Monday, October 4, 2010

Shipping update

Time for another update on shipping rates. The Harpex Index continues to rise, while the Baltic Index seems to be moving somewhere just below the middle of the wide range it has established in the past seven years. Neither index appears to be screaming inflation, nor does either point to anything like a double-dip recession.


Benjamin Cole said...

OT, but interesting, from Co-Star. Real estate stays in a depression.

"The retail investment market in LA remains depressed and opaque, according to CoStar. The recent upswing in retail sales volume has done nothing to restore investor confidence. The types of deals observed in today's market-distress, single-tenant, stand-alone-do not provide a complete picture of the investment market. One of the difficulties in assessing the market has been the near absence of large- and mid-sized multi-tenant transactions involving a willing buyer and willing seller. One such sale in August, however, has shed some light on market conditions. Cole Credit Trust acquired the 680k SF Whittwood Town Center for $83.5M ($123/SF), at a cap rate of 6.5%, CoStar reports. In this particular trade, the pricing was about 14% lower on a per SF basis and the cap rate about 30 bps higher than the last time it sold in late 2006. This isolated transaction, while not representative of the entire market on its own, can at least offer a glimpse into investor sentiment in Q3."

A related chart showed Los Angeles area retail space prices falling from $250 a sf in January to $200 an sf in August, a 20 percent decline.

No deflation, anyone? No Japan?

Sheesh, I would rather live through an inflationary boom, than a deflationary recession.

This is ugly.

Public Library said...

"A related chart showed Los Angeles area retail space prices falling from $250 a sf in January to $200 an sf in August, a 20 percent decline.

No deflation, anyone? No Japan?"

So you're telling us that after an artificially induced paper money binge like the world has never seen, 20% down in CRE is just something America can no longer withstand?

And therefore we must look to our Government, well actually the Federal Reserve is a quasi entity that can outlast the US government, but I digress, to save the day with more printed money, principal write downs, and interest forgiveness!

Is this what America has become? A bunch of wimps looking to socialize their selfishly earned losses? There should have been far more blood on the street in 2008/09.

However, eventually there will come a time when the markets purges the weak once and for all and we rebuild.

Benjamin Cole said...


I may be a wimp, but that is irrelevant to wanting to avoid the Japan scenario.

Even a rough-and-tough he-man should want not want to emulate Japan.

Ironically, those who want monetary bullishness at the Fed (such as me) see it as a perfect foil to federal deficits--in other words, it is the Fed that should responsibly stimulate the economy, not Congress. I prefer balanced budgets, both nationally, and in the amount of federal spending and taxation by state.

As usual, I will defer to Milton Friedman. He called for low and steady inflation, but not deflation or no inflation. He recognized that the CPI overstated inflation. He was against the gold standard.

If an economy has too-low inflation, or deflation, and interest rates are at zero, Friedman called for quantitative easing.

I have yet to come across a case in which Friedman was wrong.

Scott Grannis said...

In its broadest sense, deflation can be defined as the appreciation of a currency relative to a large basket of assets, goods and services. This happens when the currency becomes scarce relative to other asset classes and relative to goods and services.

With the dollar quite weak by any standard, especially relative to gold, other currencies, and commodities, it is difficult, to say the least, to argue that dollars are in scarce supply.

Weakness in commercial real estate is simply a reflection of a surplus of CRE relative to demand. That is a relative price phenomenon, not a symptom of deflation.

Public Library said...

It all depends on what you consider inflation, deflation, and disinflation.

There is no divinity in a target of 2%. This will almost certainly bare out over time. How much QE to apply when you are are off .5%, .1%, 1%?

Implying 9 men can appropriately set and reset the table just right is the biggest fallacy of all.

Public Library said...

100% agree with Scott.

Benjamin Cole said...


I accept your commentary, but on the other hand, Japan's long decline in property and equity prices seems at least strongly related to deflation.

Japan has had many deflationary bouts in last 20 years, and is currently in their 17th straight month of deflation.

In the US, aggregate demand is weak, a sign dollars are in scarce supply--scarce enough on what matters, and that is real economic demand. Gold prices, commodities prices and exchange rates matter little if your economy is sagging and deflation is knocking at the door.

If commercial real estate is sinking in value for years at a stretch, I think we need to think about monetary stimulus, not what global commodities prices might be telling us.

If you read through Dudley's piece (requiring several stiff cups of coffee or booze, depending on your druthers) he also mentions the need to deleverage (think real estate), and how hard it is to deleverage in low inflation or deflation.

Global demand is pulling up commodities. China and India are booming, and both have accommodative monetary regimes.

However, I wonder if commodities are essentially in the reflation section of the recovery, and that commodities inflation beyond this point will be muted. We are just back to where we were a few years back, in terms of commodities prices. Now, demand restaints start to kick in.

I suspect we see little commodities price rises from here, and continued softening of real estate in the United States. The equities market is hard to figure.

A case of monetary guts at the Fed could change the whole outlook to very positive.

Scott Grannis said...

Once again, let me emphasize that Japan's deflation was accompanied by all the symptoms one would expect to see in a deflation: a very strong currency, falling gold prices, falling commodity prices, and very slow growth in monetary base and bank reserves. The US monetary environment, in contrast, is almost the exact opposite in every respect. There is no comparison between the US and Japan that is valid, other than the fact that the US had a housing and construction "bubble" that is in the process of being worked out.

Charles said...

Japan has huge, unresolvable structural issues that result in deflation. Deflation is a symptom and not a disease. Tell me, what is real estate worth in an island undergoing demographic collapse that is hostile to immigration - less and less each year. The same for most forms of fixed investment.

Scott Grannis said...

Charles is right to bring up the subject of Japan's demographics. The world has no experience with a declining population in an advanced economy. Too many people overlook the ramifications of this.