Friday, April 3, 2009

Baltic Dry - Reloaded: Short China - Short Commodities.

Baltic Dry Index for 2009.
Source: Bloomberg.

Around a month back, I had posted an article about how the Baltic Dry Index can be good source of tracking global growth.
Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets.

Till last month, the Baltic Dry Index has been viciously moving upwards due to great demand in Dry bulk commodities in China. China is the only growth story for such a rise in Dry Baltic Index. But now, it seems that it China demand has been subsided and Dry Baltic has started its downward trend. Its down 35% from it peak in early March.

This is a very concerning issue and implies that China growth will degrade. That will also put a downward pressure on commodity prices like Copper and Oil which have also gone up around 40%.

As said in earlier blogs, US has only one way to get out of this mess and that is via printing money which will add-in to inflation and debasing of Dollar.

So for the short term, there should be a pull back in Copper and Oil prices due to reduced demand for commodities in China. But the debasing and higher inflation will again start the upward trend in commodities. Get ready for the pull back!!

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