Wednesday, 22 December 2010

Global trade is brisk?

The Baltic Dry is a composite index of shipping rates for various bulk goods. When global trade is brisk, the cost of transporting goods (as reflected in this index) is high, and conversely when trade is quiet the index is low. Looking at the chart of $BDI today, below, we can clearly see that global trade is still very much on the ropes since 2008.

You can also look at a chart of many commodities today and see there are high spot prices pretty much across the board. This is something of a divergence, and to me it suggests the high commodity prices are only high due to speculators bidding up paper prices for commodities, with a view towards the upcoming high inflation that they see as a result of rampant currency issuance by the world's Central Banks (most notably the US Fed, but by no means exclusively).

The actual physical demand for the commodities, according to the $BDI, just does not seem to be there. This ought to be implying commodity price deflation, rather than inflation.

10 comments:

DP said...

Perhaps a good pair trade just now might be short commodity prices ($CRB) and long shipping rates ($BDI).

Surely, either global trade does recover and shipping rates rise, or commodity prices should eventually meet their destiny with reality and fall.

Dave Narby said...

Can you buy the BDI? I guess if you can buy the VIX, why not... : p

But to the larger point: This is eventually going to come down to actual physical stuff exchanging hands, and when it does, it ain't gonna be pretty for those who bet the wrong way...

DP said...

Hi Dave

You might need to go via a proxy, in the case of $BDI that perhaps could be NYSE:DRYS? (However, I of course draw everyone's attention to the Disclaimer at the bottom of the page... :-> )

Fauvi said...

"World Bank head reaffirms gold as "reference point" to monetary system reform
Wednesday December 22, 2010 14:30:43 EST
PARIS, Dec 22, 2010 (Xinhua via COMTEX News Network) --

World Bank President Robert Zoellick reaffirmed his proposal to use gold as a "reference point" to reform the current international monetary system on Wednesday in Paris.

"What I suggested is that gold serves as a key reference point to allow people to assess the relations between different currencies," Zoellick told the press here at the end of his meeting with French President Nicolas Sarkozy in the Elysee Palace.

"It's an approach that we can take, others also estimate that we can establish a benchmark against prices of principal commodities," the World Bank president said in response to a journalist's question.

"I didn't propose a gold standard, which is an important distinction because it would directly link currency to gold," said Zoellick, denying reports that he had called for a return to the " gold standard" to modify the present monetary system, which he called "Bretton Woods II."

"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," Zoellick wrote in an article published in Monday's Financial Times."
http://www.quote.com
/news/story.action?id=XIN356h3428

No major newspapers reporting this.
Happy Christmas, Monsieur le baron!

DP said...

Hi Fauvi, hoop ik dat u goed bent?

Yes, that is a very interesting news item out of Xinhua -- thanks for sharing it with us! :-)

It is, as you rightly point out, interesting to note that this isn't [so far, at least?] all over the Western press. Perhaps last time it was acceptable for use as a pooh-pooh of the idea for a classic "gold standard" that many took him to mean, but perhaps now he has clarified that isn't at all what he meant, suddenly it doesn't suit the purposes of TPTB to present his thoughts any longer(?)

Wensend u een goede vakanties. ;-)

DP said...

Spooky coincidence that this very topic should show up on the BIIWII blog today. I thought it was worth mentioning.

http://biiwii.blogspot.com/2011/01/baltic-dry.html

DP said...

I don't follow ZeroHedge, but apparently Tyler Durden is all over this theme lately too. I found that out this morning only by reading this article by Bruce Krasting.

DP said...

And now I just received an alert from PrudentSquirrel's Chris Laird, again on this exact same theme. He is calling for commodities (perhaps excepting gold) to crash.

Interesting there is suddenly such interest in this theme at the start of this year. Perhaps there is something in the water, drawing us all to the BDI lately...

DP said...

Spooky coincidence that this very topic should show up on the BIIWII blog today. I thought it was worth mentioning.

http://biiwii.blogspot.com/2011/01/baltic-dry.html

Dave Narby said...

Can you buy the BDI? I guess if you can buy the VIX, why not... : p

But to the larger point: This is eventually going to come down to actual physical stuff exchanging hands, and when it does, it ain't gonna be pretty for those who bet the wrong way...

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