Recently, Bill Holter, a contributor to The Lemetropolecafe  pointed out an interesting relationship between two major economic indicators and the quiet desperation that is propping up the world financial system.
The Baltic Dry Index or BDI provides a daily assessment of the cost of shipping key raw commodities by sea and is issued by London’s Baltic Exchange. The index covers 23 shipping routes for dry bulk carriers on a timecharter basis. These large ships move various commodities, such as coal, grain and iron ore, around the world.
Since its introduction in 1985, the Baltic Dry Index attained a high of 11,793 in May of 2008, before dramatically losing most of its value to hit a low of 663 by December of that same year. At the time, this was the lowest level seen for the BDI since 1986.
The shipping index then rebounded to 4,661 by November of 2009, before dropping more gradually to hit yet another significant low at the 647 level in February of this year. This recent decline in the BDI was attributed to an excess of dry bulk carriers combined with reduced demand for iron and coal.
The Baltic Dry Index as a Leading Indicator
Many economists consider the Baltic Dry Index a leading economic indicator, and the current historically low levels of the Baltic Dry Index signal deflationary pressures and a slowing economy. Also, this number cannot easily be manipulated since it arises from so many disparate sources.
Furthermore, the notable lack of demand for shipping puts the industry in serious trouble. For example, it was recently reported that at least one shipper was offering a client $2,000 per day toward their fuel costs to ship their goods.
Apparently, this was done to keep the ship heading toward its next destination and to help offset the fuel costs involved in moving it there, but it illustrates just how much the global shipping business has slowed down.
Negative Real Interest Rates Make Paper Money Unattractive
Another factor behind the ongoing investment interest in precious metals like silver and gold is the absurdity of continuing to hold paper money in a negative real interest rate environment.
Since the current rate of inflation exceeds what you can earn on cash deposits and Treasury bonds, this makes saving paper money a losing game.
Basically, cash depositors are offering the banks and bond investors are offering the U.S. Treasury a yield to hold their money — even though they will get less of it back since its spending power will have eroded by the time the financial instruments mature.
Stocks, Fuels and Precious Metals Supported by Negative Real Rates
A negative real interest rate environment tends to put more upside pressure on stocks, which tend to act as a barometer for consumer confidence. Such circumstances also usually boost the prices of key commodities like fuels and precious metals.
One way or another, the monetary authorities will resort to printing more money or other forms of easing to prop the economy up, since more paper money will be needed to keep it going as long as consumers have confidence in the purchasing power of currency. This is one factor that fuels investment demand for the major commodities and keeps the bids firmly supporting the silver market.
Furthermore, the market for physical silver appears overdue for a rally as industrial demand continues to eat away at the very small available above-ground supply, while investment demand continues to speed up.
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