Sunday, August 16, 2009

The Recovery? Or The Latest Bubble?

Dear Readers,

When almost everyone is sure about the state of economy world over getting better and many waiting for the good old days of 'sky is the limit' culture, there are signs of worry again.

First of all I must clear it once again that all these fundamental details are not for short to medium term traders as markets are NOT driven by news or events. This post is only a way to express my feelings and thoughts on the way things are shaping in broader economic scene.

October, 2008 was the month when we witnessed bears taking control of almost everything from stocks to commodities to BDI. BDI (Baltic Dry Index) which is a meassure of shipping costs for dry bulk commodities plunged more than 90% then. BDI is a barometer of how well goods are moving around world signalling demand (or lack thereof) for commodities.
Please look at the following log chart of BDI from :

Please note that the RED trend line is my drawing. When this line broke down in October 2008, it was necessary to have a retest of this line. So we got this recent rally till June 2009. The catalyst required for this up move was not real recovery but the Chinese madness! Yes, the Chinese went on a buying binge courtesy that $587 billion stimulous package. They started importing commodities like there will be no tomorrow and that too despite having their factories being shut down as exports kept falling! This is one great example of how central banks and govt intervention creates non-sense in markets. There was no other use of that forced money and speculators had no choice but to push that money into commodities.

Remember last year's drama of oil going to $147 ? If you recall I had posted about "Oil Vessels just lying idle in high seas paying as high as USD 175,000 per day as charges". We all know what happened after that. When madness reaches its peak we witness some of the funniest things. History reapeats itself? it may not but may do enough to make you feel nostalgic! and this time its yet another nostalgia.

The index plunged once again by as much as 35% so far from June highs indicating the madness may soon be over. The recovery? my foot.

No comments:

Post a Comment

If you have arrived here from a search result, please click here to see main page where you will find the latest post