donderdag 26 januari 2012

Baltic Dry VS Copper

The last few weeks we see that the Baltic Dry Index has been dropping while copper prices surge. How can this be?

Is the economy slowing down as evidenced by the falling BDI, or is the economy growing as evidenced by the rising copper prices. Nobody really knows. My take on this is that the economy actually is growing, on phony money that is (or you can equally say the money supply is increasing).

What is happening to the BDI though, is a consequence of the massive creation of ships during the period of 2005-2008.

Baltic Dry
BDI VS Copper

While the BDI may keep falling, the copper price is steadily going up, together with the S&P. The chart below shows the high correlation between copper prices and the S&P.

copper correlation
S&P VS Copper

Another evidence of the improving economy can be seen in the BullandBearwise index, which measures the performance of key macro-economic metrics (capacity utilization, unemployment, CPI, PPI, yields, etc...). This index is still in an uptrend:
bullbearwiseindex
BullandBearWise Index
So frankly, I don't see a crash coming soon, even if the BDI keeps dropping. Because this is a disparity created by an oversupply of ships.

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