Last week I took a look at the Baltic Dry Index as a possible barometer of global growth. Clearly, shipping has picked up, but let’s keep things in perspective. The index is still down 87% from its peak. In the last two days the Baltic Dry Index has surged over 30% and 125% from its bottom as shipping rates soar and demand increases. Just 4 weeks ago shipping rates had hit zero as record numbers of ships were docked.
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The shipping industry appears to be normalizing a bit, however, I do not like the parabolic surge in pricing. There was clearly an abnormal drop-off in Q4 shipping which led to too few ships and pent up demand. The result is the recent price surge. Too often, such price surges during bear markets are signs of false hope. This is classic bear market mentality. After the worst January in the history of the S&P 500 there is a bullish feel in the air. I believe China will lead us out of this recession, but I’d prefer not to see the market get ahead of itself.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.