We Flew Into Singapore's Changi Airport, Here's What We Saw

Very often, a picture speaks a thousand words. This being a journal of finance and business, there are a lexicon of words to speak and sometimes that makes it difficult to encapsulate the gist into a single picture. 

We flew into Singapore's Changi Airport this week after a business trip to meet one of our clients. During the trip, we wrote a note about how the Fed might be tripping over itself by guiding market expectations for a rate hike in 2H15. Sure enough, Janet Yellen's semi-annual congressional testimony which began Tuesday saw the Fed chief taming market expectations for a rate hike - the FOMC isn't going to raise the Fed Funds Rate in the next few policy meetings. We were surpised that the dollar did not see broader weakness following Yellen's confession of future Fed policy.


To wit, from our previous note

We will let our readers judge for themselves if growth is on an upwards or downwards trend in another short note which we will publish later on. However, without commenting much, we will go out on a limb by saying we feel the many economies will start stagnating absent monetary stimuli. Central bankers have realized this and have therefore acted on it. There is little to lie about, and even less to cover up; the face speak for themselves. We said in our last note on Daily Grail that US macro data has disappointed broadly relative to expectations since December last year, and that the FOMC might be tripping over rather unknowingly. We sense something amiss, but more on this topic in a separate piece.

The implications, if the Fed blinks by admitting it has guided expectations too hawkishly too quickly, that will be the final nail in the coffin. In our minds, the only major sticking point preventing capital from rushing into so called "hedges" against monetary inflation remains the Fed's guidance to hike rates in 2H15. This is an important note.


The concern is two-fold. Inflation and inflation expectations; economic activity and growth. We'll leave readers with one picture and one chart to accompany.

We flew into Singapore's Changi Airport, one of the busiest airports in the world, and here's what we saw: Possibly close to a hundred commercial ships anchored idling a few kilometers off the East Coast of Singapore. Singapore has one of the world's busiest shipping ports which handles hundreds of billions in trade dollars annually. The ships, as we observed, consisted of bulk carriers and cargo ships for the majority, car ferries, oil and LNG tankers. Many of those ships were small to medium sized vessels but there were also super-sized ones further out. The build up in ships anchored offshore and sitting idling is almost unprecedented in our more than 2 decades living in the city state. We fly frequently and have never seen anything quite like this, not even during the Great Recession of 2007-2009. This observation only means one thing - under utilization of trading capacity. This is a demand problem; trade volumes have been dwindling while the supply of trading facilities (ships and ports) remain more or less constant. Trade is the lifeblood of the global economy, the lubricant that oils the gears of the colossus. When trde volumes decline and manifest as starkly as in this picture, it is telling the markets and policy markets to take heed.

We flew into Singapore's Changi Airport, one of the busiest airports in the world, and here's what we saw: Possibly close to a hundred commercial ships anchored idling a few kilometers off the East Coast of Singapore. Singapore has one of the world's busiest shipping ports which handles hundreds of billions in trade dollars annually.

The ships, as we observed, consisted of bulk carriers and cargo ships for the majority, car ferries, oil and LNG tankers. Many of those ships were small to medium sized vessels but there were also super-sized ones further out.

The build up in ships anchored offshore and sitting idling is almost unprecedented in our more than 2 decades living in the city state. We fly frequently and have never seen anything quite like this, not even during the Great Recession of 2007-2009.

This observation only means one thing - under utilization of trading capacity. This is a demand problem; trade volumes have been dwindling while the supply of trading facilities (ships and ports) remain more or less constant. Trade is the lifeblood of the global economy, the lubricant that oils the gears of the colossus. When trde volumes decline and manifest as starkly as in this picture, it is telling the markets and policy markets to take heed.

The essence is that trade volumes have dwindled to a pathetic level, a level that isn't commensurate with what the ebullient price actions of various financial assets imply. So you decide, which is which. Position yourselves accordingly. 

The Baltic Dry Index (BDI) is a lesser known measure of trade activity; and it is not painting a pretty picture.  Wikipedia defines the BDI as: A number (in USD) issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain. The index has fallen to levels not seen since 1985 - this slump in prices reflects just how much underutilization there has been in the shipping industry. It is therefore cheaper for many companies to leave their ships anchored off major ports across the globe then to have them sailing trade routes carrying a minuscule amount of cargo. Of course, the fall in energy prices has contributed somewhat to this, but it is mostly a demand issue. Global trade is dwindling.

The Baltic Dry Index (BDI) is a lesser known measure of trade activity; and it is not painting a pretty picture. 

Wikipedia defines the BDI as: A number (in USD) issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain.

The index has fallen to levels not seen since 1985 - this slump in prices reflects just how much underutilization there has been in the shipping industry. It is therefore cheaper for many companies to leave their ships anchored off major ports across the globe then to have them sailing trade routes carrying a minuscule amount of cargo. Of course, the fall in energy prices has contributed somewhat to this, but it is mostly a demand issue. Global trade is dwindling.