Just over a month ago, I was musing that the Baltic Dry Index (BDI) was showing a very different path than the commodities lately. My thinking was that the BDI (a measure of shipping rates for dry bulk goods) was indicating global economic seizure, while the CRB commodities index was indicating there was a robust global economic recovery -- and one of these had to be telling us the wrong thing. I felt that the commodities were only strong based on speculation, not on physical demand (witnessed by the low demand for global shipping as indicated by the falling BDI.) So, my theoretical trade (not that anyone should ever trade anything on my recommendation! Check out the Disclaimer at the bottom of the page...) was to go long BDI and short CRB. The mismatch between these two surely had to be reconciled before long. Bet on a fall in speculative fever, with a hedge on a recovery of shipping for physical goods if there is indeed a real recovery in play. I was expecting to see the CRB fall, but if it didn't then in time the BDI had to rise.
Well, imagine my surprise to see today when I look into the data again and find that, yes, the CRB is down a smidgen -- but the BDI is down even more! So the picture is now at least starting to show reality (there is a global depression on, not a recovery). But going long the BDI certainly wouldn't have made you any money, nor in fact going short the CRB if you had done so less recently than the last few days, unfortunately. I didn't set a time limit on how long it might take to play out, and if you give it some more time I'm sure we'll see the CRB can fall further than the BDI. But a big rise in the BDI seems like it's a distant dream for now. It just goes to show that Greenspan was totally correct — the market can remain irrational longer than we can stay solvent!