A Peak Under The Hood will be dedicated to providing unique insights into macro topics happening around the world and how these topics may affect financial markets. We will try to provide an entertaining, but informative blog, on subjects ranging from Real Estate, Mortgage Markets, Commodities, Major Stock Indexes, Bonds, and Select Trading Ideas. Our site will contain original posts, charts and also include opinions from outside investors and reporters who furnish original thoughts. We will attempt to dig deeper than what can be found on major network financial news outlets and it is our hope that you will continue to visit the site as we provide intelligent analysis that may be counter intuitive to mainstream ideas.

Tuesday, February 1, 2011

Does Anyone Give a Ship?

In the new world of cheap (consumers that is) there are some businesses that just don’t (and won’t) make it.  Blockbuster was a prime example.  They cost too much, they had a crappy attitude about fees and they didn’t evolve when the trends changed.  Instead, Blockbuster tried a bunch of the same that worked in the 90’s, but stopped working in the last 10 years… and it failed.  If you think that Blockbuster Video was an anomaly, you are wrong.  The trends of consumers are changing fast… and this does not bode well for companies that change an arm and a leg for something you can download for free.
Goods—handbags, stereos, Blu-Ray Players, baby strollers, refrigerators… ect, all come across the world in different ways.  While a former criminal may smuggle a duct taped zip-lock bag of cocaine in his anus, the majority of goods are sent our way in ships.  This is because a) Shipping is cheaper than flying, b) You can fit a ton of stuff on a ship, and finally c) The US doesn’t make anything anymore so it has to be shipped from China (or India, Bangladesh, Vietnam….).  While there are risks in using your anus to smuggle Columbian Marching Powder, there is minimal risk is shipping… unless of course you own the ships and no one is shipping any goods.
Lets say you make toothbrushes by the gazillions.  You make very clever toothbrushes that look like members of the band U2—The goal of the toothbrush is to use it until Bono shuts the hell up.  This process takes about two minutes, from the time you cover Bono’s head with Aquafresh to the time you are rubbing his face against your lower bicuspids.  The joy you get when he shuts up in the middle of ‘Sunday Bloody Sunday,’ is euphoric!  In other words, you have a great product.
You make these ditties in China and then ship them all across the world.  In 2008 you were sweating it pretty hard as the cost of shipping skyrocketed… but subsequently tumbled  90%.  Due to this you were able to bring back Hyper-Color shirts… Same idea of course—when you touch Bono’s face his eyes turn red… clever really. 

Looking the Baltic Dry Index (BDI),  it is hard to ascertain if the index is speaking to us and giving any indication of future economic movements.  On one side of the coin, the big red machine that is China may be unable to fill freight as Western nations are turning their heads at the 30-50% price jumps for Sponge Bob themed kid’s pajamas and spring themed athletic wear.  Could this be a sign of China’s loose monetary policy finally melting down in a warm bath of lava like inflation? 
On the other side of the coin, there are a large amount of ships that have been built over the last few years and this leads to a basic supply and demand argument.  Australia’s floods have also contributed to the flood of shipping carriers failing to carry anything that can be shipped on ships. 
The BDI has been a pesky index over the last few years, but the recent surge in commodity costs and the subsequent steep drop in this index (when you would think it should be rising) has to make you wonder what is really brewing at sea—is it an economic storm that will catch everyone off guard, or is it the calm before the inflation storm that is coming to a mall near you?
Either way, make sure you have your lifejackets on—White Squall of inflation or global economic iceberg—you are going to get wet when the ship goes down. 

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