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ASX stocks, the Baltic Dry Index & the Copenhagen Circus.

December 17th, 2009 · Greg Atkinson · 5 Comments

Both the ASX All Ordinaries and S&P/ASX 200 have been basically moving sideways now since September and although the market may seem to be drifting, it is actually reflecting fairly accurately the state of the Australian economy. For despite what some finance journalists seem to believe, the Australian economy will not be able to surge ahead simply because the Chinese are stimulating their domestic economy.

Over the past year or so I have tried to highlight that the global economy consists of more than just China and thus for Australia to ride another commodities boom, we need all our major trading partners to be growing their economies as well. I know this is hardly news, but if you read some of the commentary in the Australian business media you would think our economy only relied on how the Chinese economy was tracking.

My view of how the global economy is faring will be different from someone based in Melbourne for example. The main reasons I view things differently are largely because I am located in Japan, most of my business news comes via non-Australian sources and I focus more on how the Asian economies are doing as opposed to mainly monitoring the Australian domestic economy.

Therefore when I try to assess how global economic events will impact the Australian economy I am quite often not aligned with mainstream thinking. For example I said earlier in the year that the RBA was misreading the tea leaves and would raise rates too early, that the Austrlaian economy would struggle in 2010 and that the stock market would bounce back but find it difficult to rally much past 5000.

While some market commentators seem to think the worst is over for the Australian economy I am more cautious because I simply don’t see economic activity in Asia surging ahead. Yes the worst of the economic slump is probably behind the region, but the good times have certainly not returned as yet.

At the moment the stock market agrees with me, for despite all the bullish comments from the RBA,  some business leaders and many market commentators stocks are stuck in a holding pattern. This means investors still remain cautious and are not that optimistic about 2010.

In addition if we look at oil prices we can see they are also stuck in a rut at around $70 USD a barrel and the Baltic Dry Index (BDI) has failed to pass 5000 and recover to levels seen before the Lehman Brothers fiasco. Yes it is trending upwards, but it has not exactly staged a rapid recovery.

Baltic Dry Index (BDI) 3 year chart

baltic-dry-index-3-year-chart-dec-09

(Source: Bloomberg.com)

The BDI is one of the economic indicators I watch closely because it is a fairly accurate gauge of global trade. (see also: The All Ordinaries, the Baltic Dry Index and other charts to watch ) It can however be skewed somewhat if there is an oversupply of ships and apparently this situation is  the reason it has failed to rally strongly this year.

From what I have been reading as some old “rust bucket” vessels are scapped the current overcapacity in the global bulk carrier shipping fleet will be reduced and as a result the BDI should recover in 2010…well that’s the theory anyway.

But what worries me is that despite strong growth in China the BDI remains flat, Australian commodities exports are not surging ahead and all that appears to have happened is that global economy has bounced off a cyclical multi-year low.

I am not expecting the global economic situation to slide backwards in any significant way, but is the Australian economy (and people) really prepared for a challenging 2010?

My late year tip for investors is to “keep an eye on the BDI”.  If the Baltic Dry Index does not show signs of life within the first few months of 2010 then personally I would expect 2010 to be tough going for the global economy.

Just to make things more complicated we have our beloved leaders and bureaucrats gathered in Copenhagen to discuss how they can concentrate more power in their hands. The Australian delegation led by Kevin “my carbon footprint is bigger than yours” Rudd is one of the largest and thus all of us will need to switch off out lights for the next few weeks just to make up for how much CO2 they have helped release into the atmosphere.

Nothing quite  makes as powerful statement about global warming than flying people all over the globe. Well done Kev07, may your jet’s vapour trail be a sign to all the climate change “deniers” that you mean business!

The Copenhagen Circus will result in one of those vague statements where everyone will agree to say how serious a risk climate change is but will be light on details. In typical United Nations fashion the Copenhagen climate change conference will be a massive talkfest, cost a fortune, provide good photo opportunities for world leaders but will fail to solve problems.

Australia’s great idea of burying CO2 underground (and hoping it goes away) also seems to be on the nose. The Copenhagen crowd are not that keen on Carbon sequestration and I don’t blame them. It is unproven technology and is akin to sweeping dirt under the doormat.

Finally let me just say that you know you live in interesting times when a man who has done nothing significant to make the world more peaceful wins a peace price. If President Obama can win the Nobel Peace Prize while ramping up a war in Afghanistan then it is not beyond belief that our own Wayne “the inflation genie killer” Swan could get the nod for the prize in economics next year.

Go for it Wayne, bring home the prize for Australia! You have done just as little for the economy as Obama has done for world peace, so by that measure you are a winner!


5 responses so far ↓

  • 1 Greg Atkinson // Dec 22, 2009 at 8:56 pm

    It seems the masses gathered in Copenhagen actually achieved even less than I thought. This article: Rudd leaves Denmark with a rotten deal is well worth reading.

    What a total mess!

  • 2 Greg Atkinson // Dec 30, 2009 at 2:06 pm

    Steve Fielding is right…if the planet is really warming up we need to invest in R&D, not slap a tax on everyone!

  • 3 Senator13 // Jan 1, 2010 at 11:59 am

    Very interesting clip Greg.

    From memory that clip was about 2 or 3 days before the end of the Copenhagen climate debacle. If you notice that at that point in time all of the journalists were so full of praise for the climate conference and could not speak highly enough of it. It was such a grand event for all 40,000+ attendants and they continued to use terms such as “sceptics” and “deniers”.

    Skip ahead a few days and notice how fast they were all back pedalling when it became apparent just how much of a mess the conference really was. There was no agreement on anything. The stunt fell flat on its face. Journalists and leaders could not wash their hands of it fast enough. Kevin Rudd did not even bother trying to explain what happened to the Australian people. Instead he rolled out Penny Wong and her quote “We will do no more, but no less then what the rest of the world is doing.”

    How does that statement reconcile with the pre conference rhetoric? Before the conference, pushing through the ETS was imperative. Now, the Government has said we will do no more and no less then the rest of the world… Kevin Rudd can not now try and push this through the Senate a 3rd time. There is no justification. Not for the environment and not for the economy or business or because the rest of the world is united.

    Senator Fielding has been vindicated in his opposition to the CPRS Bill and is right that the only way for clean/renewable energy to become mainstream in Australia is through R&D. Technology and innovation are what are going to give us clean and sustainable energy. Not a tax or a stock exchange. This technology must include nuclear. If anybody is truly serious about wanting a clean source of power – nuclear has to be at least be considered.

  • 4 Greg Atkinson // Jan 1, 2010 at 8:13 pm

    Senator I think you have summed up the ETS and COP15 debacle pretty well. Isn’t it amazing how they tried to block Fielding even getting into the conference? So in effect there is no debate about the science behind climate change.

    There is a view about AGW put forward by the IPCC and that is the only view allowed. All those who do not fall into line will be ridiculed, called “deniers” etc. with most of the moronic media unable (or unwilling) to convey to the public all the facts.

    If a major corporation behaved in the same way they would be labeled as fascists and the COP15 meeting would be described as a non-democratic secretive plot to seize power.

    I wonder if the COP15 attendees even saw the irony in talking about reducing CO2 emissions while they were busy creating them?

    Finally as you know, I have be calling on Australian’s to embrace nuclear power for some time. Hopefully we might see an open debate issue on this as well sometime in the next decade!

  • 5 Senator13 // Jan 5, 2010 at 1:57 pm

    They may have tried to blocked Fielding from attending but what was Garrett’s excuse for not going? I did not see his name on any of the lists… I thought he was supposed to be the Environment minister? He might have been too busy back at home killing off the solar industry.

    The only deniers are the ones that are denying nuclear as a viable source of clean energy.

    I think it just goes to show that the ETS is a tax grab and not something that will help the environment.

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