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Los Angeles Finance Examiner: One Economic Indicator Worth Tracking

Economists and Traders will find that most market indicators relying on forecasts are worthless in our present environment. Unemployment, inflation, consumer confidence, GDP… the data of traditional economic indicators are lagging.

One of many flaws is that the information is aged by weeks, sometimes even months, by the time reporting is done.

A better gauge used to monitor Global Markets is the Baltic Dry Index (BDI). The BDI is involved with the cost of shipping major raw materials and tracks brokered price quotes for moving goods from around the world.

A move up on the index means global trade is increasing and vice versa. Global economic activity ultimately influences the equity markets so heavy moves in the BDI often predict and precede like moves in the equity markets.

economic principles of supply and demand…

1.)The supply of cargo ships is limited. It takes years to build a new cargo ship and the high costs prohibit docking during periodic downturns.

2.) The index tracks the cost of shipping raw materials instead of intermediate or finished goods thus providing a precise measurement on the volume of global trade at its earliest stages.

3.) The number of ships in operation is not affected by changes in cargo rates…so even the slightest variance in demand results in changes to the index.

Plus

• BDI is a real index and devoid of speculation as the index is not tradable.
• BDI is the only indicator with “real-time” updates…thus increasing its value.
  
• BDI is measured in a way that makes manipulation almost impossible.
  
• Reliable Data… BDI is not revised on a monthly or quarterly basis.
  

If you’re looking for clear indication of a market bottom keep an eye on the BDI for a reversing trend.

*The following is to be taken as market commentary and general observation. It is in no way to be taken as advice or personal recommendation.

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LA Personal Finance Examiner: Commercial Real Estate…the next bust?

In the last year we have bore witness to economic corrections resulting in the folding of a housing market, a credit lockup, a failing financial sector, a recent oil pop, insurance and rating agency scandals, forced redemptions, unseen VIX levels…..etc. etc. etc.

In light of the Holiday season it seems newest data being watched is that of the retail sector . With knowingly weak, and worsening, consumer spending numbers one would expectedly be led to question the stability of an already weakening Commercial Real Estate Market.

With dropping sales, and corporate restructuring, many stores, restaurants, cafes, etc. are closing up shop.  This has already been seen on a wide scale, be it from the cafe downsizing announcement by Star-bucks or the bankruptcy filings from such large lot stores as Linens ‘n’ Things.

The instability of Commercial Real Estate has already begun its downtrend as commercial vacancies rise dramatically leaving some regions with vacancy rates of 15-20%.

A main danger inherent in Commercial Real Estate is that closing businesses are sometimes  “Anchor” stores; those who are a main pulse and attraction of an individual center. Thus the closing of a store in some cases will seal the fate for an entire shopping complex.

It is also common for newer retailers to have ‘anchor’ clauses built into the lease stating that if a designated ‘anchor’ store closes then they may choose to terminate their lease as well. This can be an expected multiplier to the down-trending market as it compounds the speed at which retailers vacate the complex

The National Association of Realtors official CROE report is summarized by saying: “The fundamentals in commercial real estate are feeling the stress of a slowing economy and troubled credit markets. Job growth, particularly in office-using industries, has been declining. Vacancy rates are expected to rise in all sectors due to decreased demand. The financial decline is squeezing credit availability for commercial projects. As a result, transaction activity is down over 50 percent compared with last year.”

Chart Source:globaleconomicanalysis.blogspot.com

Disclosure: Frequent positions in SRS, URE, IGR

*The following is to be taken as market commentary and general observation. It is in no way to be taken as advice or personal recommendation.

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Whether discussing corporate greed, rampant government spending, rising unemployment, regulatory systems, or any of the other recent headlining debates it all leads to the divided discussion on today’s resulting Government involvement.

…are they doing to much?….to little?

…should they stay out of the way and let the markets correct themselves or quit with the side stepping politics and take real action before further irreparable damage is done?

etc. etc. etc.

These days the debates are endless.

The most recent discussions to fill our airwaves and coffee shops is that of the new administrations handling of our global economic collapse and the unprecedented actions  in spending, control, and involvement they have taken.

Stimulus or Bailout?…Perception is Everything

…presented below are illustrations of opposing views on the recent rise in Gov.’t spending

Stimulus: Illustration of Economic Impact.

Bailout: Illustration of  Individual Cost. (data uses family of 2 making 65k annually)

…whether you view these actions from the side of cost or product (implied impact); the money has been allocated, and will be spent. We can now only monitor and examine the ‘Bang for our Buck’ and look forward with the hope that our monetary sacrifice will serve its intended purpose.

image sources: recovery.org ,  right.org