Monday, August 10, 2009

Stimulus wearing off....(China that is).

A great indicator of future markets as well as production comes from the Baltic Dry Index (BDI) which is considered a leading economic indicator. The BDI basically helps track shipping most notably raw materials that go into production of goods. As the BDI goes up that means more companies are making more products due to an increased demand. If it goes down that means production is slowing.

The BDI grew steadily from 2nd Qtr. 2002 to 2nd Qtr 2008 when the economy tanked. It reached a low 4th Qtr 2008 not seen in over a decade. At this time stimulus money, most notably from the Chinese government began to take hold. The Chinese pumped money directly into infrastructure projects (over 60%) versus the US pumping it into pork projects with no production value. This caused a demand for raw materials (thus increase in production) over the last few months with the BDI rising to 2006-2007 levels. Here comes the catch.....once the stimulus was burned through the hope was the economies around the world would have picked up....they haven't. The BDI has slid some 35% since it's high in June and appears to continue this loss.

Here is what worries me...China is the largest holder of US debt. If things get tough for China, who do you think they are going to want money from?...the countries that owe them. If Congress and the President continue to try to bury us in debt, we will either have to default or pay up....since we are already $11.6 trillion dollars in exactly are we going to do that? The legislative and executive branches are dooming us to economic collapse.

Is anyone awake out there?

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