As you all know, the Baltic Dry Index (BDI) is an index of average prices paid for the transport of dry bulk materials across more than 20 routes. The BDI is often viewed as a leading indicator of economic activity because changes in the index reflect supply and demand for important materials used in manufacturing.
In plain English: we ship less stuff in recessions.
And where is the BDI now?
It’s down 80% since the beginning of October 2021.
The BDi is where it was in June, 2020, as the first signs of post-pandemic re-opening were appearing.
That’s not good.
But wait, you say! That’s not right; the stock market is doing great.
No, it isn’t. The S&P 500 is almost exactly where it was two years ago. So is the TSX. And the DOW. And the Nasdaw 100.
It’s true that the Big Seven stocks are up, big time. But that’s it. The rest of the market is down this year, just like it was down last year.
Why? Because we are in a recession.
Also, because interest rates are at multi-year highs.
The Canada 5-year bond yield traded over 4% this week. It was last over 4% in 2007 (right before the real estate crash and Great Financial Crisis).
It’s possible that rates have peaked. I assume the idiots who run the Fed will raise one more time, just to show that they are tough, but the damage is done. Homeowners in the USA can’t sell their house, because they would need to get a new mortgage at much higher rates. Better to stay put.
In Canada, a new mortgage is also costly (because mortgage rates are based on the 5-year bond yield).
Even worse, car loans have become “golden handcuffs.” Many consumers were in the habit of trading their car in every three to five years. But now, the interest rate on a new car loan or lease will be much higher than it was three years ago. So, instead of trading up, you keep your old car for a while longer. That suppresses demand.
My point: it ain’t pretty out there.
Enjoy the holiday weekend. The Fall will be “interesting.”
The Recession Has Started
by JDH on September 2, 2023
As you all know, the Baltic Dry Index (BDI) is an index of average prices paid for the transport of dry bulk materials across more than 20 routes. The BDI is often viewed as a leading indicator of economic activity because changes in the index reflect supply and demand for important materials used in manufacturing.
In plain English: we ship less stuff in recessions.
And where is the BDI now?
It’s down 80% since the beginning of October 2021.
The BDi is where it was in June, 2020, as the first signs of post-pandemic re-opening were appearing.
That’s not good.
But wait, you say! That’s not right; the stock market is doing great.
No, it isn’t. The S&P 500 is almost exactly where it was two years ago. So is the TSX. And the DOW. And the Nasdaw 100.
It’s true that the Big Seven stocks are up, big time. But that’s it. The rest of the market is down this year, just like it was down last year.
Why? Because we are in a recession.
Also, because interest rates are at multi-year highs.
The Canada 5-year bond yield traded over 4% this week. It was last over 4% in 2007 (right before the real estate crash and Great Financial Crisis).
It’s possible that rates have peaked. I assume the idiots who run the Fed will raise one more time, just to show that they are tough, but the damage is done. Homeowners in the USA can’t sell their house, because they would need to get a new mortgage at much higher rates. Better to stay put.
In Canada, a new mortgage is also costly (because mortgage rates are based on the 5-year bond yield).
Even worse, car loans have become “golden handcuffs.” Many consumers were in the habit of trading their car in every three to five years. But now, the interest rate on a new car loan or lease will be much higher than it was three years ago. So, instead of trading up, you keep your old car for a while longer. That suppresses demand.
My point: it ain’t pretty out there.
Enjoy the holiday weekend. The Fall will be “interesting.”