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Shipping activity continues to be strong





I've showed these charts many times over the past year. Early in 2009 I thought the bounce in the Baltic Dry Index (a measure of shipping costs for bulk commodities in the Pacific region) was a good sign that the global economy was coming out of its 2008 slump. The Harpex Index (a measure of shipping costs for containers in the Atlantic) was a laggard, however, until just a few months ago, but it is now surging. With both indicators up significantly on the margin, it would appear that global economic activity is broadening and strengthening, and this provides a welcome counterpoint to the financial panic that is gripping Europe. Strong growth fundamentals provide an excellent source of fundamental support for European debt restructuring should it occur.

And while on the subject of European debt, here are some facts to help keep things in perspective. As my friend Mike Churchill notes, the combined GDPs of Greece, Ireland and Portugal total about 1% of global GDP, which is roughly $60 trillion. I note that Greece's sovereign debt of roughly $400 billion is about 1% of the global bond market, which is approaching $40 trillion. We're not talking about a lot of money here, even if Greek debt suffers a significant haircut in a restructuring. The main issue is whether debt-related losses are too much for the balance sheets of Europe's major banks to absorb. The rise in euro swap spreads that I highlighted yesterday confirms that this is the market's major source of concern; 2-year euro swap spreads closed at just under 80 bps today, and that is a sign of significant—but not yet fatal—concern over the counterparty risk inherent in the European banking system.

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