the skeptical reader or viewer is the Baltic Dry Index.  It has been touted in the past as one of the best economic indicators you have never heard of, and what's more, it's a leading indicator, a prescient little factoid that could be unwrapped neatly at dinner parties and delivered to impress the impressionable.

The short of it is, the Baltic Dry Index is a number issued daily by London's Baltic Exchange, which was founded in 1744 by the Virginia and Baltick coffeehouses in London's financial district.  Every day, the exchange asks brokers around the world the cost to book a variety of cargoes of raw materials on various routes around the world.  The result measures the demand for shipping capacity versus the supply of dry bulk carriers.  Shipping capacity is generally inelastic, it takes two years to build a new ship, so increases in demand for raw materials pushes the index up quickly and drops in demand do the opposite at the same rate.  What makes this index so interesting is that it ultimately charts the demand for the raw materials that make up our finished goods,  so it would be here, at the Baltic Dry Index, where we would see the first signs of a stable increase in demand, signaling a sustained return to growth.

The index has fallen considerably in the past year, a reflection of plummeting demand and deflation, but under closer inspection it seems to have reached a bottom from which it is stabilizing at around 800.  A sign of good things to come?  Unfortunately, economic indicators, much like economist, make little sense alone, but the Baltic Dry is a good place to start making up your own mind on things.

Crisis on Wall Street - Blodgett's view

Back to the last big market downturn - the Tech Bubble - I took the advice of a certain Mr. Henry Blodgett (who was the tech guru at Merril Lynch) and bought AOL instead of Amazon. Herny has tried to redeem himself after his massive fall from the heights of Wall Street. I've tried to redeem my savings too.
I was intrgued to see old Henry's take on the current state of the markets. Read...
Last year, I wrote about the fall of the public markets in Money Magnet. At the time, my publisher asked me to tone it down as she could not see Wall Street ever losing value!

Credit Crunch Games for Your Christmas Party

Want to really understand what the credit crunch means for the economy? In Canada, private equity will have a challenge getting anyone to think about debt or credit. Our economy is frozen to match the weather.
I was surprised to see that The Economist has a sense of humour during these dark days but this is a good game to play. I got it from Jeff Watson.
Check it out:
http://www.economist.com/displaystory.cfm?story_id=12798307

Manufacturing in Ontario

Business owners and manufacturers in Ontario are struggling with the new realities.
We have passed the agricultural, industrial, and information ages and we've entered the conceptual age. The three As—abundance, automation, and Asia—ushered in this new era.
In the same way that machines have replaced our bodies in certain kinds of jobs, software is replacing our left brains by doing sequential, logical work.
And that brings us to Asia, to where that work is being shipped.
In Asia you have tens of millions of people who can do routine tasks like write computer code. Routine is work you can reduce to a spreadsheet, to a script, to a formula, to a series of steps that has the right answer.
Daniel Pink has written A Whole New Mind about this change and how it applies to the companies we create. "This is great book to tell you where to invest your private equity fund money," says Jacoline Loewen , author of Money Magnet and a partner in the private equity company of Loewen & Partners. "Every manufacturer in Ontario should read it to know what to do."
He tells us that his generation's parents told their children, "Become an accountant, a lawyer, or an engineer; that will give you a solid foothold in the middle class."
But these jobs are now being sent overseas. So in order to make it today, you have to do work that's hard to outsource, hard to automate. To play an interview with Daniel Pink, press on link below:
http://event.oprah.com/videochannel/soulseries/oss_player_980x665.html?guest=dp&part=1

Getting the Public Equity Markets Right

Here is the brilliant Nassim Nicholas Taleb in a recent Charlie Rose interview:
http://www.charlierose.com/view/interview/9713
Taleb talks about Capitalism 2 where instead of relying on public markets to make money, people will now revert back to private money.
This is exactly what I said in Money Magnet, where I predicted the end of the public markets as the main model for creating value. Private equity is money which goes into companies directly from one human to another human who look eachother in the eye at least once every few months and who work together to build value in the business.
Beats the ATM machine style of investing in the public markets.